IRS National Issues Meeting Update

At the National CPA/IRS Issues meeting, held in Washington, DC, on Oct. 31, 2002, the IRS updated the AICPA on its programs. Eight senior IRS executives exchanged views with over 120 CPAs, including representatives from more than 30 state societies.

LMSB: Larry Langdon, Commissioner of the IRS’s Large and Mid-Size Business Division (LMSB), announced a new audit initiative, the Limited Issue Focus Exam, for large and midsize taxpayers. Langdon anticipates that the new program will become one of the most popular LMSB initiatives. The program will be available only to taxpayers who are generally cooperative. Under the new program, the IRS will start building an examination case before turning it over to a revenue agent; it will then inform a business taxpayer of the material issues under examination before the audit begins.

SBSE: The AICPA was informed by Joseph Kehoe, Commissioner of the Small Business/Self-Employed Division (SBSE), of the IRS’s goals to realign its audit resources to focus on key areas of small business noncompliance. The IRS has revamped its compliance programs to refocus on (1) offshore credit card users; (2) high-risk, high-income taxpayers; (3) abusive schemes and promoter investigations; (4) high-income nonfilers; (5) unreported income; and (6) the National Research Program. While pursuing these compliance areas, Kehoe also stated that the IRS will continue to maintain a presence in other audit areas to maintain core tax administration responsibilities.

W&I: Wage and Investment (W&I) Deputy Commissioner John Duder updated participants on that division’s priorities. W&I is committed to reducing taxpayer burden through an expansion of electronic filing, communications and other automated services. A significant new W&I initiative for Spring 2003 will permit businesses to complete Form SS-4, Application for Employer Identification Number, via a secure Internet connection.

Appeals: National Appeals Director David B. Robison described how the Office of Appeals’ (Appeals’) workload has changed dramatically in recent years; about one half of the division’s cases are now collections related. While over 30,000 new collection cases were filed with Appeals in the last year, Robison stressed that most involved pro se taxpayers. Further, many of these cases involve collection due-process matters and offers in compromise (OICs). Appeals is using numerous tools to reduce its case inventory (including fast-track mediation, arbitration and settlement initiatives).

Communications and Liaison: In discussing IRS Commissioner Charles Rossotti’s then-imminent retirement, Communications and Liaison Chief David R. Williams assured attendees that the programs implemented during Rossotti’s tenure will remain in place. Williams urged patience with the IRS as the agency continues to refine its reorganization. He suggested the Service will remain focused on receiving input from the AICPA and other key stakeholders on important issues affecting tax administration.

Criminal Investigation: According to Criminal Investigation Chief David B. Palmer, the IRS is shifting focus from narcotics cases to more traditional investigations (e.g., legal sources of income and abusive trust cases). Palmer’s office started about 3,900 investigations in fiscal 2002, and forwarded 2,100 cases to the Department of Justice for prosecution.

Taxpayer Advocate: National Taxpayer Advocate Nina Olson reviewed the IRS’s current strategy for processing “effective tax administration” OICs. In addition to the traditional OIC standards of doubt as to liability or collectibility, and as a result of the Internal Revenue Service Restructuring and Reform Act of 1998, the IRS is also required to take into account equity, hardship and public policy factors in promoting effective tax administration. Olson stated that the IRS intends to form an internal task force to review the cases filed under the effective tax administration category. The task force’s findings could lead to changes in the Internal Revenue Manual or even to new regulations.

Deputy Chief Counsel (Technical): Gary B. Wilcox, Deputy Chief Counsel (Technical), stated that the IRS intends to increase its published guidance, so that its personnel and the public can gain a better understanding of the government’s position on tax shelters, potential tax litigation and other administrative policies. Wilcox also stated that the Chief Counsel is studying how to improve the letter ruling program.

Next meeting: The AICPA expects to hold the next National CPA/IRS Issues meeting in early November 2003 in Washington, DC.