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LMSB Update • Service Issues OIC Administrative Guidelines
Editor:
Editor's note: Mr. Ely is the former chair of the AICPA Relations with the IRS Committee. Messrs. Dougherty and Taylor are members of the IRS Practice and Procedures Committee.
In 2000, as part of its modernization effort, the IRS reorganized the Large and Mid-Size Business Division (LMSB) along industry lines. It intended to improve taxpayer customer service by grouping revenue agents (RAs) by industry “expertise.” While the Service's new approach has been partially successful, it needed further modification to achieve its original objectives. Thus, starting in October 2002, the IRS reorganized the LMSB to have a geographic focus, while still maintaining much of the industry alignment.
Industry Focus Organization along industry lines encourages identification of common issues and helps the IRS develop guidance for use nationwide. Further, it promotes uniformity and consistency in how the Service treats taxpayers within the same industry. In 2000, the IRS arranged the LMSB into five industries:
Industry Directors (ID) lead each industry, supported by Directors of Field Operations, Senior Industry Advisers, Territory Managers, Team Managers and RAs. The RAs were assigned to a particular industry; attempts were made to delegate cases along those lines. Territory and Team managers were also allotted cases based on the same principle.
Obstacles The industry-alignment approach posed several problems. First, the Territory Manager assigned to a particular examination did not always work in the same city as the Team Manager, who, in turn, might have been in a city other than that of the RA. This was further exacerbated when Field Specialists were involved. As a result, high travel costs and inefficiency were incurred to manage and staff cases in a particular industry. Further, for any given case, Territory Managers had to supervise and coordinate IRS personnel from too many different locations. Another obstacle was the apparent inability of LMSB teams to work on priority cases in the division as a whole, rather than on an industry-by-industry basis. Ideally, the teams would want to tackle high-risk cases first. However, under the industry approach, low-risk cases had priority, when they were the only ones available in the locale that were also in the RAs' assigned industries. Some offices could have a substantial number of high-risk cases in a particular industry, but might not have anyone in that industry and geographic area to work on them. A third obstacle involved personnel matters; RAs within the same office could work for several different managers, triggering numerous problems. For example, each manager established his or her own personnel policies, resulting in inconsistencies and conflicts of interest. There was a declining sense of “team” within a post of duty (POD). Further, union representatives were delegated to particular geographic areas; thus, Territory Managers had to coordinate with multiple representatives on personnel issues, resulting in inefficiencies and difficulties.
New Approach The IRS recognized that it could be more efficient by reorganizing the LMSB along both industry and geographic lines. The new alignment can be described as having a geographic focus with many Industry Specialization Program issues. The field offices are primarily allied geographically, but IDs provide guidance on specific issues. Almost all of the current territories are affected by the change. Some teams and territories are now grouped into different industries depending on the need in a particular geographic region. In the past, 58 PODs touched on multiple industries. Now, only 16 do, while the other 42 PODs are aligned with only one industry. Under the new organization, IDs could have two roles depending on the nature of a case: “line authority" ID or “industry aligned” ID (or both). If an ID is responsible for managing a case, he or she would play the line-authority role. If, on the other hand, the ID controls the case's industry issue, he or she would be an industry-aligned ID. When the ID manages the case and the issues are within his or her industry, he or she would play both roles. IDs determine the proper level and/or type of engagement. The line-authority ID communicates to the team and all intermediate management levels, any decisions made on an engagement. If the industry-aligned ID becomes engaged by the team, he or she must have the line-authority ID's concurrence. To ensure consistency, the line-authority ID follows issued guidance and considers emerging issues of the industry-aligned ID, absent any compelling reason to the contrary. The line-authority ID has final decisionmaking authority. However, decisions can be appealed to the Division Commissioner or Assistant Division Commissioner, but only rarely.
Benefits of New Alignment The reorganization allows managers to make decisions faster, because they are located in close proximity to RAs working on the same case and can more easily respond to issues. Territory Managers and the teams should be able to work more closely at less cost. The new structure also facilitates assignment of the “next best case,” regardless of industry. Despite the change, the LMSB still has an industry emphasis, which ensures that issues are handled consistently and fairly throughout the country.
Conclusion Achieving a balance of efficiency and effectiveness is a difficult task for any organization; often, one is sacrificed for the other. However, in combining a geographic and an industry focus, the LMSB can achieve a fine balance of the two approaches. From Jim Dougherty, Director, and Rona Faust, Senior Manager, Tax Controversy, Deloitte & Touche LLP, Washington, DC
The IRS issued final regulations under Sec. 7122 that provide administrative guidance when considering an offer-in-compromise (OIC). An OIC is an agreement between the Service and a taxpayer to settle a liability for less than the amount due (i.e., the amount determined and assessed). Even though the final rules reflect the IRS’s regular practice of compromising on tax liabilities when their existence, amount or collectibility is in question, they also direct the Service to accept offers “to promote effective tax administration" based on economic hardship, equity or public policy.
Economic Hardship In defining “economic hardship,” the final regulations refer to Regs. Sec. 301.6343-1, which defines the term as a taxpayer’s inability to pay reasonable basic living expenses when age, employment status and history, and dependents are considered. In addition, an economic hardship might also include a taxpayer’s:
To reflect these changes, the IRS amended the examples in the temporary regulations, but emphasizes that the final regulations' examples are not exclusive and do not suggest that all of the facts in a given example have to be present for the Service to accept an OIC. Although Sec. 7122 does not explicitly exclude economic hardship as a basis for compromise for a business (i.e., nonindividual) taxpayer, Treasury and the IRS concluded that applying this standard to businesses would not promote effective tax administration. Thus, the final regulations do not allow businesses to use the economic-hardship standard. Note: This standard, as set forth in Regs. Sec. 301.6343-1, also applies only to individuals, not businesses.
Public Policy and Equity Under previous temporary regulations, the IRS could compromise to promote effective tax administration, even if no other basis for compromise was available. According to the final regulations, a taxpayer seeking a compromise on this basis must identify a compelling public policy or equity reason for doing so. The IRS can also extend this consideration to businesses. The IRS recognizes that the acceptance of offers on such grounds may result in differential treatment of taxpayers who can pay their full tax liability without hardship, and those who cannot. Thus, it will apply public policy and equity considerations to offers only in compelling circumstances. Even though the final regulations restate and clarify the types of cases that may qualify for an OIC under these reasons, such offers will probably be accepted only in rare cases.
“Acceptable” Offer Under the final regulations, the decision to accept or reject an OIC, and the conditions imposed on acceptance, are matters of IRS discretion. If the OIC is based on doubt as to collectabilty, the IRS will determine whether the taxpayer has the ability to pay the liability, based on his or her facts and circumstances. Treasury guidelines on national and local living expenses will be taken into account in determining capability. Sec. 7122(c)(3)(A) prohibits the IRS from rejecting an OIC from a low-income taxpayer based solely on the offer's amount. The final regulations expand this rule to all taxpayers, regardless of income level. No offer may be rejected based solely on its amount.
Administrative Review Offers that the IRS proposes to reject will be reviewed internally before rejection; taxpayers may appeal a rejected offer to the Office of Appeals. The final regulations note, however, that an unaccepted offer is not deemed rejected and, thus, is not subject to appeal, if the IRS returns it because the taxpayer submitted it solely to delay collection or failed to provide IRS-requested information to evaluate or process the offer properly.
Collection In updating the temporary regulation, the final regulations provide that the IRS cannot levy to collect a liability (1) while an OIC is pending, (2) for 30 days following rejection of an offer or (3) during any period that an appeal is being considered (if such appeal is instituted within 30 days following a rejection). From Frank Taylor, CPA, Senior Manager Tax, Howard, Wershbale & Company, Cleveland, OH |
