Tier I Audit Issues: Current IRS Priorities, Policies and Procedures - PowerPoint PPT Presentation

Presenting a live 110 ‐ minute webinar with interactive Q&A Tier I Audit Issues: Current IRS Priorities, Policies and Procedures Preparing for the Latest IRS Approach to Examination and Enforcement THURSDAY, JANUARY 13, 2011 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: George Hani Member Miller & Chevalier Washington D C George Hani, Member, Miller & Chevalier , Washington, D.C. Jean Pawlow, Partner, McDermott Will & Emery , Washington, D.C. Matthew Lerner, Partner, Steptoe & Johnson , Washington, D.C. For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at1-800-926-7926 ext. 10 .

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IRS Tier I Audit Issues: Current IRS P i Priorities, Policies and Procedures iti P li i d P d Webinar Jan. 13, 2011 George Hani, Miller & Chevalier Chartered Matthew Lerner, Steptoe & Johnson ghani@milchev.com mlerner@steptoe.com Jean Pawlow, McDermott Will & Emery jpawlow@mwe.com

Today’s Program Tier I Audit Program Background Slide 6 – Slide 9 [George Hani] Preparing For An Audit With Tier I Issues Slide 10 – Slide 30 [Mat t hew Lerner] Managing An Audit With Tier I Issues Slide 31 – Slide 38 [George Hani] Tools For Possible Issue Resolution Slide 39 – Slide 61 [Jean Pawlow] Slide 62 – Slide 66 Latest Revisions To Tier I Issue List [Mat t hew Lerner]

George Hani, Miller & Chevalier Chartered TIER I AUDIT PROGRAM TIER I AUDIT PROGRAM BACKGROUND

O Overview Of Tiered Issue Program i Of Ti d I P Modeled after successful tax shelter enforcement • ― Identifies issues with “strategic” importance or that pose “compliance risk” co pl a ce s ― Issue management team ― Led by “issue owner executive” ― Cross-functional members of team ― Develops IRS approach to issue ― Actively coordinates audits Actively coordinates audits For all Tier I issues, proposed resolution must be “approved” • by issue owner executive 7

Overview Of Tiered Issues (Cont.) O i Of Ti d I (C ) Originally announced in Spring 2007 • ― Few changes to the identified Tier I and Tier II issues ― Tier III issues announced in Fall 2008 Tier III issues announced in Fall 2008 Stated IRS goals • ― Consistency ― Reduce audit time ― Resource management Every issue has its own evolution of IRS thinking Every issue has its own evolution of IRS thinking • • ― Foreign earnings repatriation and Sect. 199 ― R&E credit claims 8

Active Vs. Monitoring Status A i V M i i S Active: Issues being researched and developed • Monitoring • ― Returns identified Returns identified ― Legal analysis completed ― Guidance and tools disseminated to the field Issues are “never” de-tiered or demoted • Issues move to monitoring status when IRS position has been • established and management confident is that field staff will established, and management confident is that field staff will execute. 9

Matthew Lerner, Steptoe & Johnson PREPARING FOR AN AUDIT PREPARING FOR AN AUDIT WITH TIER I ISSUES

 Internal Revenue Service Circular 230 Disclosure: As provided for in Treasury regulations advice (if any) relating to federal regulations, advice (if any) relating to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (1) b d f h f ( ) avoiding penalties under the Internal Revenue Code or (2) promoting marketing or Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein. 11

Preparation Begins At Time Of The Transaction  Review IRS materials on your tiered issue Understand what facts the IRS views as important in  connection with the transaction Understand the IRS’ view of the law related to the relevant  tiered issue Consider planning transactions and corporate practices in p g p p  light of the IRS’ position Develop and maintain adequate contemporaneous  documentation 12

Understand How I RS Approaches Your I ssue  Read published guidance available on the IRS Web site: ead pub s ed gu da ce a a ab e o t e S eb s te Directives, settlement guidelines, audit guidelines, notices, rulings, coordinated issue papers, regulations, etc.  These materials give you a roadmap of what the IRS views as important. 13

Understand How I RS Approaches Your I ssue (Cont.)  Re-examine published IRS materials  Focus on the sample IDRs and other materials that you know the IRS will seek  Gather the relevant material from your files Assists with currency  Allows you to determine what is missing ahead of time and All t d t i h t i i i h d f ti d  to gather or prepare additional responsive material 14

Understand How I RS Approaches Your I ssue (Cont.)  Do a critical evaluation of your case and its facts  Assess whether your case is a strong one that should be promoted quickly d i kl  Determine whether your issue is one that the IRS views as well- developed or whether there are opportunities to influence the d l d h th th t iti t i fl th process by: Showing that it is not an abuse  Demonstrating favorable law Demonstrating favorable law   15

Understand How I RS Approaches Your I ssue (Cont.)  Determine whether your issue is one the IRS views as an abuse ete e et e you ssue s o e t e S e s as a abuse or whether it is a common issue the IRS is trying to figure out. “Abuse” issues will receive little flexibility from the IRS.  The IRS is likely looking for vehicles to litigate with respect The IRS is likely looking for vehicles to litigate with respect   to abuse issues. The IRS may be trying to develop a deeper understanding  of a common issue of a common issue. 16

17 Technical Resources And Guidance Technical Resources And Guidance

Work With Taxpayers With Similar I ssues  Identify other taxpayers with a similar issue Learn about their facts  Learn how the IRS is approaching the issue  Try to accelerate the strongest taxpayer’s case   If the issue is new and the IMT is still formulating its approach, getting cases with favorable facts in front of it may: Influence pattern IDRs  Influence legal position  Increase impetus to give exam teams flexibility  18

Understand I RS’ General Litigation Strategy On Tiered I ssues i d  Consider how your case fits in Do you have better/worse facts?  What has been the IRS approach to this issue?  What is the IRS record on this issue?  How long has this issue been a Tier I issue? How long has this issue been a Tier I issue?  19

To help protect your privacy, PowerPoint prevented this external picture from being automatically downloaded. To download and display this picture, click Options in the Message Bar, and then click Enable external content. Understand I RS’ General Litigation Strategy On Tiered I ssues (Cont.) i d ( )  Consider the IRS docket on your issue: Is the Service litigating?  What is the range of cases that exist? Where does your  case fall in the spectrum between the most IRS-favorable f ll i h b h IRS f bl and the most taxpayer-favorable cases? What are the facts in these cases? Can you distinguish  your facts? your facts? What is the strength of the cases further along than yours?    Do not fall into the common trap of convincing yourself your Do not fall into the common trap of convincing yourself your case is the best, without developing more information. 20

Understand I RS’ General Litigation Strategy On Tiered I ssues (Cont.) i d ( )  For example, if you have a strong case and your issue has not been tested: Put pressure to move the audit quickly to make your case  one of the first Show the IRS it does not want your case to be the first; y ;  the issue owner-executives do not want to make law with cases that have good facts. In this case, the IRS will be more willing to engage in , g g g  meaningful settlement discussions. 21