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IRS Provides Guidance to LB&I Examiners on Requesting Participation in Appeals Conferences

by Kevin Spencer and McDermott Will & Emery | Nov 12, 2021 | Alternative Dispute Resolution, IRS Appeals, IRS Guidance, Settlements

We recently covered the Appeals Team Case Leader Conferencing Initiative: Summary of Findings and Next Steps (Appeals Summary) in relation to the participation of Large Business & International (LB&I) exam teams and Internal Revenue Service (IRS) Chief Counsel attorneys in conferences before the IRS Independent Office of Appeals (IRS Appeals). As discussed, the Appeals Summary concluded that IRS Appeals would be given discretion to invite exam teams and Chief Counsel attorneys to attend IRS Appeals conferences in the future. In determining whether such discretion should be exercised in a case, the Appeals Summary states that both the taxpayers’ and the exam teams’s views should be solicited and considered.

In a November 8, 2021, memorandum (LB&I Memorandum), the Acting Assistance Deputy Compliance Integration for the LB&I Division Theodore D. Setzer provided guidance to LB&I employees on requesting participation. The LB&I Memorandum reflects the LB&I Divisons’s view that participation in certain IRS Appeals conferences is important for fostering effective tax administration and assisting IRS Appeals in resolving tax controversy on a basis which is fair and impartial to taxpayers and the government. Thus, LB&I employees “should continue to request to be invited where LB&I participation would help improve understanding of factual and legal differences in a case.” The LB&I Memorandum directs LB&I employees to consider the following nonexclusive list of factors before making a request to attend an IRS Appeals conference:

The case is factually complex;
History has shown lack of meeting of the minds regarding the underlying facts or legal positions;
The taxpayer’s characterization of LB&I’s position in the formal written protest is not accurately stated and participation by both the taxpayer and LB&I at the Appeals conference will assist Appeals in both bridging the lack of understanding and better understanding the case;
The taxpayer has presented multiple legal arguments or authorities that it relies on to support its position;
The case involves outside experts or expert opinions;
The case involves an issue of importance to tax administration, such as a case of first impression; one involving the interpretation of a new statute or regulation when there are no reported opinions or when published guidance is pending or where precedent is otherwise absent or conflicting; one affecting large numbers of taxpayers or an industry; or one falling within an operating division’s major strategic goal;
The case involves an issue in which the Government seeks to distinguish a position set forth in published guidance;
The case involves an issue coordinated under strategic compliance/coordination initiative such as LB&I campaigns or
A tax shelter case involving a “Listed Transaction” or substantially similar transaction within the meaning of Treas. Reg. 1.6001-4(b)(2), or a “Transaction of Interest” under Treas. Reg. 1.6011-4(b)(6).

The LB&I Memorandum states that a participation request must be made in one of two ways. The first is by indicating the request on Form 4665, Report Transmittal. According to Internal Revenue Manual Section 4.10.8.12.6 (03-25-2021), Form 4665 is used to [...]

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The Results are in: IRS Appeals Retains Discretion to Continue to Allow Exam Teams and Chief Counsel to Attend Conferences

by Kevin Spencer and McDermott Will & Emery | Sep 14, 2021 | IRS Appeals

The IRS Independent Office of Appeals (IRS Appeals, Appeals) has seen many changes over the past several years. One of the more controversial and publicized change related to the 2017 pilot program to test whether inviting Large Business & International (LB&I) exam teams and Chief Counsel attorneys to engage with taxpayers and their representatives at the IRS Appeals conference would improve Appeals’ ability to work large, complex cases. The pilot program technically applied only to IRS Appeals’ largest and most complex cases, however, the IRS also revised the Internal Revenue Manual to provide IRS Appeals with discretion to invite exam teams and Chief Counsel attorneys to any conference. The pilot program ended on May 1, 2020, and the IRS has been gathering feedback and data from multiple sources (both within and outside the IRS) to determine the effectiveness of the program.

The results are in, as reflected in the recently released Appeals Team Case Leader Conferencing Initiative: Summary of Findings and Next Steps (IRS Appeals Summary). Generally, IRS Appeals Officers found that the exam team’s participation improved their understanding of the dispute and helped them identify, narrow and resolve factual and legal differences between the parties before engaging in settlement negotiations with taxpayers. On the other hand, some taxpayers expressed concerns over the presence of exam teams and Chief Counsel attorneys because they found it hindered the ability to resolve cases without litigation and required more concrete ground rules before the start of the conference.

The IRS Appeals Summary concluded that the process was generally helpful and that IRS Appeals would be given discretion to invite exam teams and Chief Counsel attorneys to attend the IRS Appeals conference in the future. In exercising such discretion, the Appeals Officer must consider several factors and solicit and consider both the taxpayers’ and the exam team’s views as to whether joint participation would be helpful.

Practice Point: Our experiences with the exam team and Chief Counsel attorneys attending the IRS Appeals conference has been mixed. Similar to concerns raised by other taxpayers, we have seen certain IRS personnel repeatedly interrupt the taxpayer during the presentation of their case and offer the exam team’s views of an acceptable settlement. However, we have also seen situations where the IRS Appeals Officer has been able to hold IRS personnel accountable by questioning factual and legal positions. In any event, exam team participation is here to stay and LB&I taxpayers and their representatives need to be aware of the new ground rules in this area.

Prior coverage of changes within the IRS Appeals can be accessed below.

Understanding LB&I “Campaigns”

by Kevin Spencer and Robin L. Greenhouse | Mar 8, 2017 | IRS Audits, IRS Guidance, Uncategorized

On March 3, 2017, KPMG and the Internal Revenue Service (IRS) held a joint webcast presentation regarding the Large Business & International’s (LB&I) new “Campaign” examination process. The IRS speakers for the presentation were Tina Meaux (Assistant Deputy Commissioner Compliance Integration) and Kathy Robbins, Director (Enterprise Activities Practice Area). On February 1, 2017, we blogged about this new IRS program.

The IRS explained that Campaigns are a fundamental change in the way the IRS will conduct examinations in the future, and are the result of the IRS’s ever-shrinking resources. The Campaigns reflect the LB&I Division’s need to focus on risks, drive compliance objectives, and efficiently and effectively respond with a variety of work streams.

The general principles that guide the Campaign program are:

Flexible and well-trained work force. Because of funding cuts, the IRS has not been able to hire examiners in recent years. In connection with the Campaigns, the IRS will implement additional training, including “just-in-time” training, to help the IRS react to a dynamic examination environment.
Better selection of work. The IRS is using data analytics and internal and external feedback to assist in shaping Campaigns.
Tailored treatment. The IRS is developing an integrated process to identify compliance risks, and identify the work streams needed to address those risks.
Integrate feedback loop. This is the cornerstone of the Campaign program. The IRS admitted that it cannot implement an effective and efficient process without feedback from both internal and external stakeholders. To be successful the feedback needs to be “just-in-time,” not merely post-audit.

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