Tax Executives Institute - LMSB liaison meeting minutes: February 9, 2005

Tax Executive, The, March-April, 2005

On February 9, 2005, Tax Executives Institute met with Deborah M. Nolan, Commissioner of the IRS's Large and Mid-Size Business Division, and other representatives of LMSB. TEI President Judith P. Zelisko led the Institute's delegation to the meeting. The agenda for the meeting was published in the January-February 2005 issue of The Tax Executive. These minutes were prepared by Tax Executives Institute and, although reviewed by LMSB, they have not been formally approved by the agency.

On behalf of the Large and Mid-Size Business (LMSB) Division of the Internal Revenue Service, Commissioner Deborah M. Nolan welcomed TEI President Judith P. Zelisko and the other members of the delegation from Tax Executives Institute to the liaison meeting. LMSB's and TEI's delegations to the liaison meeting are set forth below.

1. Opening Comments

Ms. Zelisko expressed her appreciation to LMSB Commissioner Nolan and other LMSB officials for meeting with TEI. Ms. Nolan expressed regret at missing the meeting with IRS Commissioner Mark Everson the previous day, adding that she had a prior commitment to film Tax Talk Today on the Schedule M-3. She suggested leaving some time available at the end of the meeting for follow-up items from the meeting with the Commissioner.

Ms. Nolan announced that Kurt Meier, formerly LMSB Senior Industry Adviser for Retail, Food, Pharmaceuticals, and Healthcare (and a former member of TEI), has been named a Director of Field Operations for that industry group. She referred to LMSB's new organizational chart, a copy of which is attached to these minutes.

She concluded that LMSB appreciates its open dialogue with TEI.

2. Currency

a. Effect on Appeals. Ms. Zelisko conveyed TEI's ongoing support for LMSB's efforts to reduce audit cycle time, thereby improving audits and permitting an expansion of audit coverage. Mr. Bernard referred to several recent currency initiatives--such as Limited Issue Focused Examination (LIFE), Pre-Filing Agreements, Fast Track Mediation and Settlement, and others--adding that taxpayers are generally pleased with the processes. He noted, however, that anecdotal evidence suggests that the push to become current at the Examination level may in some cases be impairing the resolution of issues at the lowest level as more issues are "punted" to Appeals. Such a result has the potential of overwhelming the Appeals process and prolonging the overall closure of cases. He acknowledged that in discussions with the Commissioner the previous day, Mr. Ungar stated that the IRS's statistics do not show an increase in issues going to Appeals, but suggested that Taxpayers may just be reaching an end to their audit cycles and any trend may not yet be visible. Mr. Bernard emphasized that taxpayers and the IRS benefit if issues are resolved at the Examination level.

Ms. Nolan responded that the division is also concerned about unresolved issues at the Examination level and has been tracking their resolution. She noted that there are currently 239 Coordinated Industry Cases (CIC) and 521 Industry Cases (IC) using the LIFE process. She provided the following information concerning the recent agreed rates:

                 2002   2003   2004

Overall Agreed
Rates            63.1   61.4   62.2

CIC Agreed
Rates            57.9   63.9   63.3

Overall unagreed rates for the same time period are 17.3, 16.2, 15.3, she explained.

Ms. Nolan said that because of initiatives such as LIFE--which looks at the materiality of issues--the complexity of issues going to Appeals has increased. The IRS is looking at the performance metrics for its examining agents and may revise the standards to take into account the entire time it takes to resolve a case, including time spent in Appeals. LMSB wants to look at the cycle time from the taxpayer's perspective, she concluded.

Ms. Zelisko asked whether Team Managers will continue to have the flexibility to resolve issues. Ms. Nolan said that LMSB Team Managers are generally experienced and demonstrate good judgment in resolving issues, including the use of Fast Track procedures. She added that a recent report from the Office of the Treasury Inspector General for Tax Administration was critical of the LIFE process, questioning whether agents are walking away from issues. Ms. Nolan stated that LIFE cases tend to have a higher percentage of no-change cases. She added that there is a higher percentage of tax shelter issues in respect of non-LIFE cases.

b. Compliance Assurance Process. Ms. Jordan referred to LMSB's new Compliance Assurance Process (CAP), which employs real-time issue resolution to improve overall compliance and to enhance customer service. Noting that 18 taxpayers have volunteered to participate in the program, she requested an update on the progress of the new initiative.

Mr. Ungar said the program is in its early stages, but is going well. LMSB will hold classes for Territory and Team Managers this month, and an implementation plan for participants in the pilot program is being drafted. The goal is to obtain signed Memoranda of Understanding from participants by April 1, 2005. LMSB expects that there will be peaks of concentrated activity around specific events and filing dates, and will not be able to test its ability to handle the peaks until next year. The lessons learned this year will enable LMSB to determine how broadly to expand the program. The agency is committed to making the initiative work, he said, but the quality of examinations cannot be compromised.