The IRS’s Large Business & International Division (LB&I) today announced major changes to how it will approach large and midsize businesses. The announcement came at the September 17, TEI / IRS financial services conference in New York City, where LB&I Commissioner Doug O’Donnell and Financial Services Industry Director, Rosemary Sereti outlined a proposed migration from the IRS’s heavy reliance on enterprise-wide coordinated industry case (CIC) examinations to an environment in which LB&I will apply a more nuanced approach to identifying and addressing compliance risks. LB&I intends to design and deploy multi-faceted campaigns to identify and address key compliance risks—crafting a range of treatments precisely tailored to address the perceived compliance risk. The risk identification that will drive this new concept of operation will be heavily based on data analytics drawn from a range of sources and evaluated centrally by specialized LB&I staff.
Notwithstanding the overall move to greater focus on specific issues, O’Donnell made clear that LB&I expected that that certain large enterprises—by virtue of their size, complexity, and significance—will continue to be examined using CIC techniques.
A new organizational design will be put in place to facilitate transition to the new ways of doing business. According to O’Donnell, the new LB&I will be organized around nine “practice areas.” Four of the practice areas will be organized geographically and appear to be structured similar to the current five industry directors with Directors of Field Operations (DFO) and Territory Managers (TM) constituting the management structure within the practice area.
The other five practice areas (or “PAs”) are delineated along technical or subject matter lines:
Based on O’Donnell’s comments, it appears that most of the current cadre of Issue Practice Group (IPG), International Practice Network (IPN), senior pass-through technical specialist and most other issue specialist personnel will eventually reside in the five subject matter practice areas.
Similarly, it is envisioned that all of the international examiners will likely be housed within at least two of the international practice areas. It appears that at a strategic level, the subject matter practice areas will lead the development and coordination of the campaigns and treatments aimed at specific compliance risks. At a tactical level, the design calls for them to also work directly with examiners from the geographic practice areas that are assigned specific issues to work.
At the top of the organization chart, the deputy LB&I commissioner for international disappears, in part designed to stimulate what O’Donnell characterized as a more unified, one LB&I approach to the division’s work.
Inasmuch as three of the five subject matter practice areas are organized around international issues, it is evident that those international issues remain a high priority.
At several points in his presentation, O’Donnell highlighted the need to equip LB&I to operate competently in the fast evolving global tax administration environment. He suggested that need was one of the prime drivers of the new concept of operations. In explaining the new “concepts of operation” and organizational alignment, O’Donnell described four guiding principles on which he said LB&I’s future success is predicated:
Given the limitations of the forum, the precise contours of how LB&I will operationalize these principles could not be addressed. Not surprisingly, then, the large taxpayers in the audience in New York left with a variety of questions about how the concepts will translate into reality. In particular, questions exist about how the nine practice areas will interact with respect to any specific taxpayer audit or treatment.
Concern exists that “disconnects” currently existing between the examination and closure of international versus domestic issues could be exacerbated by a structure potentially involving an even greater range of personnel that could be involved in a specific examination or treatment. Despite O’Donnell reassurances that the new design will overcome past difficulties and bring IRS resources into a more cogent alignment, many may need to see more of the specifics before they are convinced.
LB&I is scheduled to implement the new structure in early calendar year 2016. O’Donnell described the full transition as a process that will take place over a lengthy period during which LB&I will continuously refine the ways in which it implements the new concept of operations. O’Donnell made clear he both invited and needed feedback from taxpayers and advisers so that LB&I will be able to fine tune its plans.
KPMG tax professionals—Sharon Katz-Pearlman, Mike Dolan, and Timothy McCormally—will on October 1, 2015, participate in a webcast presentation to explore the practical implications of the LB&I changes, and to share their insights on the ways in which the new concepts and alignment might pose opportunities and challenges for large taxpayers. More information about the webcast will be provided in a future TaxNewsFlash email.
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