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Tax Audits and Disputes - IRS Update: Enforcement Trends (video)

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April 2015 | Michael Dolan, National Director, IRS Policies and Dispute Resolution, discusses recent enforcement and examination trends at the IRS as of early 2015 and how they may affect large taxpayers.

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I think it's probably obvious to note that the budget cuts that the IRS had endured are having impact on large taxpayers, whether it be in the case of agents coming in and out.  We've had a variety of instances of which you might have as many as three international examiners on your case.

Secondly, some of the things that we've historically thought to be routine, things like getting a transcript or getting a residency certificate, no longer are routine.

And then thirdly, the fact that you look at the IRS org chart, and you see a vast number of actors up and down the line, means that decision-making, escalations, sometimes bringing a case to a close are comp -- is all -- are all complicated by the fact that you have so many actors on the scene.

Probably the most impressive thing on the horizon right now are the changes the IRS is proposing to their large taxpayer examination program.  I think we all know that historically they've looked at large taxpayers through the lens of something called a coordinated industry case program.  And in that program, it's essentially been an enterprise-wide kind of examination of the largest taxpayers in the country.

What they're trying to do is migrate to a program that's going to be much more issue-focused and will extend outside the range of those largest of large taxpayers.

The IDR process that we saw installed last year was kind of a first good step, I think, towards the issue-focused, and most people have had the experience of finding that the combination of those IDRs being required to be issue-focused and the fact that the taxpayer gets to look at a draft, gets to respond to the draft, gets to have some input on the time it's going to take to respond to the IDR, all those things have served to bring discipline to the IDR process in a way that I think maybe one of the more telling pieces of evidence is that there have been very few instances in which the IRS has had to enforce the rules of the IDR process.  And so you look at that as maybe a good down payment toward this migration to the issue-focused approach.

Coming in behind that is what the IRS has done in their knowledge management arena.  The introduction of issue practice groups and international practice networks, both of those are lofty kind of aspirational changes the IRS is making, and we're beginning to see the practical impact online.  In some cases, we see a variation, particularly with respect to how much involvement a taxpayer is afforded with the IPG or the IPN.

But something pretty impressive happened right at the end of last year.  The IRS published 46 of what it called practice units that came out of their international practice -- or the international practice network.  Those units range the gamut from highly conceptual to process-focused to ones that are very transaction-focused.

What they represent, even if a taxpayer were to look at it and disagree with the IRS's technical view, they represent a fairly transparent explication on the part of the IRS as to how they look at issues, what their reasoning's going to be.  And so any taxpayer that ends up with an issue under exam or a potential under—Issue under exam in the international sphere is going to be well served to consult with those issue practice or those international practice units and see whether there's anything in there of relevance.


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The above information is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser