IRS Issue Tiering: New Audit Strategies for Corporate Taxpayers

Proactive Steps to Withstand IRS Scrutiny of Priority Issues and Target Industries

Recording of a 110-minute CPE/CLE webinar with Q&A


Conducted on Wednesday, August 19, 2009

Program Materials

This seminar will review the terms of all three IRS issue tiers, discuss how audits involving each tier are now being conducted, and outline best practices to improve a company's audit planning under the tier system.

Description

In the last few years, the IRS has gradually filled in details of its issue tiering approach to audits, culminating with last fall's publication of the first issues governing its industry-specific Tier III. However, corporate taxpayers still struggle with preparing for an issue tiering audit.

For example, business tax professionals must now anticipate different IRS document requests and more examiner decisions earlier in the audit cycle. There is much less examiner discretion with Tier I and Tier II issues and more standardized evaluations in Tier III reviews.

The issue tiering system intensifies the need for corporate taxpayers to plan well in advance for how federal income tax audits will be conducted. Tax advisors must also reevaluate potential benefits from alternative dispute resolution, pre-filing agreement, and compliance assurance program options.

Listen as our panel of veteran advisors and employment tax experts explains both the letter and nuance of the IRS issue tiering system and offers strategies to prepare for audits under that system.

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Outline

  1. Background of issue-tiering approach
    1. IRS Large and Mid-Sized Business (LMSB) Division adopts issue-tiering strategy in 2006, with first publicity in March 2007
      1. Goals: To ensure proper resolution and consistent treatment of significant compliance risks
      2. Focus IRS compliance resources on highest-priority areas
    2. Creation of Tier 1 category (issues of high strategic importance that cross industry lines)
    3. Creation of Tier 2 category (emerging areas of potential high non-compliance)
      1. A number of Tier 1 and Tier 2 issues announced over time
    4. Creation of Tier 3 category (issues of high compliance risk for a particular industry, requiring unique treatment)
      1. First guidance on Tier 3 published in September 2008, with initial list of 10 issues the IRS will examine
      2. Those 10 issues particularly affect several large industries
  2. Reality of IRS audits under issue-tiering
    1. Tier 1 and Tier 2 audits: IRS designates management teams to develop guidance for field examiners
      1. Removes much discretion from examiners
    2. Tier 3 audits: Teams of specialists interact with companies earlier in process, to get quick and standardized resolution on common issues
      1. To some degree, those teams rely on published technical advice memos, field attorney advice memos
      2. However, they also reference industry-specific issue and technical papers to which taxpayers aren’t privy
  3. Audit planning
    1. Need, and increased ability, for taxpayers to plan audits in advance
    2. Increased potential usefulness of pre-filing agreement (PFA) and compliance assurance program (CAP) options, particularly in Tier 1 audits

Benefits

The panel will examine these and other key audit-related issues:

  • Tier III industry-specific issues: How and how early an examiner will interact with your company and the guidance documents used in making determinations.
  • Tier I high-importance and Tier II potential non-compliance issues: The rules IRS management teams have set down for field examiners.
  • Advance audit planning: New imperatives for taxpayers, but also new abilities to know how audits will be conducted.
  • Alternatives to explore: Alternative dispute resolution techniques like the fast-track settlement program, pre-filing agreement program, compliance assurance program, and others.

Faculty

Kathy Petronchak
Kathy Petronchak
National Director, Washington National Tax
Deloitte Tax

She now works with firm clients on complex IRS practice and procedure issues after spending nearly 29 years with the...  |  Read More

Sean Akins
Sean Akins

Attorney
Latham & Watkins

He focuses on tax controversy and litigation for corporate, tax-exempt and individual clients, with respect to both...  |  Read More

George Hani
George Hani

Member
Miller & Chevalier

He is Vice Chairman of the firm's Tax Department and specializes in administrative appeals of federal tax disputes. He...  |  Read More

Michael Lueck
Michael Lueck
Senior Manager, Tax Controversy Services Practice
KPMG

He works on IRS examinations, appeals and litigation for corporate clients. He previously worked as a senior attorney...  |  Read More

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