4.51.5  Industry Focus and Control of LMSB Compliance Issues

4.51.5.1  (04-01-2007)
Overview and Definitions

  1. To strengthen the Industry focus within LMSB, new rules for designating and controlling industry issues are being implemented. The extent to which these issues are controlled and the operation of the rules of engagement functions will depend largely on the importance or impact of the issue. Industry issues will be designated as follows:

    • Tier I – High Strategic Importance. Tier I issues are of high strategic importance to LMSB and have significant impact on one or more Industries. Tier I issues could include areas involving a large number of taxpayers, significant dollar risk, substantial compliance risk or high visibility, where there are established legal positions and/or LMSB direction.

    • Tier II – Significant Compliance Risk. Tier II issues reflect areas of potential high non-compliance and/or significant compliance risk to LMSB or an Industry. Tier II includes emerging issues, where the law is fairly well established, but there is a need for further development, clarification, direction and guidance on LMSB’s position.

    • Tier III – Industry Importance. Tier III issues typically are industry-related, and have been identified as issues that should be considered by LMSB teams when conducting their risk analyses.

4.51.5.2  (04-01-2007)
Process of Identifying and Ranking Industry Issues

  1. Each LMSB director will identify an industry issue coordinator to manage the process of identifying and ranking industry issues. See Exhibit 4.51.5-1 for Roles and Responsibilities of Industry Issue Coordinators.

  2. Industry issues will be identified for each sub-industry from various sources and sent to the industry issue coordinator. These sources would include both internal (examinations) and external sources (outside stakeholders, new legislation). Issues will be received from the Pre-Filing and Technical Guidance (PFTG) technical advisors, Industry Counsel, Schedule M-3 reviews, and other specialist programs (International and Field Specialists). Known cross-industry issues will be submitted by technical advisors or other submitters to all industries impacted for consideration. Additionally, Industry Directors, Director Field Specialists and Directors of Field Operations will gather information to identify issues for each sub-industry through attendance at sub-industry meetings and field visits.

  3. Each Industry Director in coordination with the Directors International Compliance Strategy and Policy, Field Specialists, and PFTG will evaluate issues received at least annually to determine which issues are of industry importance. In doing so, the industry will consider both issues unique to the industry and cross industry issues.

  4. In determining industry importance the following factors should be considered:

    • Visibility and public uncertainty of the tax treatment due to new legislation or litigation.

    • Materiality (affects a significant number of taxpayers, large permanent or long-term timing adjustments, undue amount of time spent auditing issue).

    • Potentially an abusive tax avoidance transaction or promotion.

  5. The evaluation process reviewers will include the industry issue coordinator, technical advisors, Field/Issue Counsel and other specialist (Field Specialist/International) as needed. Some issues will need further development of their compliance impact or technical merits and need to be assigned to a technical advisor or other specialist for development.

  6. Issues that are sufficiently developed and determined to be of importance, will be sent by the Industry Directors to peers for review in order to further identify cross-industry issues. Copies will also be sent to the Directors, PFTG, International Compliance Strategy and Policy, and Field Specialists. Section I of Exhibit 4.51.5-3 will be completed and circulated for this purpose. Feedback will be sent to the industry issue coordinator who will then reconcile similarities and differences for each cross-industry issue for the Industry Director to identify the issue owner. Industry Directors will work with the Directors of International Compliance Strategy and Policy, Field Specialist, and PFTG to assign ownership of cross-industry issues.

  7. After cross-industry issues have been identified and assigned, issues of industry importance owned by the industry will be reviewed by the Industry Director or delegate to determine if they should be designated as Tier I or II as defined in section 4.51.5.1. If not, they will be designated as Tier III to be considered by examiners in their examinations per IRM 4.51.5.7.

4.51.5.3  (04-01-2007)
Compliance Strategy Council (CSC) Designation of Tier I and II Issues

  1. Presentation to the CSC. Proposed Tier I and II issues will be presented to the CSC for approval. In advance of the meeting the industry/or specialty issue coordinator will complete Sections I and II of Exhibit 4.51.5-3, Compliance Strategy Council Reporting Template. This report includes the proposed tier designation, issue summary, findings to date on compliance impact, and proposed industry direction. Cross-industry issues without clear ownership affiliations can be presented to the CSC by the Directors of PFTG, Field Specialists, or International Compliance Strategy and Policy for Tier I or II designation. Approval will also be requested in this manner from the CSC to change an issue’s level of importance (Tier II to Tier I, Tier I to Tier III, etc.) because of new findings or further issue development.

  2. CSC Designation of Tier I or II Issue.

    1. Upon approval, the CSC will assign ownership to an industry or specialty area.

    2. Upon CSC designation of an issue as a Tier I or II issue, notice should be provided to the Appeals Division. Appeals will establish a contact who will coordinate each Tier I and II issue and will represent Appeals on the issue management team.

    3. Tier I projects approved by the CSC are national strategic initiatives. Per IRM 4.17.1.3 these projects are not subject to compliance initiative project procedures. The Director, SRPP will approve information gathering/selecting returns for examination on these projects using the Exhibit 4.51.5-3 template. If other functions will be significantly impacted, their approval will also be obtained on the template. Details of the project and request for project codes, etc. will be coordinated with the LMSB SRPP Operation Support analyst. Details should be entered in item 8 per instructions.

  3. Announcement of CSC Designation. PFTG will post to a centralized web site all Tier I and II issues designated by the CSC. The listing will include the Issue Owner Executive (IOE) and brief description of the issue. IOE will establish a web page linking to the central site for each Tier I and II issue.

4.51.5.4  (04-01-2007)
Direction and Control of Tier I Issues

  1. Issuance of Industry Directive.An industry directive will be issued upon CSC designation to all examiners for each Tier I issue naming the IOE and provide guidance on identifying, and developing each Tier I issue. The directive may or may not initially provide guidance on resolving the issue. If not, as the issue resolution strategy is developed additional directive(s) will be issued to the field. The directive will also specify how cases with the issue will be tracked. A Uniform Issue List (UIL) number should be assigned to each Tier I issue to enable issue tracking on open and closed cases. A three digit second tier Standard Audit Index Number (SAIN) may also be assigned to allow tracking of issues within LMSB where there is more than one applicable UIL number or to allow for more precise tracking. Request for new UIL and second tier SAIN numbers to track issues should be emailed to PFTS@irs.gov identifying the applicable code section and issue. See Exhibit 4.51.5-2, LMSB Tier I-II Directive, for instructions in preparing the directive. An issue management team should also be assigned to further develop the issue and coordinate resolutions.

  2. Rules of Engagement.Tier I issues require oversight and control by an IOE. The Executive has national jurisdiction and is responsible for ensuring that the issue is identified, developed and resolved in a consistent manner across all LMSB cases involving similarly situated taxpayers. The disposition or resolution of the issue must be in accordance with the above Executive’s guidance. The line Authority Executive will work with the IOE to ensure that access is granted to Tier I cases for the above purpose.

4.51.5.5  (04-01-2007)
Direction and Control of Tier II Issues

  1. Issuance of Industry Directive.An industry directive in the form of an alert announcing the issue or a directive with specific audit techniques will be issued upon CSC designation to all examiners for each Tier II issue naming the IOE using the format in Exhibit 4.51.5-2. The IOE will establish coordination contacts for line executives and allocate resources to further develop the issue through the emerging issue process (see IRM 4.51.2 - LMSB Administrative Guidance). Additional directives may be issued as guidance is developed. Emerging issue teams may later evolve into an issue management team to develop and coordinate resolutions. A UIL number should be assigned to each Tier II issue to enable issue tracking. Second tier SAINs may also be assigned to track the issue.

  2. Rules of Engagement. Tier I issues require oversight and control by an IOE. The Executive has national jurisdiction and is responsible for ensuring that the issue is identified, developed and resolved in a consistent manner across all LMSB cases involving similarly situated taxpayers. The disposition or resolution of the issue must be in accordance with the above Executive’s guidance. The Line Authority Executive will work with the IOE to ensure that access is granted to Tier II cases for the above purpose.

4.51.5.6  (04-01-2007)
Monthly Report to CSC

  1. The IOE will report to the CSC the status of each Tier I issue monthly. The status of Tier II will be reported to the CSC on an exception basis when significant events occur impacting the issue’s resolution. See Exhibit 4.51.5-3, Compliance Strategy Council Reporting Template, for information to be contained in the report.

4.51.5.7  (04-01-2007)
Tier III – Direction and Control of Issues of Industry Importance

  1. Listing of Tier III Issues. Tier III issues will be listed on the centralized web site by industry along with Tier I and Tier II issues. Links will be embedded to available guidance (e.g. Audit Technique Guidelines) on the industry or technical advisor web sites to promote consistent development and resolution of the issue throughout LMSB.

  2. Rules of Engagement. The Line Authority Industry Executive retains unilateral decision making authority, including ultimate disposition and resolution, over Tier III issues.

Exhibit 4.51.5-1  (04-01-2007)
Industry Issue Coordinator – Roles and Responsibilities

  1. Focal point for communications relating to industry issues. Acts as a liaison between LMSB technical advisors/specialist and other industry coordinators. Maintains open lines of communication with Appeals, Counsel, other business operating divisions and government agencies regarding industry issues to be aware of all activities that will affect the issue.

  2. Solicitation and Control of Industry Issues [IRM 4.51.5.2(1)]. Encourages the submission of issues by technical advisors, specialists and examiners closest to the facts. Gathers information from sub-industry meetings to gain insight on new issues. Maintains industry records on issues submitted and their disposition.

  3. Evaluation of Industry Issues [IRM 4.51.5.2(4)]. Coordinates the preliminary review of new issues within the industry using technical advisor teams, counsel and other specialists. Continuously briefs the Industry Director on potential industry issues.

  4. Peer Issue Circulation [IRM 4.51.5.2(5)]. Circulates issues to other coordinators to identify cross industry issues. Directs the review of the issues being circulated by coordinators from outside the industry.

  5. Industry Tier Designations [IRM 4.51.5.2(6)]. Arranges briefings with the Industry Director on issue findings. Works with the Industry Director or Delegate to recommend issues warranting continuing coordination as Tier I-II Issues.

  6. Presentations to Compliance Strategy Council (CSC) [IRM 4.51.5.3]. Coordinates the preparation of reports (tier, summary, findings and proposed direction to examiners) with the technical advisors, emerging issue teams and others for CSC approval of proposed Tier I-II issue/changes.

  7. Industry Directives [IRM 4.51.5.4]. Coordinates the circulation and processing of directives on Tier I and II issues working with emerging issue/issue management teams. Requests assignment of UIL/SAIN number to issues.

  8. CSC Status Reports [IRM 4.51.5.6]. Gathers Tier I and II status reports prepared by IOEs for review by Industry Directors before forwarding to SRPP.

  9. Tier II – [IRM 4.51.5.5]. Works with the Industry Director to coordinate the establishment (or continuation) of emerging issues teams for fact finding/legal analysis, if needed.

  10. Tier I – [IRM 4.51.5.4]. Works with the Industry Director to coordinate the establishment of issue management team to control issue development and closure, if needed.

  11. Tier I – III Industry/TA WEB page and IRS.gov. Coordinates with PFTS and C&L the distribution of Tier I-III issue announcements and procedural directives to internal and external stakeholders, as required.

  12. Provide communications to ensure that an issue expert is available to assist management and examiners in properly planning, developing and resolving Tier I issues. Assists in the coordination of issue seminars/training, as requested.

  13. Acts as a point of contact for the Industry Director to facilitate in obtaining the director’s concurrence of the disposition of the Tier I issue that adopts a position contrary to that reflected in ID guidance.

  14. Coordinates with Appeals and Counsel the tracking of Tier I and II issues in those functions to determine the progress and effectiveness of guidance.

Exhibit 4.51.5-2  (04-01-2007)
LMSB Tier I–II Directive

    LMSB-Control No:
    Impacted IRM 4.51.5
To: INDUSTRY DIRECTORS
  DIRECTOR, FIELD SPECIALISTS
  DIRECTOR, PREFILING AND TECHNICAL GUIDANCE
  DIRECTOR, INTERNATIONAL COMPLIANCE STRATEGY AND POLICY
     
From: LMSB Director
     
Subject: Tier I (or Tier II) Issue (Title as listed on web) Directive [Insert #] (or Alert)
     
This memorandum provides field direction on Tier I Issue (Title) or Tier II Issue (Title). [Or This memorandum provides notice of Tier II (Title)]. The issue owner executive is (name and title).
     
Background/Strategic Importance:
[Include Issue Description, Legal Opinions & Areas of Controversy]
     
Issue Tracking:
Include UIL Code(s), SAIN Numbers and any other reporting requirements.]
     
Planning and Examination Guidance:

Note:

For an alert only include Issue Identification in this section.

  Issue identification
  [Discussion on how the issue is identified (tax return, Schedule M-3, claims). Address whether it is being assigned as part of a compliance initiative project.]
  Planning and Examination Risk Analysis
  [Discussion on whether the issue is a mandatory examination item. And if examined, what are the mandatory coordination and examination actions.]
  Audit Techniques
  [Include audit steps and records to requests (Performa IDRs)]
  Audit Evaluation
  [Provide direction on evaluating information gathered. What factual patterns should be pursued/ sustainable in the post-audit process.]
     
LMSB Position:
[State either "pending" or LMSB resolution instructions. Instructions should include: What LMSB position is to be followed (coordinated issue paper, generic legal advice, or published guidance) and. case closing instructions. If settlement offered or safe harbor option exists, address action required on those that do not take it. Include discussion on penalties. ]
     
Effect on Other Guidance:
     
[Indicate whether any previous LMSB directive needs to be made obsolete or amended.]
     
Contact:
     
[Include in technical contact name and phone number in directive or cover memorandum)
     
This Directive is not an official pronouncement of law, and cannot be used, cited, or relied upon as such.
     
Note: Any line containing OUO data should marked with #. A footer should be added "Any line marked with a # is for Official Use Only" .
     
CC: Commissioner, LMSB
  Deputy Commissioner, Operations
  Deputy Commissioner, International
  Division Counsel, LMSB
  Chief, Appeals
  Directors, Field Operations
  Director, Performance, Quality and Audit Assistance

Exhibit 4.51.5-3  (04-01-2007)
LMSB Significant Tax Compliance Issue

LMSB Significant Tax Compliance Issue: Issue Owner:
  Date:
   
I. 1. Issue Description  
2. Legal Opinions and Areas of Controversy  
3. Number of Returns/Taxpayers  
4. Revenue Impact and Impacted Functions  
5. How Identified  
II 6. Proposed LMSB Direction and Strategy (Narrative discussion on plans to address the issue)
7. Issue Tracking (List UIL codes, SAIN #s, and other reporting requirements)
III 8. Approval to Conduct Information Gathering /Select Returns for Examination  
Signature of the Director, SRPP  
Signature of Other Operating Divisions Impacted  
At the time of implementation, enter specific details regarding taxpayer/return selection criteria and any alternative treatments.  
IV 9. List Key Milestones with Target Completion Dates (Examples of Key Milestones: IMT Establishment; Fact-finding and Analysis; Legal Guidance; Inventory Identification; LMSB Direction; and Inventory Resolution) (Provide assessment of each key milestone)
10. Comments/Next Steps  

Sections I and II will be completed for Tier I and II CSC approval per IRM 4.51.5.3(1). Subsequent changes to these items will be highlighted in monthly reports.

Section III will be completed for approval of projects requiring returns to be selected for examination per IRM 4.51.5.3(2)(c).

Section IV will be updated monthly for reporting to the CSC on Tier I (when applicable Tier II) issues per IRM 4.51.5.6.


More Internal Revenue Manual