7.40.1  IIR Program

7.40.1.1  (11-01-2004)
IIR Program Design, Process, and Responsibility

  1. The Industry Issue Resolution (IIR) Program is designed to address frequently disputed or burdensome tax issues that affect a significant number of business taxpayers through the issuance of published guidance or administrative guidance. The issues addressed are selected from issues suggested by taxpayers, representatives, associations, and other interested parties. For each issue selected for the program, a resolution team, generally composed of IRS, Chief Counsel and Treasury personnel, is assembled to gather and analyze relevant information and recommend a resolution of the issue.

7.40.1.1.1  (11-01-2004)
IIR Design

  1. IIR was designed as part of IRS’s issue management strategy to resolve the tax treatment of frequently disputed issues rather than resolving them on a case-by-case basis in traditional post-filing examinations. To test the viability of the IIR design, IRS’s Large and Mid-Size Business Division (LMSB) authorized a pilot program. The pilot was announced in Notice 2000-65 on December 6, 2000, inviting interested parties to suggest issues for the program. Issues were selected and IIR teams were formed to recommend guidance. The resulting published guidance resolved tax issues that otherwise would have required thousands of tax examinations.

  2. The IIR pilot program was evaluated and determined to be a success. On April 9, 2002, Notice 2002-20 announced that the IIR program was being made permanent and was expanded to include issues raised by Small Business/Self-Employed (SB/SE) taxpayers. This Notice was later superseded by Revenue Procedure 2003-36. Revenue Procedure 2003-36 revised program procedures to allow issues to be submitted at any time for possible resolution.

7.40.1.1.2  (11-01-2004)
IIR Process

  1. The goal of the IIR Program is to issue guidance on frequently disputed business tax issues that establishes a consistent position and reduces administrative burden for IRS and taxpayers. The IIR process is designed to be expeditious and foster communications between the IRS and outside stakeholders. The IIR process consists of three stages with required actions or steps to ensure guidance is issued in a timely manner.

    1. Stage I: Issue Identification and Selection- This stage consists of steps 1 through 3 of the IIR process. These steps include identification of issues by external stakeholders, semi-annual screening and selection of issues by internal stakeholders, and notification of issues reviewed and selected for the program.

    2. Stage 2: Planning and Analysis - This stage consists of steps 4 through 7 of the IIR process. These steps include activities pertaining to planning and organization, fact finding and analysis, and recommendation of a proposed resolution.

    3. Stage 3: Approval, Communication, and Evaluation - This stage consists of steps 8 through 10 of the IIR process. These steps include the clearance of the proposed guidance, communication of approved guidance, and solicitation and evaluation of feedback on the IIR process.

  2. See Exhibit 7.40.1-1 for an illustration of the IIR process stages and steps.

  3. The overall IIR program goal is to publish guidance as expeditiously as possible with the optimal goal of within nine months of notification of the IIR selection. However, target timeframes are set by each team and may be shorter or longer depending on the complexity of the issue.

  4. While issues are being considered under the IIR program, examinations of selected IIR issues are not to be suspended to await potential new guidance.

7.40.1.1.3  (11-01-2004)
IIR Responsibility

  1. LMSB and SB/SE Operating Divisions share operational responsibility for the IIR program. Appeals, Chief Counsel and Treasury also have major roles in the program. Executive oversight of this initiative is through the LMSB Compliance Strategy Council, which includes representatives from LMSB, Appeals, National NTEU, and, as appropriate, SB/SE. The Office of Pre-Filing and Technical Services (PFTS) manages the program with the assistance of IIR Coordinators. Many other stakeholders also have roles and responsibilities in an IIR. Exhibit 7.40.1-2. shows the roles and responsibilities of the various participants in the IIR process.

7.40.1.1.4  (11-01-2004)
Additional Information on IIR

  1. Additional IIR program information can be found at the following web sites:

    Internal- LMSB Web Site
    http://lmsb.irs.gov/hq/pftg
    Select "Industry Issue Resolution"
    External- IRS Digital Daily
    http://www.irs.gov
    Select "Businesses"
    Select "Industry Issue Resolution "

7.40.1.2  (11-01-2004)
IIR Project Selection

  1. The IIR program process begins with issue identification followed by selection and notification of the IIR projects.

7.40.1.2.1  (11-01-2004)
Issue Identification

  1. Revenue Procedure 2003-36 provides procedures for submission of business tax issues by taxpayers, representatives, associations, and other interested parties for resolution under the IIR program. Issues may be submitted at any time. The revenue procedure can be found at the IIR web sites listed at IRM 7.40.1.1.4.

  2. Business tax issues appropriate for IIR generally will have at least two or more of the following characteristics:

    • The proper tax treatment of a common factual situation is uncertain.

    • The uncertainty results in frequent, often repetitive examinations of the same issue.

    • Uncertainty results in taxpayer burden.

    • The issue is significant and impacts a large number of taxpayers either within an industry or across industry lines.

    • The issue requires extensive factual development, and an understanding of industry practice and views concerning the issue would assist the Service in determining the proper tax treatment.

  3. Tax issues that are not appropriate for IIR are:

    • Unique to one or a small number of taxpayers.

    • Primarily under jurisdiction of business operating divisions other than LMSB and SB/SE.

    • Transactions lacking bona fide business purpose or transactions with significant purpose of improperly reducing or avoiding federal taxes.

    • Involve transfer pricing or international treaties.

  4. Outreach efforts should be made by IRS (executives, technical advisors, TEC tax specialists, revenue agents, etc.) to encourage outside stakeholders to suggest problematic issues for resolution under IIR.

  5. No particular format is required for submission of issues. Each submission should include a brief description of the proposed issue, an explanation of why there is a need for guidance, information on the number of taxpayers impacted by issue, contact information and may recommend a resolution to the issue.

7.40.1.2.2  (11-01-2004)
Issue Screening and Selection

  1. LMSB, SB/SE, Appeals, Chief Counsel and Treasury will review the issues submitted at least semi-annually, generally after March 31st and August 31st of each year. A determination will be made regarding whether the issue should be selected for the IIR program and type of project (published guidance and/or administrative guidance) to resolve the issue. The following are activities that take place in screening issues and selecting IIR projects.

7.40.1.2.2.1  (11-01-2004)
Receipt of Applications and Initial Screening

  1. Submissions of issues for inclusion in the IIR program are received and controlled by the Office of Pre-Filing and Technical Services (PFTS) in LMSB. Any issues clearly outside of LMSB and SB/SE jurisdiction will be excluded from IIR consideration and the submitter will be notified by PFTS.

7.40.1.2.2.2  (11-01-2004)
Criteria Screening and Information Gathering

  1. PFTS will periodically post new submissions to the LMSB IIR intranet web site for screening. Each issue will be summarized and posted with an IIR Screening Questionnaire and the IIR guidance request. LMSB, SB/SE, Appeals and Counsel personnel with knowledge of the issue or industry will review the guidance request and complete the questionnaire by a designated deadline. The questionnaire responses provide information on:

    1. whether the issue is appropriate for the program;

    2. current guidance and initiatives involving the issue;

    3. impact of the issue on taxpayers and IRS resources; and

    4. likelihood of reaching a resolution of the issue.

7.40.1.2.2.3  (11-01-2004)
LMSB and SB/SE Operating Division Executive Recommendations

  1. PFTS will post a consolidated report from the questionnaire responses to the LMSB IIR restricted web site to be accessed by designated LMSB, SB/SE, Appeals, and Counsel executives and coordinators.

  2. Designated LMSB and SB/SE Executives will review the information gathered and make recommendations on whether or not to select an issue for IIR. In making their recommendations, the executive should state whether he/she is the issue owner (has primary jurisdiction of taxpayers impacted by issue). Informal coordination between LMSB and SB/SE executives should take place when making this decision. For issues recommended, the determined issue owner should also recommend the appropriate type of guidance project (published or administrative). For issues not recommended, the determined issue owner should briefly explain the reason for recommending non-selection. Responses should be emailed to IIR@IRS.gov by the designated deadline.

7.40.1.2.2.4  (11-01-2004)
LMSB and SB/SE Operating Division Prioritization

  1. PFTS will prepare an executive report incorporating all recommendations. LMSB and SB/SE Operating Division Executive committees will first independently review the report of IIR submissions and recommendations. Issues recommended will be ranked based on each business operating division’s priorities and resources with a view of selecting issues drawn from diverse industries or market segments. Division Counsel will assist in the review and prioritization.

  2. Following the prioritization of issues by the LMSB and SB/SE Operating Divisions, the respective Executives will meet to discuss their recommendations and should jointly reach an agreement on which issues should be sent forward to Chief Counsel and Treasury for possible inclusion on the Treasury and IRS Guidance Priority List (GPL). Generally, Appeals and Division Counsel will also provide input on recommendations for IIR. Each business operating division should also make a commitment as to what resources might be required for IIR Administrative Guidance Projects. The respective business operating divisions should agree upon and designate an owner for each of the issues selected for IIR GPL or Administrative Guidance Projects.

7.40.1.2.2.5  (11-01-2004)
IIR Projects Selection for GPL

  1. A prioritized list of issues recommended for the GPL is sent to Chief Counsel and Treasury Assistant Secretary for Tax Policy. Factors considered in recommending issues for the GPL include, among other things, recommendations from other sources and whether the requested guidance promotes sound tax administration.

  2. The LMSB or SB/SE issue owner is notified by the Associate Chief Counsel office with subject matter jurisdiction over the issue if the issue is selected for the GPL. The issue owner then appoints an IIR Team Executive for the issue. The IIR Team Executive should initiate a dialogue with the Associate Chief Counsel with primary responsibility for the subject area to clarify the scope of the issue, establish target completion date, and address any concerns.

  3. If an issue is not selected for the GPL, the Associate Chief Counsel office will briefly explain the reason. In discussing the issue with Counsel, the issue owner should address whether an IIR administrative guidance project should be started and/or whether the issue be resubmitted at a later date.

7.40.1.2.2.6  (11-01-2004)
IIR Projects Selection for Administrative Guidance

  1. IIR Administrative Guidance projects will follow the IIR process with exceptions noted in this chapter. See IRM 4.51.2, for definition of administrative guidance and process for its issuance.

7.40.1.2.3  (11-01-2004)
Issue Notification

  1. The issue submitter is notified by the LMSB or SB/SE issue owner (or designee) whether the issue has been selected, and if not selected, the reason for non-selection. For those issues selected, the executive should clarify the type of IIR project to be started and begin discussing plans for the industry orientation/meetings with the submitter.

  2. A news release will be issued to notify the general public of the IIR requests and selections. Brief descriptions of all issues submitted and selections (including type of project and contact information) will be included in the news release. The news release will be posted to the web sites listed in section 7.40.1.1.2. When the GPL (or update) is issued, it will also list any IIR published guidance projects included on the GPL.

  3. While the IIR project is in process, communications with outside stakeholders and internal communications regarding the project should be approved by the IIR team executive.

  4. Copies of the IIR guidance requests will be placed in the IRS Headquarters FOIA Reading Room for public inspection and copying by interested parties as provided in Revenue Procedure 2003-36. The IRS FOIA Reading Room is located at 1111 Constitution Avenue, NW, Room 1621, Washington, DC. Requests for copies of these documents can be faxed to the Reading Room (Fax number 202-622-5165).

7.40.1.3  (11-01-2004)
IIR Planning and Organization

  1. During the planning and organization process, an IIR team is formed for each issue, orientation sessions are held for both the team and industry concerning the IIR process, and a work plan is developed for addressing the issue.

7.40.1.3.1  (11-01-2004)
Establishing an IIR Team

  1. The LMSB or SB/SE issue owner designates an "IIR Team Executive" to provide oversight and leadership. The IIR Team Executive will select an "IIR Team Manager" for the IIR team. The IIR team manager is generally a LMSB or SB/SE Territory Manager. The executive will work with the team manager to assemble the team.

  2. Additional team members generally will include (but are not limited to) the following personnel:

    • LMSB and/or SB/SE Field Person (Revenue Agent, Tax Specialist, Engineers, etc.)

    • LMSB and/or SB/SE Technical Advisor

    • LMSB and/or SB/SE Division Counsel Attorney

    • Issue Specialist Program (ISP) Appeals Officer

    • Associate Chief Counsel Subject Matter Expert

    • Treasury Office of Tax Policy Tax Specialist

  3. IIR published guidance teams will generally include at least one LMSB or SB/SE field person, Appeals Officer/ISP, Associate Chief Counsel subject matter expert, and an Office of Tax Policy Tax Specialist. IIR administrative guidance teams will generally not include Associate Chief Counsel subject matter experts or Treasury Office of Tax Policy Tax Specialists.

  4. Additional employees/specialists may be assigned to the team on a full time or ad hoc basis as needed. The IIR team may also decide to secure the services of outside experts.

  5. Selection of the Service’s team members is made by the IIR Team Executive. IRS Bargaining Unit team members are identified in accordance with the Letter of Understanding (LOU) with NTEU. Exhibit 7.40.1-3.

  6. Time should be charged by IIR Team Members as follows:

    IIR Team Member IIR Time
    LMSB: Field personnel and Technical Advisors Activity code 527, Industry Issue Resolution Program
    LMSB: Managers Activity code 675, Compliance Outreach
    SB/SE: TEC Employees Strategy 6, OP1-Establish Burden Reduction Program (Project Type 06001)
    SB/SE: Compliance Field Employees Activity code 527, Industry Issue Resolution Program
    SE/SE Compliance Managers Activity code 675, Compliance Outreach
    Appeals Industry Specialization (line 6)
    Counsel Guidance project - IIR workload item

  7. The IIR team assignment is a collateral duty assignment (not a full time position) for team members. However, it should be considered priority work. If, as a result of participation in the IIR program, a Service employee believes that an adjustment in his/her case inventory or workload may be required, the employee should discuss this issue with his/her manager. Adjustments may be made on a case by case basis.

7.40.1.3.2  (11-01-2004)
IIR Team and Industry Orientation

  1. An IIR Team orientation/training session will be held to review and start the IIR process. It is recommended that two days be planned for the IIR team orientation. Following the IIR team orientation, an IIR industry orientation session will be held to explain the IIR process, how outside stakeholders will participate in the process, and receive feedback from industry. It is recommended that an IRS facilitator be used for both the team and industry orientations. Additional information to assist IIR teams can be found under "Tool Kit for IIR Teams" section of the LMSB IIR web site.

7.40.1.3.2.1  (11-01-2004)
IIR Team Orientation – Part 1

  1. The first part of the session should include the following IIR procedural topics:

    • IIR Process and Timeline

    • Letter of Understanding with NTEU

    • Roles and Responsibilities of IIR team members

    • Establishing Ground Rules for the Team

    • IIR Work Plan and Administrative Tasks

    • Explanation of Federal Advisory Committee Act

7.40.1.3.2.1.1  (11-01-2004)
IIR Process and Targeted Completion Date

  1. The IIR process, including the different stages and required tasks, should be discussed at the team orientation. See Exhibit 7.40.1-1.

  2. The IIR targeted completion date established for the project and the importance of meeting this date should be discussed. It is important for team members to understand the priority nature of their assignment and the reason for the aggressive timeline. While the timeline may require adjustment during the IIR process depending on the complexity of the issue, the IIR process must be expeditious to provide timely service to IRS customers.

7.40.1.3.2.1.2  (11-01-2004)
Letter of Understanding with NTEU

  1. An overview of the provisions of the Letter of Understanding (LOU) with NTEU should be provided to the SB/SE, LMSB, and Appeals bargaining unit team members, who are covered by the LOU, during the team orientation. See Exhibit 7.40.1-3 for the LOU with NTEU.

7.40.1.3.2.1.3  (11-01-2004)
Roles and Responsibilities of IIR Team Members

  1. It is imperative that team members understand their roles and responsibilities in the IIR process and the coordination required with internal and external stakeholders. See Exhibit 7.40.1-2.

7.40.1.3.2.1.4  (11-01-2004)
Team Ground Rules

  1. Each IIR team executive will lead the team in establishing ground rules for operating procedures, communications, and decision making processes.

7.40.1.3.2.1.4.1  (11-01-2004)
Team Operating Procedures

  1. Team operating procedures should address how the team will operate: meeting times and frequency, leave schedules, and travel and time reporting.

7.40.1.3.2.1.4.2  (11-01-2004)
Communications

  1. The team should decide on how communications should be handled within the team. Because team members may be stationed in different locations, care should be taken to keep all team members informed of all activities.

  2. The team should decide how communications outside the team (other IRS offices, other agencies, outside stakeholders) are to be handled.

  3. All contacts from the media should be referred through LMSB or SB/SE Communications to IRS Media Relations.

7.40.1.3.2.1.4.3  (11-01-2004)
Team Decision Making Process

  1. Team decision making process should address the necessary quorum for a decision and when and what decision-making methods (e.g., consensus, voting, etc.) will be used.

7.40.1.3.2.1.5  (11-01-2004)
IIR Work Plan

  1. The Team Work Plan identifies the tasks of the team, the team member(s) responsible for each task, and the time lines associated with the tasks. The procedures provide an organized approach for planning and executing the tasks of the IIR process. The Team Work Plan will be done in Excel format and contain, for each action item, start date, estimated and actual completion date. The Team Work Plan consists of two components, IIR Administrative Tasks (discussed below) and Issue Work Plan (Discussed in IRM 7.40.1.3.4.2).

7.40.1.3.2.1.6  (11-01-2004)
IIR Administrative Tasks

  1. Each IIR team will need to develop and follow a plan to establish responsibility for the following administrative tasks set forth below.

7.40.1.3.2.1.6.1  (11-01-2004)
IIR Meetings

  1. IIR team and industry meetings will be held throughout the IIR process. The team will need to determine responsibilities and processes for conducting meetings, preparing minutes and distributing the minutes.

    • Conducting Meetings - The team may need to conduct meetings in a variety of formats/locations, i.e., via conference calls, video conferencing, and on-site meetings. These meetings work best when all parties have access to the agenda and relevant documents to be discussed prior to the meeting. Teams may want to have a facilitator initially or when contentious or complex issues are being discussed.

    • Recording Meetings-Notes of internal and external meetings should be taken but do not need to be in-depth. It is suggested that agendas be prepared showing the topics to be covered, by whom and purpose. Notes associated with the meetings could then be used to confirm that the topics were covered, capture key points raised and record planned actions and activities. A meeting recorder should be designated. Specific taxpayer information should not be included, and personal notes by team members, other than the recorder, should be kept to a minimum. Actions and assignments should be reviewed at the end of the meeting to ensure clarity.

7.40.1.3.2.1.6.2  (11-01-2004)
IIR Project Briefings

  1. Each IIR team should determine early in the process when briefings should be held with Chief Counsel, Treasury, Appeals, LMSB and SB/SE leadership and Industry. Responsibility should be assigned to team members for setting up and conducting briefings.

7.40.1.3.2.1.6.3  (11-01-2004)
IIR Reports

  1. The IIR team is responsible for completing the following reports:

    1. IIR Team Staffing Report – A listing of team members and their contact information (Name, Title, Organization, Phone number, VMS and E-mail address) This is a one time submission to be emailed to PFTS (IIR@irs.gov) at the beginning of the process. Any changes are to be emailed to PFTS as they occur.

    2. IIR Team Work Plan - The work plan should be completed shortly after the IIR Team Orientation and e-mailed to PFTS (IIR@irs.gov). It should be continuously maintained by the team and updated as actions are completed. Any changes in completion dates or additional tasks added should be explained in the IIR team monthly status report. When the team has completed its work and guidance has been issued, a final work plan should be emailed to PFTS.

    3. IIR Team Status - IIR Data Collection and Reporting System - A monthly update on of the IIR team's resource expenditure and progress is required on the IIR Data Collection and Reporting System. See Exhibit 7.40.1-4.

    4. IIR External Participants List - A list containing the name, organization, phone number, and email address (if none, mail address) of outside stakeholders who participated in the IIR process. The list should be maintained by the team and provided to PFTS (IIR@irs.gov) at the end of the process.

7.40.1.3.2.1.6.4  (11-01-2004)
Contracting Outside Experts

  1. The IIR team must determine if outside experts are needed as soon as possible. IRM 4.48.1.6 contains procedures for requesting outside experts. Requests should be submitted as follows:

    1. Requests for LMSB outside expert funds are submitted through the local engineer managers.

    2. Requests for SB/SE outside expert funds are submitted through the local estate and gift tax managers.

  2. Upon approval, an assigned team member(s) will work with LMSB Industry or SB/SE contracting officer representative to draft statement of work and to obtain experts.

7.40.1.3.2.1.6.5  (11-01-2004)
Organization and Maintenance of IIR Records

  1. The IIR team is required to maintain binders/files which will include the following records:

    • Reports (See section 7.40.3.2.1.6.3)

    • Contact logs/emails/ letters

    • Meeting agendas and minutes

    • Outside expert contracting documents

    • Information requested and received

    • Draft positions

    • IIR recommended guidance package and sign-off

    • Final published and/or administrative guidance

    • Communication documents

  2. At the end of the IIR process, the binders/files will be sent to issue owner for record retention.

7.40.1.3.2.1.6.6  (11-01-2004)
IIR Evaluation Data

  1. The IIR team will need to determine how data can be captured to measure IIR success. See IIR Evaluation and Measures of Success in IRM 7.40.1.5.

7.40.1.3.2.1.7  (11-01-2004)
Federal Advisory Committee Act

  1. FACA was enacted to control the growth and standardize the operations of committees, and similar groups established to advise executive branch agencies. The establishment of federal advisory committees is subject to ceilings established by GSA, and FACA requires advisory committees to comply with certain procedural requirements, e.g., filing of a charter with GSA and Congress showing balanced committee membership, and publishing timely notice of meetings in the Federal Register. For more information about FACA, see Exhibit 7.40.1-5.

  2. It is not intended that federal advisory committees be formed for the IIR process. Therefore, in meeting and interacting with the industry and other interested external stakeholders, IIR teams need to be aware of the provisions of FACA and operate in such a way to not trigger FACA requirements.

  3. In meeting with the industry, IIR teams may do the following without triggering the procedural requirements of FACA:

    1. have a single meeting;

    2. have a meeting for outside groups to voice their concerns, propose solutions, and raise issues that IRS may need to address;

    3. have a meeting to provide facts and information to outside groups on a particular IRS policy or initiative;

    4. have a meeting for the industry to provide information to IRS about industry practices; or

    5. seek or accept industry comments on a particular IRS policy or initiative .

  4. In meeting and interacting with the industry, IIR teams should not do the following as such actions may trigger the procedural requirements of FACA:

    1. enter into negotiations with the industry;

    2. direct outside groups to draft revenue rulings, revenue procedures or other published guidance; or

    3. direct the membership, agenda, or structure of outside groups.

7.40.1.3.2.2  (11-01-2004)
IIR Orientation - Part 2

  1. The second part of the session will start the resolution process and include the following topics:

    • IIR Issue Review

    • Industry Orientation Planning

    • Development of IIR Issue Work Plan

7.40.1.3.2.2.1  (11-01-2004)
IIR Issue Review

  1. The IIR team should review the outside stakeholder’s submission, information gathered during screening, and any clarifying information the Team Executive or other members have received. An open discussion should be held to insure everyone is clear on the issue to be resolved.


More Internal Revenue Manual