- 4.46.2 Administrative Matters and Annual Compliance Plan
- 22.214.171.124 Overview
- 126.96.36.199 Responsibility
- 188.8.131.52 Formation of the CIC Plan
- 184.108.40.206 Case Categories
- 220.127.116.11 Point Criteria Factors
- 18.104.22.168 Identification Criteria
- 22.214.171.124.1 Effectively Controlled Entities
- 126.96.36.199.2 Components of a CIC
- 188.8.131.52.3 Time of Identification
- 184.108.40.206 Planning for Industry Cases
- 220.127.116.11 Headquarters Reports
- Exhibit 4.46.2-1 Information Needed for CIC Annual Plan
- Exhibit 4.46.2-2 Criteria for the Identification of Coordinated Industry Case Program
- Exhibit 4.46.2-3 IC / CIC Distinctions
Part 4. Examining Process
Chapter 46. LB&I Examination Process
Section 2. Administrative Matters and Annual Compliance Plan
July 22, 2011
(1) This transmits revised IRM 4.46.2, LB&I Guide for Quality Examinations, Administrative Matters and Annual Compliance Plan.
(1) Replaced references to "Large and Mid-Size Business" and "LMSB" with "Large Business and International" and "LB&I" , respectively.
(2) Removed all references to Planning, Quality, Analysis, and Support (PQAS).
(3) Added references to LB&I's Planning, Analysis, Inventory and Research (PAIR) organization where appropriate.
(4) Editorial corrections made throughout.
(5) Hyperlinks updated throughout.
Cheryl P. Claybough
Director, Pre-Filing and Technical Guidance
Large Business and International Division
The LB&I Annual Compliance Plan communicates the service and compliance objectives LB&I is expected to achieve for the year. The plan consists of two components – an LB&I domestic component and an LB&I International component - the Foreign Resident Compliance business unit. The Foreign Resident Compliance component is further discussed in 18.104.22.168(2). The domestic component of the plan is developed as a draft at LB&I headquarters, Operations Support, and is a cooperative product of the entire LB&I organization. Each office within LB&I contributes to the development of the plan. The plan matches available resources and operational priorities to set projected return closures and direct examination staff years (DESYs) for the fiscal year. Further guidance regarding Compliance Plan development can be found in IRM 4.1.12.
The Annual Compliance Plan contains resource allocations and where appropriate, expected return closures for critically important programs. This plan, while developed as a draft at headquarters, is a cooperative product of the entire LB&I organization.
LB&I cases fall into two categories, Coordinated Industry Cases (CIC) or Industry Cases (IC). Point criteria described in this section are used to determine if a case falls into the CIC or IC category. In addition cases from these two categories may be eligible for inclusion in the recently initiated Compliance Assurance Process (CAP). In this program, currently being conducted as a pilot program, LB&I revenue agents and specialists work with qualified LB&I taxpayers to identify and resolve issues prior to the filing of a tax return.
The industry and specialists directors have overall responsibility for development of the annual plan responses for their respective operations.
Industry and specialist responses will reflect how resource allocations can best achieve the objectives of the draft annual plan. A final annual plan will be issued after these responses have been reviewed by LB&I Headquarters staff.
LB&I Planning, Analysis, Inventory and Research (PAIR) headquarters staff is responsible for developing a draft plan that, at a minimum, provides for primary resource allocation of LB&I's program priorities. These primary resource allocations are referred to as front end loaded programs, and time is planned and assigned to these programs first.
The draft plan is presented to the Industries who then develop responses that consider the goals established by LB&I Senior Management.
Industry responses are reviewed by headquarters to assure the plans incorporate the goals and objectives of LB&I. The process concludes with the issuance of the LB&I Annual Compliance Plan.
A list of LB&I Executive Teams, Councils and Committees can be viewed on LB&I's website by clicking here.
The LB&I Annual Compliance Plan is usually compiled and approved by management levels above the team manager. The plan’s reliability and accuracy depends on how well each team manager has developed his or her portion of the plan. This, in turn, is dependent upon the thoroughness of the team manager's analysis of cases to be brought under examination in the ensuing fiscal year and how well the manager knows the staffing needs of other cases that will be in process during that year.
The team manager must decide which cases and tax years are to be examined and which are to be surveyed. These decisions will depend upon program objectives, agent availability, and individual case needs.
The team manager must consider currency when evaluating the effectiveness of opening a new examination cycle. It is important to complete a preliminary risk assessment to determine which years should be included in the planned cycle.
The final step is to determine staffing needs (team members, specialists, support or assistance, etc.) to be provided by the primary group and other sources. Staffing projections may be adjusted during the actual examination of a case if subsequent developments indicate a need for change.
Specialist managers' and specialists’ involvement is critical in the early development of the CIC plan. It is imperative that team managers interact with their counterparts in developing the CIC plan for the year. This will help ensure that time planned for specialists is accurate.
Specialist needs and time requirements should be discussed with specialist managers during the annual planning process. Time allocation should be based upon identification of specific needs. Assigned specialists should be named in the plan.
Team managers should coordinate with the managers of team members who are contributing staff time during the plan year through assistance and support examinations. Mutual discussions and agreements are critical to ensure that each team member is available for the specified time.
A more accurate annual plan would occur when specialist managers and support managers had mutually agreed commitments for staff days.
Policy Statement P-4-5 must be considered for specialist managers (serving in the capacity as the team case manager) and specialists, as well as other team members.
The team manager is responsible for planning examination details and obtaining appropriate taxpayer input. The depth of the team manager's involvement in planning the examination is the key to proper annual program planning.
The plan should have detailed information about each CIC examination that is expected to be in process during the next fiscal year. This includes the starting and ending dates, personnel assigned to the case and time to be applied by each team member and specialist. See Exhibit 4.46.2-1 for details.
For development of the 2010 plan, the plan information as described in Exhibit 4.46.2-1 will be entered on to the CIC Plan Database and forwarded as directed by the Industry. As the Long Range Planning feature of the Issue Management System (IMS) becomes available, the detailed plan information will need to be entered on to the designated input screens. Refer to IMS training materials for input of the requested information. Once the Long Range Planning feature becomes fully reliable, the separate CIC Plan Database will be eliminated.
A CIC is a taxpayer and its effectively controlled entities that warrants the application of team examination procedures and meets the point criteria outlined in Exhibit 4.46.2-2.
The factors used in computing the point criteria are as follows:
Multiple industry status
Total foreign assets
Total related transactions
Each factor mentioned above is assigned a point value as described in Exhibit 4.46.2-2.
A case qualifies as a CIC if after using the point criteria the case totals 12 or more points.
However, cases may be excluded for the program with the approval of a the Territory Manager and the Director of Field Operations when it meets the point criteria.
The following situations allow a case to be included in the CIC program if the case did not meet the above point criteria:
It has sufficient complexity to warrant inclusion and would benefit from examination using the CIC approach; and
The Director of Field Operations concurs with the territory manager's recommendation for inclusion.
Territory managers and Directors of Field Operations are responsible for ensuring the accuracy of case point values assigned to cases under their control. The Office of Planning, Analysis, Inventory and Research (PAIR) is responsible for providing oversight of the pointing system to ensure consistent application of criteria.
CIC examination identification standards have been established with the objective of bringing all segments of a business together for concurrent examination. This facilitates an overview of the taxpayer’s structure and overall operations for level of compliance and accuracy of reported tax liability, as well as aiding in management of the case.
The CIC examination package includes the primary taxpayer and all effectively controlled entities, plus those that are unrelated but associated with the taxpayer in activities having significant tax consequences. The name of the primary taxpayer is generally designated as the name of the CIC examination where multiple entities are involved.
The following factors will be considered in determining whether an entity is effectively controlled and therefore warrants inclusion in a CIC package.
The team manager should include entities in the CIC package that are effectively controlled by the taxpayer. Effective control is where more than 50 percent of a corporation’s stock is directly or indirectly owned by a taxpayer. However, the chain of control running from entity to entity may be the deciding factor.
The following factors should be considered in determining examination jurisdiction when taxpayer ownership of a corporation’s stock is less than 50 percent.
The degree of control exercised by each taxpayer through common officers, directors, or shareholders.
Whether one of the shareholders operates or directs the operations of that corporation on behalf of the other shareholders.
Whether the corporation constitutes a link in the organizational structure or in the operational process of one of the CIC entities.
Team managers must coordinate with the other groups involved to ensure that the corporation is included as a component of one of the other CIC entities in instances where other stockholders of the corporation are themselves CIC taxpayers. The responsibility for coordination rests with the team manager.
Other Factors – an entity’s tax objectivity may be significantly influenced by any member of the CIC group through any one of the following means:
Control by a group of individuals who also control one or more members of the CIC group
Major stockholders, officers, or board of directors of the entity who hold similar positions in other entities of the CIC group
Principal sources of supply or market which are dependent upon other members of the CIC group
Certain entities have business and economic relationships with more than one taxpayer. Generally, such entities should be included in the CIC entity where the relationships are strongest. Coordination should be established among examiners involved in examining other affected taxpayers. The coordination should extend to cases where the activities of an entity included in a CIC group may have a tax impact on other taxpayers not included in any CIC group.
CIC examinations encompass all types of taxpayers, together with their effectively controlled entities. A CIC examination could consist of any one or a combination of the following components:
Corporations and limited liability companies that are taxed as corporations, including effectively controlled foreign entities;
Partnerships, joint ventures, syndicates, and cost companies or any other unincorporated business ventures, such as limited liability companies that are not taxed as corporations;
Individuals, when their relationship to any segment of the case is close enough to significantly influence financial management and tax results of either or both;
Trusts, where their operations or the fiduciary’s activities significantly affect, or are affected by, another segment of the case;
Estates, where conditions similar to those enumerated for trusts exist. (An estate which substantially consists of stock investments in publicly held businesses would generally not be included. On the other hand, where the estate is involved with closely held family businesses, a more affirmative view as to audit potential would normally be warranted); or
Foundations, pension trusts, profit sharing trusts and other exempt organizations if controlled by a member of a CIC group.
A case will be identified and included as a CIC after information comes to the team manager's attention that the taxpayer has met the criteria outlined in Exhibit 4.46.2-2 and the team manager obtains territory manager and Director of Field Operations approval. The advantages of early identification lie in the background support it offers LB&I in preparing the annual examination plan, and in facilitating a phasing-in of the examination when those later tax years are reached. The taxpayer should be promptly notified of its inclusion as a CIC.
A record will be created in IMS for CIC taxpayers at the time of identification. All required information that is currently available should be input at this time.
The team manager should forward cases identified as being controlled by another industry or group to the appropriate Director of Field Operations.
A new record should be created in IMS at the beginning of each examination cycle. Significant changes should be recorded in the narrative section as required.
Points should not be changed on a specific cycle after the plan approval date.
LB&I IC examinations play a critical role in ensuring compliance for cases that do not meet the criteria to be classified as CIC taxpayers. The size and complexity of issues may well be similar to those found in CIC examinations. Examinations of IC entities often involve the assistance of field specialists including international examiners. Early coordination by the team coordinator with field specialists, international examiners and technical advisors is critical to the development of the IC risk analysis and examination plan.
LB&I recognizes that an examination presence is required in the IC program, sufficient to ensure that a balanced compliance level across the LB&I customer base is achieved. As with the CIC Program, identification of abusive and aggressive transactions is a priority in the IC program.
LB&I Headquarters prepares a variety of reports for the LB&I Commissioner. These Reports and Plans are used to monitor, plan, and project LB&I activities. These Reports include measures that are based on information from AIMS, ERCS, and IMS. Depending on the specific LB&I measure, a Source, Activity, Tracking, Reasoning, and Project code might be used to measure a specific LB&I activity.
The LB&I Compliance Plan is developed and managed by PAIR's Operations Planning and Support office.
PAIR's Strategic Planning office works with the LB&I Commissioner, Deputy Commissioners, and Field and Headquarters Directors to develop major areas of strategic focus and program priorities as well as actions to be taken and results to be achieved within approved funding levels. Based on those discussions, a combined Strategic and Business plan is released.
The Strategic and Business Plan links strategic decisions to the tactical actions, resource allocations, and performance milestones that will drive the day-to-day activities of LB&I.
The LB&I Field Focus Guide (FFG), a tri-fold at a glance version of the Strategic and Business Plan, provides a road map for the frontline to the programs, priorities, and goals of LB&I. It communicates the annual message from the LB&I Commissioner, program priorities, and celebrates successes from the field.
Planning, Analysis, Inventory and Research (PAIR) prepares the LB&I Business Performance Review, Consolidated Operation Reports System (CORS), and LB&I Monthly Performance Scorecard.
LB&I Monthly Performance Scorecard - The Monthly Balanced Measures Scorecard shows the current status of LB&I performance measures, and indicates how close we are to our target for each. The status of LB&I's performance in each area is indicated as "Green", "Yellow", or "Red" where applicable. Historical performance is also shown.
LB&I Business Performance Review - The BPR is a review of LB&I business performance and contains an Executive Summary and Division Performance report.
The BPR is the central process for measuring, reporting, and reviewing a division’s performance against plans established within the strategic planning cycle. It provides a periodic review of strategic and operational issues and business unit performance, facilitating the IRS Commissioner/Deputy and senior leadership team’s assessment of the IRS’s progress in achieving its mission and strategic goals.
The BPR report is a performance management report that is prepared quarterly and presented to the IRS Commissioner and Deputy Commissioners for the BPR.
Operational measures used in the BPR report are obtained from LB&I Monthly Performance Scorecard reports, measures reports posted to the IBMIS repository, and customized measures reports specifically generated for specific emphasis areas in the review.
CORS (Consolidated Operation Reports System) - This contains information on the series of reports PAIR has posted on the IBMIS repository - cycle time, months in process, open inventory, return closures, new starts, return surveys, expiring statutes, required specialist referrals, etc. - with group level results.
The following information is input to the CIC Plan database:
Industry of case
Audit sit zip code
Team Manager name and group number
Industry, DFO, territory, POD city and state
Team member name, type, group, territory, DFO,planned staff days, POD location
In addition, on the Long Range Planning feature of IMS plan input will be expanded to include planned returns and staff days by activity codes.
Guidance for changes to items input to either the database or the Long Range Planning feature of IMS may be revised by the Headquarters Staff on an annual basis.
This Exhibit describes the criteria to be used in identifying those cases for the CIC Program. The points should be combined to determine the score in the following 7 areas. LB&I job aids website http://lmsb.irs.gov/reference/audit_tools/downloads/tools/CIC-Pointing_Formula_IMS_Phase_II.xls may be used to access a current CIC pointing calculation worksheet.
Total assets are determined by combining the assets of the principal taxpayer with those of all effectively controlled domestic and foreign entities. The total points assigned to financials, utilities, insurance companies, mutual funds, and stock brokerage firms shall not exceed 12 points for gross assets. In applying this criterion, use the tax year in the cycle being pointed that has the greatest gross assets. The following asset ranges will be used:
1 point up to $500 Million in assets;
2 points for assets in the $500 Million to $1 Billion asset range;
3 points for assets in the $1 Billion to $2 Billion asset range;
4 points for assets in the $2 Billion to $5 Billion asset range;
5 points for assets in the $5 Billion to $8 Billion asset range;
Add 1 point for each additional $3 billion in assets or fraction thereof.
Gross receipts are determined by combining the gross receipts of the principal taxpayer with those of all effectively controlled domestic and foreign entities. The total points assigned to financials, utilities, insurance companies, mutual funds, and stock brokerage firms shall not exceed 10 points for gross receipts. In applying this criterion, use the tax year in the cycle being pointed that has the greatest gross receipts.
1 point up to $1 Billion in gross receipts;
2 points for gross receipts in the $1 Billion to $2 Billion range;
3 points for gross receipts in the $2 Billion to $3 Billion range;
4 points for gross receipts in the $3 Billion to $5 Billion range;
5 points for gross receipts in the $5 Billion to $10 Billion range;
Add one point for each additional $3 Billion, or fraction thereof, in excess of $10 Billion in gross receipts.
Separate and distinct major entities (subsidiaries, branches, and operating divisions regardless of form) are included if the resources are available to address the large, unusual and questionable items in the entity and the examination time would require 50 or more staff days. This determination should be made as part of a documented risk assessment. Do not include domestic subsidiaries (such as marketing, production, or research subsidiaries) or service organizations (such as management, real estate holdings, financial, or data services subsidiaries whose principal customer is the parent or a related entity) unless transactions among those entities have potential tax consequences, as in the case of foreign subsidiaries, branches, and divisions. Points are to be computed as follows:
Number of Entities 1 - Number of Points 1;
Number of Entities 2-5 - Number of Points 3;
Number of Entities 6-9 - Number of Points 5;
Number of Entities 10-13 - Number of Points 7;
Number of Entities Over 13 - Number of Points 9.
Multiple Industry Status
Separate and distinct major industries (subsidiaries, branches, and operating divisions regardless of form), are included if the resources are available to address the large, unusual and questionable items in the industry and the examination time would require 100 or more staff days of planned examination time. This determination should be made as part of a documented risk assessment.
Domestic subsidiaries (such as marketing, production or research subsidiaries) or service organizations (such as management, real estate holdings, financial or data service subsidiaries) are not included if the principal customer is the parent or a related entity, unless transactions have potential tax consequence among those entities, as in the case of foreign subsidiaries, branches, and divisions. Add one point for each industry
Total Foreign Assets
Total Assets from Schedule F for all Forms 5471 (Line 13b for all Forms 5471) are included. There is a maximum of 10 points for this factor. Points are to be computed as follows:
Up to $250 Million – 1 point;
$250 Million to $6 Billion – 2 points;
$6 Billion to $100 Billion – 3 points;
Add 1 point for each additional $100 Billion or fraction thereof.
Total Related Transactions
Total of transactions from Schedule M for all Forms 5471, (Lines 1 through 8 and 10 through 17 only as shown on the December 2005 form or equivalent). For Foreign Controlled Corporations, transactions included from Part IV, lines 1 through 6, lines 8 through 10, lines 12 through 17, and lines 19 through 21, (as shown on the 2006 form or equivalent) for all Forms 5472. There is a maximum of 9 points for this factor. Points are to be computed as follows:
Up to $1 Million – 1 point
$1 Million – $40 Million – 2 points;
$40 Million - $1 Billion – 3 points;
Add 1 point for each additional $1 Billion or fraction thereof
The sum of Foreign Taxes Paid or Accrued and Foreign Taxes Deemed Paid are included from Form 1118, Schedule B, Part II, lines 1 and 2 as shown on the December 2004 form (or equivalent). There is a maximum of 8 points for this factor. Points are to be computed as follows:
Up to $7 Million – 1 point;
$7 Million - $100 Million – 2 points;
$100 Million - $200 Million – 3 points;
Add 1 point for each additional $200 million or fraction thereof.
|Initial Risk Analysis||Signed by TM||Signed by TTY MGR|
|Mid-cycle Risk Analysis||Signed by TM||Signed by TTY MGR|
|Formal Planning Meeting||No||Yes|
|Formal Opening Meeting||No||Yes|
|Team Manager Planning File||No||Yes|
|Rev. Proc 94-69||No||Yes|
|Cycle Time Goals*||9 months||18 months|
*Risk analysis should be the first step in any exam. Based on the risk analysis the ECD should be set. The goals above are averages of all case closures in LB&I. Average closures includes partnerships, S corporations, individuals, and every corporation including decontrolled CIC cases.
Note: This is a list of the significant distinctions between a CIC and IC case. This is not intended to list all of the differences.