LB&I
Subscribe to LB&I's Posts

An Overview of IRS Organization and Operations

McDermott’s Federal Tax Controversy Practice Group focuses on representing taxpayers in tax disputes with the Internal Revenue Service (IRS) in IRS examinations and IRS administrative appeals as well as litigation in federal trial and appellate courts. In resolving such disputes, it is helpful for taxpayers (and tax practitioners) to understand how the IRS operates as an organization in addition to its chain of command. To that end, below, we set forth some basic information regarding the organization and operations of the IRS.

Many of our clients are audited by the IRS’s Large Business & International (LB&I) division. On our Resources page, we added an LB&I Resources document that details its organization, including the roles and responsibilities of an LB&I examination team.

OVERVIEW OF THE IRS’S ORGANIZATION AND OPERATIONS

The IRS is organized to carry out the responsibilities of the US Secretary of the Treasury under Internal Revenue Code Section 7801. The Secretary has the authority to administer and enforce the internal revenue laws and the power to create an agency to enforce said laws. The IRS was created based on this grant of authority. The IRS Commissioner administers and supervises the execution and application of the internal revenue laws.

The IRS is organized into two primary organizations—the Deputy Commissioner for Services and Enforcement (DCSE) and the Deputy Commissioner for Operations Support (DCOS).

DCSE oversees the following operating divisions:

  • Wage and Investment (W&I)
  • Small Business/Self-Employed (SB/SE)
  • Large Business and International (LB&I)
  • Tax Exempt and Government Entities (TE/GE)
  • Criminal Investigation (CI)
  • Office of Professional Responsibility (OPR)
  • Whistleblower Office
  • Return Preparer Office (RPO)
  • Online Services

DCOS oversees the following integrated support functions:

  • Information Technology (IT)
  • Chief Financial Office (CFO)
  • Facilities Management and Security Services (FMSS)
  • Human Capital Office (HCO)
  • Private, Government Liaison and Disclosure (PGLD)
  • Equity, Diversity and Inclusion (EDI)
  • Office of the Chief Risk Office (CRO)
  • Procurement
  • Research Applied Analytics and Statistics (RAAS)

Certain key functions report directly to the IRS Commissioner. Those include:

  • Chief Counsel (Counsel)
  • Communications and Liaison (C&L)
  • IRS Independent Office of Appeals (Appeals)
  • National Taxpayer Advocate

Practice Point: IRS examinations are a fact of life, especially for large corporate taxpayers. The above overview and the LB&I Resources guide provide more information on how the IRS is organized and operated. The more taxpayers and tax practitioners know, the better the odds of a smooth and efficient examination process.




IRS Provides Guidance to LB&I Examiners on Requesting Participation in Appeals Conferences

We recently covered the Appeals Team Case Leader Conferencing Initiative: Summary of Findings and Next Steps (Appeals Summary) in relation to the participation of Large Business & International (LB&I) exam teams and Internal Revenue Service (IRS) Chief Counsel attorneys in conferences before the IRS Independent Office of Appeals (IRS Appeals). As discussed, the Appeals Summary concluded that IRS Appeals would be given discretion to invite exam teams and Chief Counsel attorneys to attend IRS Appeals conferences in the future. In determining whether such discretion should be exercised in a case, the Appeals Summary states that both the taxpayers’ and the exam teams’s views should be solicited and considered.

In a November 8, 2021, memorandum (LB&I Memorandum), the Acting Assistance Deputy Compliance Integration for the LB&I Division Theodore D. Setzer provided guidance to LB&I employees on requesting participation. The LB&I Memorandum reflects the LB&I Divisons’s view that participation in certain IRS Appeals conferences is important for fostering effective tax administration and assisting IRS Appeals in resolving tax controversy on a basis which is fair and impartial to taxpayers and the government. Thus, LB&I employees “should continue to request to be invited where LB&I participation would help improve understanding of factual and legal differences in a case.” The LB&I Memorandum directs LB&I employees to consider the following nonexclusive list of factors before making a request to attend an IRS Appeals conference:

  • The case is factually complex;
  • History has shown lack of meeting of the minds regarding the underlying facts or legal positions;
  • The taxpayer’s characterization of LB&I’s position in the formal written protest is not accurately stated and participation by both the taxpayer and LB&I at the Appeals conference will assist Appeals in both bridging the lack of understanding and better understanding the case;
  • The taxpayer has presented multiple legal arguments or authorities that it relies on to support its position;
  • The case involves outside experts or expert opinions;
  • The case involves an issue of importance to tax administration, such as a case of first impression; one involving the interpretation of a new statute or regulation when there are no reported opinions or when published guidance is pending or where precedent is otherwise absent or conflicting; one affecting large numbers of taxpayers or an industry; or one falling within an operating division’s major strategic goal;
  • The case involves an issue in which the Government seeks to distinguish a position set forth in published guidance;
  • The case involves an issue coordinated under strategic compliance/coordination initiative such as LB&I campaigns or
  • A tax shelter case involving a “Listed Transaction” or substantially similar transaction within the meaning of Treas. Reg. 1.6001-4(b)(2), or a “Transaction of Interest” under Treas. Reg. 1.6011-4(b)(6).

The LB&I Memorandum states that a participation request must be made in one of two ways. The first is by indicating the request on Form 4665, Report Transmittal. According to Internal Revenue Manual Section 4.10.8.12.6 (03-25-2021), Form 4665 is used to [...]

Continue Reading




IRS Audit Update: Communicating Via Video Meetings and Secure Messaging

The traditional audit experience for taxpayers large and small has, like many things, been impacted by COVID-19. Taxpayers and the Internal Revenue Service (IRS) have been forced to navigate audits in a remote environment, causing issues related to exchanging documents, engaging in discussions and even filing tax returns and other documents. The IRS has worked hard to adjust to the pandemic and made significant strides in maintaining an efficient audit process.

The key to a well-organized and just audit process is communication between taxpayers and the IRS. In a welcome development, the IRS Large Business & International (LB&I) Division recently announced that effective October 18, 2021 (and expiring October 18, 2023), IRS employees must grant an LB&I taxpayer’s request for a video meeting in lieu of an in-person or telephone discussion. The video meeting must be through IRS-approved solutions, which is currently WebEx and ZoomGov with a future phase-in of Microsoft Teams planned. Screen sharing is permitted but files may not be transferred on these platforms.

Additionally, the IRS has been offering the Taxpayer Digital Communications (TDC) secure messaging system as another communication method. The TDC system avoids the need to send documents to the IRS via facsimile and allows the transfer of files of up to one gigabyte in a secure messaging environment. The IRS is also working with corporate taxpayers on third-party virtual reading rooms that permit IRS employees to review documents without downloading them.

Practice Point: The use of video meetings and the TDC system are two ways that the IRS and taxpayers can continue to communicate effectively and efficiently in a remote working environment. The IRS is continuing to roll out new programs and initiatives in this area and the McDermott tax team will continue to provide updates as they become available.




Weekly IRS Roundup October 25 – October 29, 2021

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of October 25, 2021 – October 29, 2021. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

October 25, 2021: The IRS released a memorandum implementing the Large Partnership Compliance (LPC) Pilot Program, including the identification, selection and delivery of large partnership tax returns, exam procedures and feedback.

October 25, 2021: The IRS released a memorandum providing emergency guidance on emails with personal accounts in exigent circumstances to IRS employees responsible for protecting sensitive but unclassified data, including tax information and personally identifiable information.

October 26, 2021: The IRS and US Department of the Treasury (Treasury) published a notice and request for comments concerning the foreign tax credit used by individuals, estates or trusts. Comments are requested on Form 1116, Foreign Tax Credit (Individual, Estate or Trust), and Schedules B and C, which are used by individuals (including nonresident aliens), estates or trusts who paid foreign income taxes on US taxable income to compute the foreign tax credit. Written comments are due on or before December 27, 2021.

October 26, 2021: The IRS published a practice unit examining education expenses claimed by Nonresident Alien Individual (NRA) employees. The unit focuses on examining the education expenses claimed by NRAs engaged in a US trade or business as employees and discusses the issues and audit steps that examiners will need to consider for these taxpayers.

October 27, 2021: The IRS published a new release announcing that victims of Hurricane Ida in parts of Mississippi now have additional time—until January 3, 2022—to file various individual and business tax returns and make tax payments. The deadline remains November 1, 2021, for affected taxpayers in other parts of Mississippi.

October 28, 2021: The IRS and Treasury published a notice and request for comments concerning Form 3468 (Investment Credit). The form is used to compute taxpayers’ credit against their income tax for certain expenses incurred for their trades or businesses. Written comments are due on or before December 27, 2021.

October 29, 2021: The IRS and Treasury published a notice and request for comments concerning Form SS-4 (Application for Employer Identification Number). The form is used by taxpayers who are required to have an identification number for use on any return, statement or other document to obtain such number. Written comments are due on or before December 28, 2021.

October 29, 2021: The IRS and Treasury published a notice and request for comments concerning rules relating to the manner and method of reporting and paying the nondeductible 50% excise tax imposed by Section 5881 with respect to the receipt of greenmail. Written comments are due on or before December 28, 2021.

October 29, 2021: The IRS released a memorandum [...]

Continue Reading




Weekly IRS Roundup October 18 – October 22, 2021

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of October 18, 2021 – October 22, 2021. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

October 18, 2021: The IRS announced that beginning October 18, its Large Business and International (LB&I) Division will accept all taxpayer requests to meet with IRS employees using secure video conferencing.

October 20, 2021: The IRS published an announcement, reminding employers that the next quarterly payroll tax return is due November 1, 2021. The IRS urged employers to use the speed and convenience of filing the returns electronically.

October 21, 2021: The IRS and US Department of the Treasury (Treasury) published a notice and request for comments concerning Form 4810 (Request for Prompt Assessment Under Internal Revenue Code Section 6501(d)). The form is used to help locate a return and expedite the processing of a taxpayer’s request. Written comments are due on or before December 20, 2021.

October 21, 2021: The IRS published an announcement, reminding the more than 759,000 federal tax return preparers that they must renew their Preparer Tax Identification Numbers (PTINs) now for 2022. All current PTINs will expire December 31, 2021.

October 21, 2021: The IRS published a notice, setting forth current standards that a limited liability company (LLC) must satisfy in order to receive a determination letter recognizing it as tax exempt under Section 501(a) and described in Section 501(c)(3). The notice also requests comments on these standards, as well as specific issues relating to tax exempt status for LLCs, to assist the Treasury and the IRS in determining whether additional guidance is needed concerning the standards that an LLC must satisfy in order to be exempt from taxation by reason of being described in Section 501(c). Written comments should be submitted by February 6, 2022.

October 22, 2021: The IRS published an announcement, reminding employers that they generally will not jeopardize the tax status of their pension plans if they rehire retirees or permit distributions of retirement benefits to current employees who have reached age 59 and a half or the plan’s normal retirement age. The IRS posted FAQs to help employers impacted by COVID-19, which resulted in labor shortages.

October 22, 2021: The IRS published Revenue Procedure 2021-42, providing guidelines and general requirements for the development, printing and approval of the 2021 substitute tax forms. The IRS accepts quality substitute tax forms that are consistent with the official forms and have no adverse impact on processing.

October 22, 2021: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Robbie Alipour in our Chicago office for this week’s roundup.




Weekly IRS Roundup October 4 – October 8, 2021

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of October 4, 2021 – October 8, 2021. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

October 4, 2021: The IRS released a practice unit, providing tax law and audit steps for reviewing a reseller’s uniform capitalization cost computations under section 263A. The practice unit focuses on the simplified production method and does not cover the final section 263A Treasury Regulations that were effective November 20, 2018.

October 4, 2021: The IRS published a news release, announcing 18 self-study seminars available online through the IRS Nationwide Tax Forums. The seminars cover topics such as the gig economy and virtual currency.

October 4, 2021: The IRS published instructions for Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)) concerning:

  • Guidance under section 1446(f) (withholding on partnership interest dispositions)
  • New lines 6a and 6b (addressing foreign tax ID number (FTIN) matters)
  • Tax treaty benefits claims (requiring representations)
  • Section 6050Y reporting (covering life insurance contracts and reportable death benefits)
  • Electronic signatures (updated to reflect new guidance)

October 5, 2021: The IRS published a news release, announcing that Free File remains available through October 15 for taxpayers who still need to file their 2020 tax returns. Free File is the IRS’s public-private partnership with tax preparation software industry leaders to provide their brand name products for free.

October 5, 2021: The IRS released a memorandum, expanding the criteria for collection due process cases that qualify for a rapid response appeals process under IRM 8.22.6.2 and related subsections.

October 5, 2021: The IRS released a memorandum concerning interim guidance regarding the IRS Independent Office of Appeals’ steps and procedures for its nationwide pilot program: The Appeals Electronic Case Files Initiative for Large Business & International (LB&I) report generation software (RGS) examination cases. This guidance is applicable to LB&I RGS International Individual Compliance cases only and excludes other large cases such as Tax Equity and Fiscal Responsibility Act of 1982 cases, Bipartisan Budget Act of 2015 cases and Syndicated Conservation Easement cases.

October 5, 2021: The IRS released a memorandum updating procedures where an organization requests a change in a section 501 subsection during the application process by submitting one application form to replace a different application form. The procedures are effective 30 days after issuance of the memorandum and supersedes those in TEGE-07-0421-0010 (April 29, 2021).

October 7, 2021: The IRS published a program letter indicating that, in Fiscal Year 2022, Tax Exempt (TE)/Government Entities (GE) commissioners expect to invest in new resources to expand outreach to the exempt sector as well as increase their enforcement staff.

October 8, 2021: The IRS released its weekly list of written [...]

Continue Reading




The Results are in: IRS Appeals Retains Discretion to Continue to Allow Exam Teams and Chief Counsel to Attend Conferences

The IRS Independent Office of Appeals (IRS Appeals, Appeals) has seen many changes over the past several years. One of the more controversial and publicized change related to the 2017 pilot program to test whether inviting Large Business & International (LB&I) exam teams and Chief Counsel attorneys to engage with taxpayers and their representatives at the IRS Appeals conference would improve Appeals’ ability to work large, complex cases. The pilot program technically applied only to IRS Appeals’ largest and most complex cases, however, the IRS also revised the Internal Revenue Manual to provide IRS Appeals with discretion to invite exam teams and Chief Counsel attorneys to any conference. The pilot program ended on May 1, 2020, and the IRS has been gathering feedback and data from multiple sources (both within and outside the IRS) to determine the effectiveness of the program.

The results are in, as reflected in the recently released Appeals Team Case Leader Conferencing Initiative: Summary of Findings and Next Steps (IRS Appeals Summary). Generally, IRS Appeals Officers found that the exam team’s participation improved their understanding of the dispute and helped them identify, narrow and resolve factual and legal differences between the parties before engaging in settlement negotiations with taxpayers. On the other hand, some taxpayers expressed concerns over the presence of exam teams and Chief Counsel attorneys because they found it hindered the ability to resolve cases without litigation and required more concrete ground rules before the start of the conference.

The IRS Appeals Summary concluded that the process was generally helpful and that IRS Appeals would be given discretion to invite exam teams and Chief Counsel attorneys to attend the IRS Appeals conference in the future. In exercising such discretion, the Appeals Officer must consider several factors and solicit and consider both the taxpayers’ and the exam team’s views as to whether joint participation would be helpful.

Practice Point: Our experiences with the exam team and Chief Counsel attorneys attending the IRS Appeals conference has been mixed. Similar to concerns raised by other taxpayers, we have seen certain IRS personnel repeatedly interrupt the taxpayer during the presentation of their case and offer the exam team’s views of an acceptable settlement. However, we have also seen situations where the IRS Appeals Officer has been able to hold IRS personnel accountable by questioning factual and legal positions. In any event, exam team participation is here to stay and LB&I taxpayers and their representatives need to be aware of the new ground rules in this area.

Prior coverage of changes within the IRS Appeals can be accessed below.




Weekly IRS Roundup September 7 – September 11, 2020

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 7, 2020 – September 11, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

September 4, 2020: The IRS published Competent Authority Arrangements between the United States and the Republic of Serbia and the United States and the Commonwealth of the Bahamas. Each country previously signed an intergovernmental agreement (IGA) to implement the Foreign Account Tax Compliance Act (FATCA). The new arrangements establish procedures for IGA-related automatic exchange obligations and for the exchange of information.

September 9, 2020: The IRS publishing news release reminding self-employed individuals, investors, retirees and others with income not subject to withholding that third-quarter estimated tax payments for 2020 are due September 15.

September 9, 2020: The IRS announced that, as part of a larger effort to reach underserved communities, it is taking a number of aggressive steps to expand information and assistance available to taxpayers in additional languages, including providing the Form 1040 in Spanish for the first time.

September 10, 2020: The IRS published a notice and request for comments concerning United States gift (and generation-skipping transfer) tax return (Form 709). Form 709 is used by individuals to report transfers subject to the gift and generation-skipping transfer taxes and to compute these taxes. The IRS uses the information to collect and enforce these taxes, verify that the taxes are properly computed and compute the tax base for the estate tax. Comments are due on or before November 9, 2020.

September 10, 2020: The IRS published a notice and request for comments concerning Form 15254 (Request for Section 754 Revocation) which is a new form for a partnership to submit a revocation request from an election to adjust the basis of partnership property. Comments are due on or before November 9, 2020.

September 10, 2020: The IRS published a practice unit focusing on audit techniques for examiners assigned foreign earned income exclusion cases.

September 10, 2020: The IRS published a news release urging individuals who owe taxes but have not yet filed for 2019 to act now to avoid larger penalties that, by law, start after September 14.

September 11, 2020: The IRS released Internal Revenue Bulletin 2020-38, dated September 14, 2020, containing the following highlights: (1) Announcement 2020-15 (Exempt Organizations); (2) Announcement 2020-16 (Exempt Organizations); (3) Notice 2020-65 (Administrative, Employment Tax); (4) Notice 2020-68 (Employee Plans); (5) Revenue Procedure 2020-40 (Employee Plans); and (6) TD 9907 (Income Tax).

September 11, 2020: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Robbie Alipour in our Chicago office for this week’s [...]

Continue Reading




IRS Targets Private Foundations That May Be Used by Wealthy Taxpayers in Tax Planning

​In remarks at the NYU Tax Controversy Forum on June 18, 2020, Internal Revenue Service (IRS) officials indicated that the agency is analyzing the use of private foundations for tax planning. Ms. Tamera Ripperda, who is the commissioner of the Tax Exempt and Government Entities (TEGE) Division and previously served as the industry director for the Global High Wealth in the Large Business and International (LB&I) Division, said the agency is focusing on cross-division collaborations to target high-income, high-wealth taxpayers.

The TEGE Division has trained more than 400 LB&I agents this year on the use of private foundations in tax planning for high-net-worth individuals. Additionally, the divisions are using data analytics to identify linkages between LB&I and TEGE cases. Commissioner Ripparda stated that TEGE has identified more than 1,000 private foundations “that have linkages or that are interwoven into these global high-wealth enterprises,” and the IRS will likely examine many of these entities.

Practice Point: Several years ago, the IRS launched its “Wealth Squad,” a team of agents trained in looking through entities and tax structures to focus on the overall strategy of ultra-wealthy taxpayer to reduce their tax incidence. (See this link for more information on that program.) The IRS’s examination of private foundations as a tool to reduce taxes for wealthy is the next chapter for the IRS to crack down on perceived abuse. It is clear that lawmakers and US Treasury officials are increasingly focused on perceived lax enforcement and low audit rates of high-income, high-wealth taxpayers. Taxpayers who use private foundations in their planning should begin working with their tax advisers now to review potential exposure and make sure they are prepared for an expected IRS audit.




Weekly IRS Roundup May 18 – May 22, 2020

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of May 18 – May 22, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

May 18, 2020:  The U.S. Tax Court announced that comments to the proposed amendments to the Rules of its Practice and Procedure should be emailed to Stephanie A. Servoss, Clerk of the Court, at Rules@ustaxcourt.gov. The Tax Court has not received mail since March 19, 2020.

May 18, 2020:  The IRS added approximately 3,500 phone operators to answer Economic Impact Payment (EIP) questions.

May 19, 2020:  The Large Business & International (LB&I) released information regarding the Swiss Bank Program Campaign. The program allows Swiss financial institutions to provide information on the U.S. persons with beneficial ownership of foreign financial accounts. The campaign will address noncompliance of such taxpayers.

May 20, 2020:  The IRS announced that Andy Keyso has been selected to serve as the Chief of the IRS Independent Office of Appeals, the IRS announced. For more information on Mr. Keyso and IRS Appeals, see our write-up here.

May 21, 2020:  The IRS announced that the 2020 IRS Nationwide Tax Forums will be held virtually in 2020 with a series of live-streamed webinars beginning this July. The 2020 Nationwide Tax Forums will begin on July 21 and continue through August 20.

May 22, 2020: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Emily Mussio in our Chicago office for this week’s roundup.




STAY CONNECTED

TOPICS

ARCHIVES