Understanding the Large Business and International (LB&I) Division Examination Process

Pre-Audit Planning, Examination Procedures and Issue Resolution Techniques

Your Rights as a Taxpayer - As a taxpayer, you have the right to fair, professional, prompt, and courteous treatment by IRS employees.

• Notice 609 - Privacy Act (pdf)
• Publication 1 – Taxpayer Rights (pdf)
• Publication 3498 – The Examination Process (pdf)

What to Expect If Your Tax Return is Selected for Examination

• Publication 556 (pdf) - The Examination of Returns, Appeal Rights, and Claims for Refund
  
• What is meant by the Start of an Examination
• What Occurs During an Examination
  • Internal Revenue Manual (IRM) 4.46.2, Administrative Matters and Annual Compliance Plan
  • IRM 4.46.3, Planning the Examination
  • IRM 4.46.4, Inspection and Fact Finding
  • IRM 4.46.5, Issue Development, Proposal and Resolution
  • IRM 4.46.6, Workpapers and Reports Resources
  • IRM 4.46.7, Post Examination Activities
    
• Generally Requested Documents
  • Mandatory IDR
    
• Case Classification
  • Coordinated Industry Case (CIC) Definition
  • Industry Case (IC) Definition
  • IRM 4.46.2.4 – 4.46.2.6.2

Revenue Procedure 94-69 (15-Day Disclosure Provision)

Revenue Procedure 94-69 provides that certain items disclosed within a 15-day time period may not be subject to the accuracy-related penalty. The procedure applies only to CIC Cases.

Facility Considerations

At the beginning of every examination, several practical matters regarding the examination site will be discussed.

• Facility Considerations

Recommendations to Facilitate Open Communication

Open communication between the examination team and the taxpayer is the single most important action in completing an efficient and timely examination. Communication Tips give key suggestions in keeping the communication lines open and the examination progressing efficiently.

• Form 4564 (pdf)
• Form 5701 (pdf)
• IRM 1.10.3.2.1 (7)

The Quality Examination Process (QEP)

The QEP emphasizes the importance of ongoing dialogue between the examination team and taxpayer throughout execution of the examination plan. QEP replaced the Joint Audit Planning Process on June 1, 2010.

• Publication 4837
• IRM 4.46 - LB&I Guide for Quality Examinations

The CAP approach leverages corporate governance and financial reporting requirements imposed by the Sarbanes-Oxley Act of 2002. Under CAP, a taxpayer works cooperatively with LB&I Revenue Agents in a pre-filing environment to resolve issues of tax controversy and to determine the proper tax treatment of completed transactions. The link below provides additional information for this pilot program.

• Compliance Assurance Process

Pre-Audit Planning, LIFE

Several planning steps occur during the preliminary phase of an examination. For example, certain records help to determine the scope of an examination. The examination team will consider the number and type of audit specialists needed. For instance, a computer audit specialist (CAS) may begin the process of identifying and obtaining computer records needed during the examination. In addition, the examination team will consider the use of LIFE (Limited Issue Focused Examination) rather than a traditional broad-based examination. Finally, the examination team will begin work on an audit plan.

• Automated Records (Revenue Procedure 98-25)
• Specialists
• LIFE
• Examination Plan
  • Form 4764

Examination of Books and Records

The examination team follows standard procedures during an examination. Established procedures for requesting information are in place. In cases with refunds in excess of $2 million dollars, the Joint Committee of Taxation requires additional procedures. The IRM requires the inspection and, if warranted, the examination of certain items as part of any examination. Procedures are in place to extend the statute of limitations, when necessary, to complete the examination.

• Information Document Requests
  • Form 4564 (pdf)
  • IRM 4.46.4.4 – 4.46.4.4.4
• Joint Committee Procedures
  
  • IRM 4.36.1 - 4.36.1.3
  • IRM 4.36.2, Identification of Joint Committee Cases
• Concurrent Consideration of Related Returns; Compliance Checks; and Support Examinations of Related Entities in Different Locales
• Statute of Limitations (Publication 1035) (pdf)

Coordinated Issues

Certain issues affect a significant number of taxpayers. In order to ensure a uniform application of the law, Coordinated Issue Papers are available for these issues.

LB&I Issue Tiering Process

Recently, the Internal Revenue Service established procedures regarding the involvement of LB&I Executives, Senior Leaders, Technical Advisors or Field Advisors in an ongoing examination when industry-aligned cases are not under the line authority of the Industry Director. IRM sections 4.51.1 and 4.51.6 outline these procedures. Issues managed under the new procedures are classified as Tier I, Tier II and Tier III.

• Issue Tiering - LB&I
• IRM 4.51.1 – Rules of Engagement
• IRM 4.51.5 – Industry Focus and Control of LB&I Compliance Issues (Tier I, Tier II and Tier III)
• IRM 4.51.6 – 4.51.6.11 and Exhibit 4.51.6.1

The Examination Team will consider and discuss whether any Early Resolution Tools may apply to your particular situation.

• Settlement Authority for Coordinated Issues
  • Delegation Order 4-25
  • IRM 4.46.5.6 - 4.46.5.6.3
• Settlement Offers and Closing Agreements in CIC Cases Where Appeals has Effected a Settlement
  • Delegation Order 4-24
  • IRM 4.46.5.5.3 and IRM 4.46.5.5.4
• Industry Issue Resolution (IIR) Overview
• Pre-Filing Agreements (PFA)
  
• Determination Letters and Letter Rulings
  
  • Revenue Procedure 2012-1
  • Revenue Procedure 2012-3
  • Revenue Procedure 2012-7
• Advance Pricing Agreements (APA)
  • APA Program Documentation
  • Published Guidance & Tax Treaty Information
  • Contact Us
• Technical Advice
  • Revenue Procedure 2012-2
• Accelerated Issue Resolution
  
  • Revenue Procedure 94-67
  • IRM Sections 4.46.5.6.8 - 4.46.5.6.9
• Early Referral to Appeals
  • Revenue Procedure 99-28
  • Section 4.46.5.6.10 of IRM 4.46.5.6 - Early Referral to Appeals
• Comprehensive Case Resolution (CCR) Pilot (CIC only)
  
  • Notice 2001-13
  • Notice 2000-43
• LB&I Fast Track Process
  
• Mediation Procedures for Appeals
  
  • Revenue Procedure 2009-44
  • IRM 35.5.5.4 - 35.5.5.8(2), Mediation
• Arbitration Procedures for Appeals
  • Revenue Procedure 2006-44
  • Announcement 2008-111
  • IRM 35.5.5.1 - 35.5.5.3
  • IRM 8.26.6

Examination Closing Procedures

• Notice of Proposed Adjustment
  
  • Form 5701 (pdf)
• Revenue Agent Report/30-Day Letter
  • Form 4549
• Agreement with Revenue Agent Report, Form 870 (pdf)
• Closing Agreements
  • Form 866 (pdf)
  • Form 906 (pdf)
• Partial Agreements
  
• Internal Revenue Service's Response to Protest (Rebuttal)
  • IRM 4.46.7.2.5
• Post Examination Critique
  • IRM 4.46.7.4 - Post Examination Critique

Appeals

The Appeals process is available to taxpayers who do not agree with examination findings.

• Publication 5 – Your Appeal Rights and How to Prepare a Protest If You Don’t Agree

LB&I Structure

• Current LB&I organization chart - LB&I Division by Industry
• LB&I Directory - Current listing of the LB&I Management team

LB&I Counsel Structure:

• Chief Counsel Organization Chart (pdf)
• Chief Counsel Organization Chart – LB&I (pdf)
• Associate Chief Counsel Corporate (pdf)

Appeals' Structure

• Appeals' Organization Chart (pdf)

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