The IRS Large Business and International Division (LB&I) has announced (LB&I-04-0812-010) that it will no longer use its "tiered issue process" to manage audit issues. Instead, LB&I is creating a knowledge management network with issue practice groups (IPGs) for domestic issues and international practice networks (IPNs) for international issues.

The tiered issue process was established in 2006 to promote greater consistency and accountability in the resolution of "high-risk" compliance issues. Under the process, many issues were assigned to one of three tiers and managed by issue management teams. These teams were responsible for developing resolution strategies and tools, and each tier carried specific requirements for coordinating audit issues. Examiners were required to address any Tier I issues on a return, though having a Tier I issue did not mean a taxpayer's return would automatically be selected for audit.

Effective with LB&I's announcement, all Tier I, II and III issues are no longer tiered and should be risk-assessed and examined in the same manner as any other issue in an audit. All prior industry director directives issued under the tiered issue process are withdrawn.

LB&I said the new IPGs and IPNs are designed to be a resource for examiners to use in audits and to manage compliance priorities. According to the IRS, the goals are to:

  • provide LB&I examiners with clear and timely guidance on how to address issues,
  • promote collaboration among LB&I employees,
  • increase accountability and transparency in the resolution of issues, and
  • enable robust lines of communication with taxpayers.

The end of the tiered issue process should give audit teams more flexibility to settle issues, but LB&I is instructing front-line managers, territory managers and directors of field operations to consult IPGs and IPNs when reviewing cases and considering the proper treatment of issues under their supervision.

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