n recent years, the Internal Revenue Service has made a concerted effort to give both business and individual taxpayers options for resolving tax controversies earlier in the return filing and collection process. For business taxpayers, it set up—now on a permanent basis—an industry issue resolution (IIR) program, to settle some common disputes without having taxpayers involved in an IRS examination.
The program was designed to provide guidance on frequently disputed or burdensome issues common to a significant number of business taxpayers (regardless of size).
How the process works. Taxpayers, as well as industry associations and other groups representing taxpayers, are invited to suggest issues and possible options for resolution. Submissions should describe the proposed issue and explain why guidance is needed. They also may include an analysis of how the issue could be resolved.
Appropriate issues. In selecting issues to address, the service considers their “appropriateness,” the likelihood it can provide guidance in a timely manner and the availability of necessary staff and resources.
An appropriate issue generally will have two or more of the following characteristics:
Uncertainty as to the tax treatment for a given situation.
Frequent, often repetitive examinations of the same issue.
Significant burden on the taxpayer.
Materiality, affecting a significant number of taxpayers, either within an industry or across industry lines.
A factual determination as a major component.
Issues that would not be appropriate for the program include those that
Are unique to one taxpayer (or a small group).
Are under the jurisdiction of the IRS’s exempt organization or government entities divisions.
Involve transactions that lack a bona fide business purpose or that are undertaken with a significant purpose of reducing (or avoiding) federal taxes.
Involve certain international tax issues.
Review and resolution. After reviewing the issues submitted, the IRS, the Office of the Chief Counsel and the Treasury will select the ones for resolution. A team of officials then will examine each issue and offer a solution. If the team needs additional information, it may request it from the interested party (or parties) that suggested the issue. This taxpayer (or group) can provide information to the team but cannot participate in the decision-making process.
Guidance. Once a recommendation is approved, the IRS will publish an explanation of the solution reached. The form of the resulting guidance most likely will be a revenue ruling or revenue procedure.
Benefits. The benefits of the IIR program include
Resolution of the same issue for many taxpayers.
Establishment of a consistent IRS position.
Reduction in the cost and burden of disputing issues (for both taxpayers and the service).
Elimination of tax-treatment uncertainty.
Resolution of treatment for financial statement purposes.
Drawbacks. The downside to this program includes
An industry settlement that may be unfavorable to a particular company or group of companies.
The likelihood the IRS would not consider a taxpayer’s individual situation on a case-by-case basis.
Taxpayers’ lack of involvement (aside from providing documentation) and of any decision-making authority.
For a discussion of developments involving practice before the IRS, see the Tax Practice and Procedures column, edited by Mark Ely, in the July 2002 issue of The Tax Adviser.
—Nicholas Fiore, editor
The Tax Adviser