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LB&I Agents Lose Autonomy To Centralized Office That Will Be Using Data to Identify Compliance Risks For Audit!

Tax practitioners will face new questions from examination teams as the IRS selects compliance risks based on data, in the Large Business and International Division's (LB&I) move from individual audits of multinationals to broader considerations involving risk assessment.

As opposed to the exam team coming out and identifying what areas will be looked at; the issues will be per-identified for  the revenue agent. This change shifts the responsibility of selecting items to examine in an audit from the field agents to the revenue agents who are analyzing data in a centralized office. Exam teams will however, have the ability to raise other issues not identified from the data. LB&I Commissioner Douglas W. O'Donnell said that LB&I will be reorganizing its exam structure to save resources and create a more centralized approach.

A new organizational design will be put in place to facilitate transition to the new ways of doing business. The new LB&I will be organized around nine “practice areas.” Four of the practice areas will be organized geographically and appear to be structured similar to the current five industry directors with:

  • Directors of Field Operations (DFO) and 
  • Territory Managers (TM) constituting the management structure within the practice area.

The other five practice areas (or “PAs”) are delineated along technical or subject matter lines:

  • Pass-through entities
  • Enterprise activities
  • Cross-border activities
  • Withholding and international individual compliance
  • Treaty and transfer pricing operations

Similarly, it is envisioned that all of the International Examiners will likely be housed within at least two of the international practice areas.  It appears that at a strategic level, the subject matter practice areas will lead the development and coordination of the campaigns and treatments aimed at specific compliance risks.  At a tactical level, the design calls for them to also work directly with examiners from the geographic practice areas that are assigned specific issues to work.

 

This highlights the need to equip LB&I to operate competently in the fast evolving global tax administration environment which was one of the prime drivers of the new concept of operations. In explaining the new “concepts of operation” and organizational alignment, there are four guiding principles on which he said LB&I’s future success is predicated:

  • Flexible, well-trained workforce—developing deeper specialized knowledge and dynamic tools
  • Selection of better work—based on data analytics and real-time examiner feedback
  • Tailored treatments—a more flexible stream of options to address current and emerging issues
  • Integrated feedback loop—continual collection and analysis of data that permits more precise focus on the right compliance risks
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Tax agencies have access to enormous amounts of taxpayer data. Most auditing agencies, in fact, draw information from these data sources to support auditing functions. Audit selectors, for example, search data sources for taxpayers with specific profiles. These profiles, developed by experts, may be based on a single attribute, such the taxpayer industry code (SIC), or on a complex combination of attributes (for example, taxpayers in a specific retail sector that have a specific sales-to-reported-tax ratio).

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Data mining is the exploration and analysis, by automatic or semiautomatic means, of large quantities of data in order to discover meaningful patterns and rules. Organizations use this information to detect existing fraud and noncompliance, and to prevent future occurrences.

This  recently announced restructuring of the IRS' LB&I is aiming to bring about a “cultural change” in the department, said Sergio Arellano, director of International Business Compliance for LB&I.

“Really, the change for us that is critical is that we're going to have a cultural change,” Arellano said. “We're going to have to focus on becoming an organization that is comfortable pre-identifying issues.”
As part of the restructuring, LB&I will create a new position, assistant deputy commissioner for compliance integration and will likely be dropping its continuous audit program for large taxpayers, Arellano said during a Sept. 18 panel discussion at the American Bar Association Section of Taxation meeting in Chicago.
Individual audits aren't the answer, Arellano said. “We can't audit our way out of our issues. We have to find different methods and different approaches.”
LB&I is scheduled to implement the new structure in early calendar year 2016.
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Sources

Read more at: Tax Times blog

 
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