23 annual health sciences tax conference - united … · 23rd annual health sciences tax conference...

23rd Annual Health Sciences Tax ConferenceThe new IRS examination model and the status of the CAP program

December 9, 2013

Disclaimer

Any US tax advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

The new IRS examination model and the status of the CAP program

Disclaimer

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. For more information about our organization, please visit ey.com.This presentation is © 2013 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party.Views expressed in this presentation are not necessarily those of Ernst & Young LLP.


Presenters

Marlin Shaw Vice President, TaxHealth Management Associates, Inc.Naples, FL

Michael Kurowski Director, Tax AuditsCHS Franklin, TN

Mark MeslerErnst & Young LLPSuite 100055 Ivan Allen Jr. Blvd.Atlanta, GA+1 404 817 5236 [email protected]

Frank NgErnst & Young LLP1101 New York Avenue N.W.Washington, DC+1 202 327 7887 [email protected]


Agenda

Internal Revenue Service (IRS) management changes and how they affect youThe current experience of the health care industry with the Compliance Assurance Process (CAP) programExamination process changesNew IRS Information Document Request (IDR) Enforcement ProcessSchedule Uncertain Tax Position (UTP) update


IRS management changes and how they affect you

IRS organization and leadership changes

Significant top IRS leadership changes Commissioner’s OfficeOperating divisions and Appeals

Increased agency oversight on operationsAgency-wide review of compliance policies and processes with establishment of a new risk office

Limited external outreach activitiesBudget restraints, decline in resources, expanding program responsibilities

Spending restrictionsVery limited hiring


Large Business & International Division (LB&I) organizational chart

LB&I Commissioner

Heather Maloy

Deputy Commissioner (Domestic)

Laura M. Prendergast (A)

Deputy Commissioner (International)

Michael Danilack

Shared support

Thomas Brandt, Dir. (A)

Pre-filing and technical guidance

Sunita Lough, Dir.

Communications, technology and

media

Cheryl Claybough, Dir.Maria Hwang DFO NW

Rosemary Daley, DFO SW

Financial servicesRosemary Sereti, Dir.

Jo McGready, DFO Financial Products (A)

Barbara Harris, DFO NY

Global high wealth Tamera Ripperda, Dir.

Heavy manufacturing and

pharmaceutical

Laura M. Prendergast, Dir.Catherine Jones, DFO NELavena Williams, DFO SE

Natural resources and construction

Kathy Robbins, Dir.Katheryn Houston, DFO W

Tina Meaux, DFO ESteve Whitaker, DFO

Engineers

Retailers, food, transportation

and health care

Lori Nichols, Dir. (A)Lori Caskey, DFO W

Paul Curtis, DFO CAS

Assistant Deputy Commissioner,

InternationalDouglas O’Donnell

International business

compliance

Sergio Arellano, Dir.Orrin Byrd, DFO E (A)Sharon Porter, DFO W

William Holmes, Dir. IDM

International Individual

compliance

David Horton, Dir.Pam Drenthe, DFO

Transfer pricing operations

Samuel Maruca, Dir.Richard McAlonan, Dir.

APMA

Business systems planning Dean Wilkerson, Dir.

Management and finance Keith Walker, Dir. (A)

Planning, analysis,

inventory and research

Thomas Brandt, Dir.

Equity, diversity and inclusion Rona Evans, Dir. (A)

Division planning, oversight

reporting and liaison

Deborah Patel, Mgr.

Deputy Director Deborah Palacheck (A)

(A) = Acting

Elizabeth Wagner, Sr. Advisor to LB&I CommissionerNick Gaudioso, Executive Assistant (Commissioner)Janice Larkin, Executive Assistant (Domestic)David Meaux, Executive Assistant (International) (A)John Hinman, Executive Assistant (International) (A)Ronald Sanchez, Executive Assistant (Shared Support)Ed Carroll, Executive Assistant (PFTG)Liz Kovash, Executive Assistant (PFTG)

Knowledge Management Stephen Larson, Dir.


The health care industry experience with Compliance Assurance Process (CAP)

• The IRS and the taxpayer develop a plan to eliminate open years within a set time frame.

• They work in a cooperative and transparent post-file environment.• The ultimate goal is to meet the selection criteria and progress to the

CAP phase.

• The taxpayer and the audit team work in a real-time environment to isolate and resolve issues prior to filing, which is the same as the current CAP process.

• The taxpayer works with the audit team by identifying transactions and issues and providing timely information to resolve those issues.

• Resolution of all material issues with the IRS supports, prior to filing of the return, that the IRS will accept the return if filed consistent with the agreed-upon tax treatment.

• The IRS will adjust the level of review work and time applied. • The adjusted level of review is based on the taxpayer’s unique experience in

CAP and its history of compliance and risk.• There is periodic disclosure of material transactions and issues.

Compliance maintenance

phase

CAP permanency: IR-2011-32New CAP phases

Pre-CAP phase

CAP phase


CAP updates

Participants as of November 2013CAP — 169Pre-CAP — 29CAP maintenance — 44

New quarterly CAP transparency and disclosure evaluation template Expected limited revisions to CAP Memorandum of Understanding for 2014 participantsEmphasis to expand CAP maintenance participants

User guide to be issued for CAP maintenance process


Items to consider

Matters to consider in determining whether CAP is the right fit for you:

Past IRS audit historyCurrent examination focusDisclosing upcoming events with significant tax return impact IRS relationships — past and presentTime to complete intervening yearsBest year to enter CAP


Some thoughts from a CAP taxpayer …

Increased burden in the first year The need for constant communicationWhen and what to tell your CAP team IRS internal politicsAccess to quicker responses and assistanceSchedule UTP managementLack of consistency in the CAP among taxpayersAbility to “pre-work” issuesAwareness of your additional leverage


Examination process changes

Large Business & International (LB&I) Examination Process Changes

LB&I is replacing its Quality Examination Process with an issue-based approach to exams.The Coordinated Industry Cases (CICs) distinction will be eliminated. Procedures will be put into place so that all relevant facts are obtained in the Examination stage before the case goes to Appeals.If new facts are found in Appeals, the case will be returned to Examination for evaluation of new information.LB&I is considering limiting the time period to file claims during an examination.


New IRS Information Document Request (IDR) Enforcement Process

New directive for issuing IDRs after June 30, 2013

The IDR must be issue-focused.

The examiner must clearly identify why certain information has been requested.

The IRS examiner must discuss the IDR with the taxpayer prior to its issuance.

The taxpayer and the IRS examiner must discuss and determine a reasonable time frame for response.


New LB&I directive on IDR Enforcement Process effective January 2, 2014

Three phases of IDR Enforcement Process:Delinquency NoticePre-Summons LetterSummons

There should be agreement on a reasonable IDR response due date; no extensions.

The IRS examiner will issue a “delinquency notice” within 10 calendar days from the IDR response due date.

“Delinquency notice” will give the taxpayer up to 15 days to provide the information; the Territory Manager must approve an extension.


New LB&I directive on IDR Enforcement Process effective January 2, 2014

A Pre-Summons Letter is issued to taxpayer’s management within 10 calendar days from delinquency notice due date.

A Director of Field Operations must approve extensions beyond 10 calendar days.

If information is not provided, a summons will be issued for enforcement by IRS Counsel and the Department of Justice.


Schedule UTP update

Schedule UTP 2011 statistics

2,138 taxpayer filers disclosed 5,582 uncertain tax positions.

56% of filers were public companies and 2% were CAP taxpayers.

22% of the disclosures were transfer pricing and 24% were research credit.

There was an average of 2.6 disclosures.

41% of filers disclosed one uncertain tax position.


Schedule UTP 2011 statistics

“Outreach letters” sent to 578 taxpayers notifying them their Schedule UTP filings were considered incomplete

982 concise descriptions considered incomplete

Taxpayers who received “outreach letters” for both 2010 and 2011 are classified for potential examination; mandatory consideration, not mandatory audit

Schedule UTP filings centrally reviewed; all “outreach letters” were reviewed by executives before issuance


Questions or comments?

23 annual health sciences tax conference - united … · 23rd annual health sciences tax conference...

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