By Cheryl Ganim, Manager, and Kristen Hart, Co-Op
The IRS Large Business and International Division recently announced that it will no longer manage issues through the Tiered Issue Process. As a result of this change, Research and Experimentation Tax Credits are no longer Tier 1 audit issues. LB&I stated that every case should be treated on its merits, rather than applying a uniform set of standards.
In place of the Tiered Issue Process, the IRS will implement a knowledge management network through the use of Issue Practice Groups (IPGs) and International Practice Networks (IPNs). These groups are designed to provide examiners with the technical advice they need to complete their cases.
Tier 1 is the highest audit exam priority, meaning IRS agents were required to examine R&E credits if a return was selected for audit. Under the Tier I audit process, R&E credits were often disallowed even when the expenses were legitimate, forcing taxpayers to appeal, and under appeal the credit might be only partially allowed. This caused some taxpayers to shy away from the R&E credit and caused a backlog of audits.
It is the goal of the LB&I Division that this new framework will provide 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.