LB&I Reorganization Plans Revealed

The IRS’s Large Business & International (LB&I) Division, which covers corporations, S corporations and partnerships with assets greater than $10 million, recently announced that it would be implementing significant structural changes to its operations.  The proposed structure reorganizes the division into nine practice areas, aiming to maximize the IRS’s limited resources in examining returns, as well as minimize the separation between domestic and international employees to facilitate greater collaboration.  The new structure is scheduled to be implemented in early 2016.

Five of the new practice areas focus on functional activities including:  pass-through entities, enterprise activities, cross-border activities, withholding and international individual compliance, and treaty and transfer pricing operations. The remaining four practice areas are geographically organized, with headquarters in New York, Illinois, Texas and California.

The new practices will take a risk-based approach to the examination of issues, including leveraging data-mining techniques. Campaigns based on high rates of noncompliance could result in an examination of the issue or, potentially, a soft letter explaining the concerns that might allow the taxpayer to self-correct. 
The LB&I’s operational changes can be traced to the concept of operations (con-ops) review the IRS has been working on for some time, which aims to address the following four goals:
  • A flexible, well-trained workforce, incorporating focused training, specialized knowledge and vigorous tools
  • Selection of better work by using data analytics and implementing campaigns focused on noncompliance areas or issues
  • Identifying tailored  treatments, demonstrating flexibility with respect to current and new issues, including options for resolution
  • Developing integrated feedback that considers all internal and external inputs in making improvements to all aspects of the examination process
The most significant change the LB&I Division is undertaking is not assigning an examination team to a return or developing an audit plan at the local level. Instead, risk areas or issues will be pre-identified at the national level and sent out for examination.  It is also expected that some domestic agents will be trained to examine certain international issues in order to realign resources towards international challenges.

Many questions remain unanswered at this time, but stay tuned to our blog for the latest developments, details and implications for the restaurant industry as they are released. Once the IRS’s written guidance is finalized, restaurants will need to become familiar with the new examination procedures to ensure readiness.

Questions about the IRS LB&I's reorganization plans? Contact Phil Hofmann at [email protected] or Todd Simmens of BDO's Tax Controversy practice at [email protected]. And be sure to keep up with Restaurant tax issues by following both practices on Twitter: @BDORestaurant and @BDO_USA_Tax.