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22nd Annual Health SciencesTax ConferenceThe changing IRS controversy landscape:what’s on the horizonDecember 5, 2012
Disclaimer►   Any US tax advice contained herein was not intended or written to be    used, and cannot be used, for the pu...
DisclaimerErnst & Young refers to the global organization of member firms of Ernst & YoungGlobal Limited, each of which is...
Presenters►   Ed Curvin                                           ►     Ned Connelly    HCA Healthcare                    ...
Agenda►   Large Business and International (LB&I) organizational    changes and how they affect you►   The current experie...
LB&I organizational changes and how theyaffect you
Source: IRS – LB&IPage 7                The changing IRS controversy landscape: what’s on the horizon
LB&I industries by state — current                  WA                                    MT                              ...
LB&I domestic realignment                      Communications,                  Retailers, food, transportation           ...
LB&I domestic realignment (cont.)                            Deputy Commissioner (Domestic)                               ...
The current experience of the health careindustry with the CAP
CAP permanency: IR-2011-32New CAP phases                                  • The Internal Revenue Service (IRS) and the tax...
Items to consider►   Matters to consider in determining whether CAP is the    right fit for you:    ►     Past IRS audit h...
Some thoughts from a CAP taxpayer …►   Increased burden in the first year►   The need for constant communication►   When a...
Effective use of other issue-resolution toolsin the health care industry
Alternative dispute resolution (ADR) options                                                                        Pre-re...
Key focus areas of the examination process
Key focus areas of the examination process►   Proposed major changes to the Information Document    Request (IDR) process►...
IDR process — changing procedures►   To improve audit cycle time, the LB&I Division reviewed    the IDR process.►   LB&I i...
Schedule UTP update►   In 2010, 1,900 filers, averaging 3.1 disclosures►   Top three issues: transfer pricing, research cr...
IRS use of schedule UTP forenforcement programs►   LB&I examiners use 2010 filings to conduct    risk assessment►   Centra...
Schedule UTP — lessons learned►   Consider UTP disclosure in tax planning►   Review unit-of-account implications►   Assess...
Schedule UTP — going forward►   Keep abreast of IRS policies and changes related to filing    requirements and use of info...
The rules of engagement►   Apply to case interactions of LB&I executives►   Purposes:    ►     Clarify roles, responsibili...
The rules of engagement (cont.)►   The protocol for elevating a case across industries is:    ►     Case-related contacts ...
The evolution from the tier initiative to IPGs
Formation of new IPGs►   IPGs will focus on domestic issues and will replace the Tiered Issue Process.►   IPGs will be com...
Formation of new IPGs (cont.)►   Specific tax issues are not publicly disclosed►   Current domestic IPGs include:    ►    ...
Formation of new International PracticeNetwork (IPN)   Income                    Inbound                         Repatriat...
Questions or comments?Page 30   The changing IRS controversy landscape: what’s on the horizon
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The changing IRS controversy landscape

This panel will discuss the latest developments with the IRS including Large Business & International (LB&I) organizational changes and how they affect you.

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The changing IRS controversy landscape

  1. 1. 22nd Annual Health SciencesTax ConferenceThe changing IRS controversy landscape:what’s on the horizonDecember 5, 2012
  2. 2. 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.Page 2 The changing IRS controversy landscape: what’s on the horizon
  3. 3. DisclaimerErnst & Young refers to the global organization of member firms of Ernst & YoungGlobal Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. For moreinformation about our organization, please visit www.ey.com.This presentation is © 2012 Ernst & Young LLP. All rights reserved. No part of thisdocument may be reproduced, transmitted or otherwise distributed in any form or byany means, electronic or mechanical, including by photocopying, facsimiletransmission, recording, rekeying, or using any information storage and retrievalsystem, without written permission from Ernst & Young LLP. Any reproduction,transmission or distribution of this form or any of the material herein is prohibited andis in violation of US and international law. Ernst & Young LLP expressly disclaims anyliability 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.Page 3 The changing IRS controversy landscape: what’s on the horizon
  4. 4. Presenters► Ed Curvin ► Ned Connelly HCA Healthcare Ernst & Young LLP Nashville, TN Stamford, CT +1 203 674 3006► Marlin Shaw ned.connelly@ey.com Health Management Associates, Inc. Naples, FL ► Mark Mesler Ernst & Young LLP Atlanta, GA +1 404 817 5236 mark.mesler@ey.com ► Frank Ng Ernst & Young LLP Washington, DC +1 202 327 7887 frank.ng@ey.comPage 4 The changing IRS controversy landscape: what’s on the horizon
  5. 5. Agenda► Large Business and International (LB&I) organizational changes and how they affect you► The current experience of the health care industry with the compliance assurance process (CAP)► Effective use of other issue-resolution tools in the health care industry► Key focus areas of the examination process► The evolution from the tier initiative to Issue Practice Groups (IPGs)Page 5 The changing IRS controversy landscape: what’s on the horizon
  6. 6. LB&I organizational changes and how theyaffect you
  7. 7. Source: IRS – LB&IPage 7 The changing IRS controversy landscape: what’s on the horizon
  8. 8. LB&I industries by state — current WA MT ME ND VT AK OR MN ID WI NH SD NY MI WY MA CA PA RI IA CT NE NV OH IL IN Manhattan UT WV CO DE HI MO KS KY VA NJ NC MD TN AZ NM OK AR SC GA CTM MS AL TX LA F FL HMT NRC RFPH/HMT F/HMT RFPH NR/HMT CTM/RFPHPage 8 The changing IRS controversy landscape: what’s on the horizon
  9. 9. LB&I domestic realignment Communications, Retailers, food, transportation Financial services technology and media and health careAK ME NY VT WA ND MN MT Manhattan NH WI MA OR SD MI ID RI IA WY PA IN IL OH NE NV KY WV UT MO DE NJ CO VA KS CA NC DC AR MD AZ SC NM OK Heavy manufacturing and pharmaceuticals GA MS AL HI TX LA FL Natural resources and constructionPage 9 The changing IRS controversy landscape: what’s on the horizon
  10. 10. LB&I domestic realignment (cont.) Deputy Commissioner (Domestic) Paul DeNard Global high wealth Natural resources and Donna Hansberry construction Kathy RobbinsRetailers, food, transportation Financial services and health care Rosemary Sereti James Roosey Communications, technology Heavy manufacturing and and media pharmaceuticals Cheryl Claybough Laura PrendergastPage 10 The changing IRS controversy landscape: what’s on the horizon
  11. 11. The current experience of the health careindustry with the CAP
  12. 12. CAP permanency: IR-2011-32New CAP phases • The Internal Revenue Service (IRS) and the taxpayer develop a plan to Pre-CAP eliminate open years within a set time frame. • They work in a cooperative and transparent post-file environment. phase • 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 CAP phase and providing timely information to resolve those issues. • Resolution of all material issues with the IRS ensures, prior to filing of the return, that the IRS will accept the return if filed consistent with agreed tax treatment. Compliance • 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 maintenance CAP and its history of compliance and risk. • There is periodic disclosure of material transactions and issues. phasePage 12 The changing IRS controversy landscape: what’s on the horizon
  13. 13. Items to consider► Matters to consider in determining whether CAP is the right fit for you: ► Past IRS audit history ► Current examination focus ► Disclosing upcoming events with significant tax return impact ► IRS relationships — past and present ► Time to complete intervening years ► Best year to enter CAPPage 13 The changing IRS controversy landscape: what’s on the horizon
  14. 14. Some thoughts from a CAP taxpayer …► Increased burden in the first year► The need for constant communication► When and what to tell your CAP team► IRS internal politics► Access to quicker responses and assistance► Schedule UTP management► Lack of consistency in the CAP among taxpayers► Ability to “pre-work” issues► Awareness of your additional leveragePage 14 The changing IRS controversy landscape: what’s on the horizon
  15. 15. Effective use of other issue-resolution toolsin the health care industry
  16. 16. Alternative dispute resolution (ADR) options Pre-return filing Before the ► Compliance assurance process return ► Pre-filing agreement ► Industry issue resolution is filed ► Private letter ruling ► Advance pricing agreements ADR Audit process (post-filing)Provides value through: ► Limited-issue focused exam► Lower admin costs ► Accelerated issue resolution► Speedier resolution Under exam ► Early referral appeals► More favorable ► Fast-track settlement settlements ► Competent authority process Appeals process Appeals ► Rapid appeal process ► Mediation ► ArbitrationPage 16 The changing IRS controversy landscape: what’s on the horizon
  17. 17. Key focus areas of the examination process
  18. 18. Key focus areas of the examination process► Proposed major changes to the Information Document Request (IDR) process► Schedule UTP in examinations► The rules of engagement► Changes in organization structure and staffing of examsPage 18 The changing IRS controversy landscape: what’s on the horizon
  19. 19. IDR process — changing procedures► To improve audit cycle time, the LB&I Division reviewed the IDR process.► LB&I is developing new IDR management training.► It is anticipated that LB&I will set a specific response due date and expectation.► Failure to comply will result in a pre-summons letter and summons action.► It is anticipated that the LB&I Division will issue directions to all field examiners.► This will have a potential negative impact on the audit process.Page 19 The changing IRS controversy landscape: what’s on the horizon
  20. 20. Schedule UTP update► In 2010, 1,900 filers, averaging 3.1 disclosures► Top three issues: transfer pricing, research credit, Sec 162 deductions► 3% of filers notified of filing deficiencies, most with concise statement► No penalty or current consideration for requesting penalty► For 2012, first year for Part II filing, disclosing prior-year uncertain tax positions► IRS continuing to monitor Schedule UTP filings to risk- assess tax returns and to identify potential issuesPage 20 The changing IRS controversy landscape: what’s on the horizon
  21. 21. IRS use of schedule UTP forenforcement programs► LB&I examiners use 2010 filings to conduct risk assessment► Centralized unit analyzed 2010 filings to identify trends► Examiners not permitted to request information on: ► Rationale for determining that the issue was uncertain ► Copies of workpapers used to prepare Schedule UTP ► Information about the hazards of litigation ► Any tax accrual workpapers or documents privileged under modified policy of restraint► With managerial approval, the issues reflected on the 2010 Schedule UTP can be opened for examination in a prior tax year based on a risk assessmentPage 21 The changing IRS controversy landscape: what’s on the horizon
  22. 22. Schedule UTP — lessons learned► Consider UTP disclosure in tax planning► Review unit-of-account implications► Assess materiality when recording unrecognized tax benefits► Consider reserves recorded for tax positions on all forms and schedules► Develop process to track expectation to litigate positions► Develop process to track prior-year positions► Prepare for questions from corporate leadership, boards and the IRS related to UTP disclosures► Develop process to track reserves recorded before the year in which a position is reported on the returnPage 22 The changing IRS controversy landscape: what’s on the horizon
  23. 23. Schedule UTP — going forward► Keep abreast of IRS policies and changes related to filing requirements and use of information► Consider tools available to achieve certainty and minimize risk related to UTP disclosure► Understand multi-year implications of UTP disclosure and take appropriate actions► Be watchful of similar requirements on the part of the states or foreign jurisdictionsPage 23 The changing IRS controversy landscape: what’s on the horizon
  24. 24. The rules of engagement► Apply to case interactions of LB&I executives► Purposes: ► Clarify roles, responsibilities and lines of authority ► Facilitate the right answer for a case or issue ► Promote consistent treatment ► Reinforce integrity and ethical decision-making► Protocol for elevating a case within an industryPage 24 The changing IRS controversy landscape: what’s on the horizon
  25. 25. The rules of engagement (cont.)► The protocol for elevating a case across industries is: ► Case-related contacts should be made at the team level. ► Strategic issues or requests for assistance should be brought directly to the specific industry director. ► The taxpayer should rely on any IRS contact to determine the appropriate industry and level of contact if unclear. ► Taxpayers can elevate unresolved issues to the next level of interaction. ► Taxpayers may elevate unresolved industry-related issues through the Line Authority Executive to the Issue Owner Executive. ► Taxpayers may directly request industry-aligned involvement and any disputes will be resolved through industry protocol. ► Field agents and teams are expected to recognize that elevation is part of the audit process.Page 25 The changing IRS controversy landscape: what’s on the horizon
  26. 26. The evolution from the tier initiative to IPGs
  27. 27. Formation of new IPGs► IPGs will focus on domestic issues and will replace the Tiered Issue Process.► IPGs will be composed of an IPG coordinator, one or more full-time subject matter experts (SMEs), a larger number of part-time SMEs who spend less than 25% of their time working on the IPG (collateral SMEs) and an IPG analyst. The SMEs can be field agents, technical specialists or managers. In addition, each IPG includes representatives from LB&I Counsel and National Office Counsel with jurisdiction over the issue.► LB&I managers and examiners will have access to the IPGs and can participate on periodic calls to discuss issues or consult with SMEs.► The IPG will assist in identifying, developing and resolving issues; assist in implementing new legislation; participate in educating internal and external customers; and develop and maintain expertise in subject matters.► Examiners will have authority to seek assistance from specialists but will have control of the issue on their case.► The process is intended to reduce the headquarter control and decentralize decision- making to the field.► The issue manager will report to the Director, Pre-filing and Technical Guidance and will handle systemic issues and coordinate with Counsel.Page 27 The changing IRS controversy landscape: what’s on the horizon
  28. 28. Formation of new IPGs (cont.)► Specific tax issues are not publicly disclosed► Current domestic IPGs include: ► Changes in accounting methods ► RICs, REITs and REMICs ► Life insurance ► Non-life insurance ► Deductible and capital expenses ► Corporate issues ► Financial institutions ► Inventory ► Pass-throughs ► CreditsPage 28 The changing IRS controversy landscape: what’s on the horizon
  29. 29. Formation of new International PracticeNetwork (IPN) Income Inbound Repatriation/ ► The IPN will focus on shifting financing withholding international issues and International business compliance inbound will replace the Tiered Issue Process.Income Deferral FTC Repatriation ► The IPN will report toshifting planning management Mike Danilack, Deputy International business compliance outbound Commissioner (International), LB&I. Jurisdiction US activities US investments to tax International individual compliance inboundJurisdiction Offshore Foreign tax Pass-thru Foreign to tax arrangements credits entities corporations International individual compliance outbound Corporate organizations/transactionsPage 29 The changing IRS controversy landscape: what’s on the horizon
  30. 30. Questions or comments?Page 30 The changing IRS controversy landscape: what’s on the horizon

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