Large & Mid-Size Business Division LMSB International Realignment NTEU Briefing Washington, DC August 2010 DISCUSSION DOCUMENT CONFIDENTIAL – DO NOT DISTRIBUTE.

Large & Mid-Size Business Division

LMSB International Realignment

NTEU Briefing

Washington, DCAugust 2010

DISCUSSION DOCUMENT

CONFIDENTIAL – DO NOT DISTRIBUTE

2

Background

The IRS has identified increased compliance risk resulting from greater complexity of international tax laws and business structures

LMSB International is charged with providing guidance and support within LMSB on international issues and cases and leading IRS’ service-wide international tax strategy

Under the Large Business and International Expansion (LB&IE) Initiative, LMSB International will be positioned to (1) enhance the IRS’s focus on transfer pricing and on offshore and international individual compliance, (2) expand its overseas attaché staff, and (3) develop new international metrics

Objectives

Augment and structure International organization to be successful in managing all service-wide international issues by:

(1) Aligning international strategy with the frontline

(2) Consolidating international specialists to optimize knowledge and allocation of resources

(3) Developing a Transfer Pricing Practice that coordinates closely with APA

Realign LMSB to realize the vision of strategic issue focus, eliminate geographic barriers to expertise, improve collaboration between its examiners and policy makers

Executive Summary

3

Highlights of Proposed Change

The name of the Large and Mid-size Business (LMSB) will change on Oct. 1 to the Large Business and International division (LB&I)

The new LB&I division will realign from Industries and Pre-Filing & Technical Guidance (PFTG). International specialists and issue specialists, field specialist economists, international technical advisors, and related staff—approximately 875 employees in total—will move to the existing International organization, reporting to the Deputy Commissioner, International

The realigned LB&I will continue to serve the same population of taxpayers — corporations, subchapter S corporations and partnerships with assets greater than $10 million as well as certain high wealth individuals

LB&I will include a transfer pricing director, who will continue piloting the new transfer pricing practice, and a chief economist, who will oversee the IRS’s economic positions pertaining to transfer pricing

LB&I is also charged with overseeing the implementation of the recently enacted Foreign Account Tax Compliance Act (FATCA). Signed into law in March, FATCA will substantially improve international information reporting, increasing international transparency and compliance

Heather C. Maloy will continue serving as Commissioner of LB&I. Michael Danilack, Deputy Commissioner, International, will head the realigned global unit. Paul D. DeNard will continue serving as Deputy Commissioner (Operations)

4

LMSB CommissionerLMSB Commissioner

LMSB Organizational Chart – Existing State

Field Organization Total StaffTotal

International Staff

International Staff

East West

FIELD SPECIALISTS 1222 134 76 58

CTM 838 142 49 93

FS 795 155 150 5

HMT 995 100 61 39

RFPH 805 138 71 67

NRC 910 178 94 84

PFTG 163 28

TOTAL 5728 875

NE 386

LMSB’s current structure illustrates wide dispersal of international specialists

Deputy CommissionerInternational

(Total Int’l Staff: ~549)

Deputy CommissionerInternational

(Total Int’l Staff: ~549)

Deputy CommissionerOperations

(Total Ops Staff: ~6080)

Deputy CommissionerOperations

(Total Ops Staff: ~6080)

CTMCTM

NRCNRC HMTHMT

FSFS

RFPHRFPHGHWGHW

ICS&PICS&PTA&ICTA&IC M&FM&F

EEOEEO

JITSICJITSIC RWI (PSP)RWI (PSP) PQASPQAS BSPBSP PFTGPFTG Field Specialists

Field Specialists

Deputy East

West

East

West

East

West

East

West

East

West

455292 12 3786 163 163 1222

838

795

995910

80543

458

364

501

471451

438

360

424

641

565

Man. 380

5

The realignment directly responds to challenges in the existing structure that make it difficult to link international strategy to frontline expertise

Challenges with Existing LMSB Structure

The current distribution of international specialists throughout LMSB creates the following challenges:

Impeding collaboration and program management

Creating geographic barriers to expertise

Separating International Examiners (IEs) from National Office policy makers

Preventing the strategic selection of workload

Benefits of Realigned LB&I Division

Centralizing international specialists will provide the following benefits:

Identifying emerging international compliance issues more quickly

Removing geographic barriers, allowing for the dedication of IRS experts to the most pressing international issues

Increasing international specialization among IRS staff by creating economies of scale and improving IRS international coordination

Ensuring the right compliance resources are allocated to the right cases

Consolidating oversight of international information reporting and implementing new programs, such as the Foreign Account Tax Compliance Act (FATCA)

Coordinating the Competent Authority more closely with field staff that originate cases, especially those dealing with transfer pricing

Otherwise centralizing and enhancing the IRS’s focus on transfer pricing

6

Director, Int’l Strategy & Service-Wide Coordination

Director, Int’l Corporate Taxation

(ICT)

AgreementCoord

LB&ICommissioner

Director, Int’l Individual Taxation

(IIT)

DFOInt’l Corp Tax

East

DFOInt’l Corp Tax

West

Int’l Corporate Tax Strategy

Director, Transfer Pricing

EA EA EA

Deputy Commissioner, International

IRS Commissioner

Int’l TAs

Foreign Payments

Competent Authority

EOI & JITSIC

Service-Wide

Strategy

2 2211 1

1

4122222618

18

Deputy, Int’l Individual Tax

Terr Mgr Territory 1

Terr Mgr Territory 2

Terr Mgr Territory 3

Terr Mgr Territory 5

Int’l Individual Tax Strategy

IOC / FRC GHW

Campus Compliance

Unit

66

80

64

45

74

Terr Mgr Territory 4

36

2 12

TBD

The realigned LB&I international structure will bring IEs, economists, and other international specialists together, supported by executives

LB&I International Future State Organization

Economists East

76

TerritoriesTerritoriesTerritoriesTerritories 385 TerritoriesTerritoriesTerritoriesTerritories 293

Economists West

58

Senior Advisors

Executive Assistant

Chief Economist

1

482 TAs 8

482 Issue Specialists

47

IRS Deputy Commissioner for

Services & Enforcement

Changes from Current State International specialists and Economists shift to

International to emphasize issue focus Transfer Pricing specialization area includes 482

Issue Specialists, 482 TAs, and a Chief Economist

Changes from Current State International specialists and Economists shift to

International to emphasize issue focus Transfer Pricing specialization area includes 482

Issue Specialists, 482 TAs, and a Chief Economist

11

22

11

22

7

The realignment will impact International Examiners and specialists, though most impacted employees will remain in their current group

Impacted employees are those assigned to the following Standard Position Descriptions (SPDs): – 91987 - GS-512-12 International Examiner – 91983 - GS-512-13 International Examiner– 96628 - GS-512-14 International Issue Specialist – 94734 - GS-512-14 Senior International Examiner

Details on Employee Impact

Most of the impacted employees will remain in their current group and the group will be realigned in its entirety

Employees who are currently in blended groups comprised of both domestic agents and IEs may be realigned to a different group:

– If IEs are in a blended group, they will be realigned to an International group

– If domestic agents are in a blended group which is managed by a team manager who is assigned to an International team manager SPD, the domestic agents will be realigned to a domestic group and remain in their current industry

International examiners will no longer control cases.

8

LMSB foresees no change to employees' workstations, PODs, SPDs (other than organizational locations) or critical job elements as a result of this initiative. Flexi-place and AWS arrangements will likewise remain unchanged

Two domestic groups in Manhattan, Group 1031 and Group 1197, currently part of the Financial Services Industry, will be realigned to the International organization due to the specialized work they do related to qualified intermediaries and withholding respectively. They will function as they do currently and will continue to control their case work

LMSB's Economists, who currently are part of the Field Specialist organization, will be realigned to International, due to the fact that more than 90% of their work is international in nature. Their realignment will provide a uniform and consistent approach to international issues. The two current Economist territories will be realigned in tact under a new executive

The support staff who are assigned to any of the above impacted groups will be realigned with their groups

The realignment will impact International Examiners and specialists, though most impacted employees will remain in their current group (cont.)

Additional Details on Employee Impact

9

Several pending decisions related to the international realignment are still being considered

Description of Pending Decisions

Migration of International Examiners and Specialists in Non-IE Groups: We are still determining the process and criteria for deciding where and how to migrate international examiners and other international specialists who currently reside in blended groups, including those in the Global High Wealth Industry (Article 15, Section 2A.1)

Transition of IE Case Control for Current Inventory: We are still determining how to best transfer and complete cases that international examiners are currently controlling

Any other potential issues identified during the briefing