The Tax Law Group provides assistance to those clients seek to settle their cases with IRS and other federal agencies.  A beneficial settlement is normally possible when the client is well informed of the rights that the law guarantees, as well as of the operational objectives of tax authorities at a specific time period.  It is not unknown that the tax enforcement and collection activities of the IRS increase in the periods when the U.S. Treasury experiences problems, mandating severity of the federal agencies' activities.

As an example of the IRS's willingness to settle cases in particular situations, see a memorandum, published by IRS:

Industry Director Directive on Government Settlements Directive #2

 

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE

WASHINGTON, D. C. 20224 

Large and Mid-Size Business Division                      

   

                                                 LMSB Control No.: LMSB-04-0707-050

                                                                                 Impacted IRM 4.51.2

September 14, 2007

MEMORANDUM FOR INDUSTRY DIRECTORS

                       DIRECTOR, FIELD SPECIALISTS

                       DIRECTOR, PREFILING AND TECHNICAL GUIDANCE

                       DIRECTOR, INTERNATIONAL COMPLIANCE STRATEGY

                                AND POLICY

                       DIRECTOR OF EXAMINATION, SBSE

 

FROM:             John Risacher  /s/ John Risacher

                         Industry Director

                         Retailers, Food, Pharmaceuticals and Healthcare              

SUBJECT:       Tier I Issue: Government Settlements Directive #2

This directive is intended to clarify the roles and responsibilities aligned with rules of engagement on the Tier I issue relating to deductibility of settlements with a governmental agency under Sections 162(a) and 162(f). 

Rules of Engagement:

Roles and Responsibilities

The Government Settlements Directive #1 issued on May 30, 2007 addressed the examination of two types of governmental settlements.  The first governmental settlements addressed in Directive #1 are those settled with the Department of Justice (DOJ) for False Claims Act (FCA) violations.  Secondly, Directive #1 addressed the Environmental Protection Agency (EPA), DOJ or other environmental agency violation settlements which include Supplemental Environmental Projects (SEP).  In addition, Directive #1 provided examiners with the minimum mandatory risk analysis thresholds and included as attachments audit technique guides specific to both the FCA and SEP issues.

This second directive clarifies the mandatory steps that must be taken by the examiners to involve the Issue Management Team (IMT) in the development and resolution of these issues.  These steps will include discussions and coordination with the Technical

Advisors (TA’s) and if appropriate, a TA case visit.  The Health Care Technical Advisor team will serve as liaison between the IMT and examination teams for the FCA issue, and the Environmental TA will serve as a liaison between the IMT and examination teams for the environmental settlements and SEPs.

The role of the manager and the manager's team begins with the pre-audit analysis and the opening interview to determine if the taxpayer has engaged in a settlement with another governmental agency.  If this type issue appears to exist, the manger and the team’s next step is to research the web site and contact the TA outlined in the ATG that has been issued as an attachment to IDD # 1 (Industry Director Directive on Government Settlements Directive #1).

Throughout the development and resolution of the issue, the manager or their delegate will continue to utilize the TA as a resource in conjunction with the ATG.  This will ensure that the appropriate information is being ascertained.  Where a taxpayer has entered into a settlement, the first step is to determine whether it deducted a part or all of the settlement it entered into.  This should include analysis of Schedule M-1 and/or Schedule M-3, and asking the taxpayer how the settlement was treated for tax purposes.  Where a deduction is taken, the examination team should next obtain a copy of the settlement agreement in order to determine the nature of the settlement and whether the potential for a penalty exists.  The settlement document will typically contain the facts and information the TA needs in order to initiate contact with the government agency.  If contact is appropriate, it will be initiated by the TA.  The TA will identify the appropriate contact at the government agency for the team, who can then conduct its issue development with the person(s) identified.  When the issue is fully developed, utilizing both the information provided by the taxpayer and the information secured from the other agency, the manager and the TA will jointly develop the Service's position, obtain concurrence of the IMT, and share the Service's position with the taxpayer.  Forms 5701 and the RAR must be reviewed by the TA prior to issuance to the taxpayer.  The TA will be responsible for obtaining the concurrence of the IMT.  Should the taxpayer not agree with the Service's position, the manager and team will work with the TA to determine if issue resolution tools are appropriate.  The TA or other IMT member will represent the IMT during any issue resolution process which also requires the IMT’s concurrence.

Contact:

Questions regarding all settlements other than environmental settlements should be addressed with the Health Care Technical Advisor team, John Tucker or Danny Zink.  John Tucker may be reached at (615) 250-5194 or John.Tucker@irs.gov, while Danny Zink may be reached at (615) 250-5195 or Daniel.Zink@irs.gov.

Questions regarding environmental settlements should be addressed to Technical Advisor Greg Pierce.  Greg Pierce may be reached at (847) 303-7729 or Gregory.W.Pierce@irs.gov.

This Directive is not an official pronouncement of law and cannot be used, cited or relied upon as such.

cc:    Commissioner, LMSB

        Deputy Commissioner, Operations

        Deputy Commissioner, International

        Division Counsel, LMSB

        Chief, Appeals

        Directors, Field Operations

        Director, Planning, Quality, Analysis & Support

        Director, Strategy, Research and Program Planning   

Source: http://www.irs.gov/businesses/article/0,,id=174273,00.html

Settlements in Tax Cases

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