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Industry Specialization Program - Background

The IRS initiated the Industry Specialization Program to promote better identification and development of issues to be covered by its Examination personnel in examining tax returns and to ensure uniform and consistent treatment of issues throughout the examination period. The program was initiated when the IRS, in the late 1970s, recognized that its Examination personnel could not hope to be familiar with the many accounting and business practices peculiar to the different industries and saw the necessity of greater communication and coordination among the various IRS regions and individual examiners working similar cases. Since its inception, the program has been expanded to include international issues and issues involving employee plans and exempt organizations.

The Industry Specialization Program involves ISP Coordinated Issue Papers, Decoordinated Issue Papers, Settlement Guidelines, Industry Specialists, a National Industry Coordinator, Industry wide Studies, Designated Industries, and Identified Industry Cases. It provides a vehicle for continued industry coordination. Since all industry taxpayers are included in the program, the continuity provided by industry specialization goes beyond districts that have a concentration of large cases in an industry to benefit districts that lack wide experience in a highly complex industry.

ISP Coordinated Issue Papers

A key purpose of ISP coordinated issue papers is to establish examination uniformity within industry categories. The papers are intended to ensure that key industry issues are raised in all cases on a consistent basis and are subsequently resolved using the guidance provided. The papers reflect IRS thinking with respect to key industry compliance issues. They are intended primarily as an Examination audit tool and are designed to be used by revenue agents examining any tax return. The guidance given by them is based on facts known to date and can subsequently change. If a case involves a "coordinated" issue, then the district must coordinate its handling of the issue with the appropriate Industry Specialist.

An ISP coordinated issue paper is not to be considered a "service position." Although the papers are reviewed by the Chief Counsel to determine whether or not they are technically correct, they clearly do not have the status of revenue rulings or regulations. The papers also are not official pronouncements within the meaning of the Internal Revenue Code, and, therefore, there is no statutory authority for taxpayer reliance. One of the justifications for the original decision to issue ISP papers was that, by keeping the papers informal and minimizing the level of review, timely advice could be provided to revenue agents. Some ISP papers may eventually become revenue rulings, but the majority of the papers do not have ruling counterparts. Taxpayers who desire protection should seek a technical advice memorandum or a private letter ruling.

ISP Decoordinated Issue Papers

In working with Industry Specialists and the Office of Chief Counsel, the IRS has identified a significant number of issues that no longer require coordination. A decoordinated issue is one that the case managers or group managers can resolve based on the guidance given to the field without the concurrence of the Industry Specialist.

Industry Specialists and National Industry Coordinator

Industry Specialists serve as nationwide specialists for an industry selected for specialization. Effective formal and informal communication skills are critical to the performance of their jobs.

The Industry Specialists (Office of Corporate Examinations) for each industry category within the Industry Specialization Program have the responsibility for proposing coordinated issues. The industry specialist initially identifies industry issues through a survey of individuals involved in the examination of the industry taxpayers and is responsible for developing examination issues which, after a lengthy review and approval process, become the Coordinated Issue Papers for the industry. Industry Specialists not only advise case managers on current issue identification and development but are also charged with the responsibility of keeping abreast of emerging issues that would affect the industry.

The National Industry Coordinator is a senior program analyst in the National Programs Section within the Office of National and International Programs, Assistant Commissioner (Examination). The Coordinator, a former case or group manager, provides program oversight and assistance to the Industry Specialists.

Appeals Industry Specialization Program--ISP Settlement Guidelines

Purpose.--The Appeals Industry Specialization Program is similar to its Examination function counterpart. A national ISP coordinator and one other field coordinator are assigned to each industry selected as part of the IRS's program. The coordinators have availability to all the information currently relating to the ISP issue. In addition, they can maintain and expand their knowledge by attending professional educational seminars and by managing cases in their field.

ISP coordinators may express views or concerns informally to the coordinators in both the Examination and the Chief Counsel functions of the National Office, although they are not involved in the official settlement position or guideline on an issue until it is approved by the two functions. The ISP coordinator's initial determination of the facts of a case forms the basis for the issuance of a settlement guideline or paper to specific taxpayers within a particular industry listed in the Industry Specialization Program. The effective date of the settlement guidelines or papers will be assigned after their approval by regional and National directors of Appeals. Settlement guidelines may be revised on an as needed basis.

ISP Coordinated Issue Settlement Guidelines.--Coordinated issue settlement guidelines prepared by the Appeals ISP Coordinator and the Regional Director of Appeals are sent to all Regional Directors and Chief Counsel for a thirty-day time period during which comments can be made. The settlement guidelines are then forwarded to the National Director of Appeals for additional comments and concurrence. The final settlement guidelines are distributed through the coordinators for both Examination and Counsel. The Appeals ISP Coordinator will hand over the Appeals settlement guidelines to an Appeals Officer, in addition to any information that might be helpful in resolution of an ISP issue. Oral approval of ISP issues will be given by the Appeals ISP Coordinators if they agree with the Appeals Officer's proposed settlement of an ISP issue. The coordinators will provide a written response in cases of disagreement with the proposed settlement. Settlements involving multiple industries will require the consultation of the coordinators in each industry for comments.

Public Availability

ISP papers are available to the public. Once an ISP paper is issued, revenue agents are instructed to give the paper to taxpayers if an issue covered by the paper is raised in the course of an examination. In addition, the IRS has determined that the papers may be obtained under the Freedom of Information Act.

Industrywide Study and Taxpayer Input

The Industrywide Study is a concurrent evaluation of a particular industry and its principal taxpayers under the direction of an interim Industry Specialist. The concept encompasses the identification of unique industry accounting practices and audit techniques, the identification of common issues, and the pursuit of potential coordinated issues. Taxpayers included for direct participation in the study represent a cross section of the major cases in the industry. The concept anticipates direct communications between the Interim Industry Specialist and case or group managers and other district management, including onsite visitations. Industrywide meetings are also arranged when appropriate. The purpose of the Industrywide Study is the identification of those industries that merit inclusion as Designated Industries under the continuing coordination of an Industry Specialist. The study includes: (1) the definition of business activity and the parameters of the industry; (2) the identification of industry cases; (3) the creation of a communications network among service personnel involved in the examination of industry cases; (4) the analysis and identification of business or economic factors peculiar to the industry; and (5) the identification of tax problems, inconsistencies, etc., within the industry.

Taxpayers have input with respect to the ISP papers. The Internal Revenue Manual requires that, when a new coordinated issue is proposed, the Industry Specialist ask the appropriate industry trade association for comments. As a practical matter, this procedure ensures that the major accounting firms and law firms have an opportunity to comment because the trade association will ask its outside counsel or accounting firm for assistance. In addition, taxpayers undergoing an examination in which the issue is raised are asked for comments. The comments made by the industry or the taxpayer are directed to the Industry Specialist. The specialist, in turn, will share those comments with the person or persons in the National Office who are involved in the review process.

Significant Issues

Industry Specialists identify significant issues pertaining to their particular industry category. Depending upon the stage of development, these issues may not have been presented to taxpayers for comment. However, in all instances, the IRS has not finalized its current thinking regarding field guidance on these matters. Accordingly, the IRS feels that this area affords the corporate taxpayer community with a unique opportunity to get involved with the IRS at an early stage to share ideas and information.

Significant issues are selected for coordination based upon their complexity, widespread geographic impact and the presence of compliance problems. After a significant issue is identified, an ISP paper is created and circulated for comment among case managers, taxpayers and interested trade associations. The Chief Counsel reviews the papers for technical accuracy and the Assistant Commissioner (Examination) approves them for coordination. Once a significant issue becomes coordinated, the ISP paper reflecting the current thinking of the IRS becomes available to the public.

The IRS has defined a significant issue as involving one or more of the following:

(1) There is some disagreement with the taxpayer pertaining to a question of law;

(2) The issue has had a material impact on the examination and/or been considered for coordination; and

(3) The industry specialist has encountered the issue in more than one instance, requested a particular course of action, or prepared a recommended position paper.

Designated Industries

There are currently 24 nationwide industries included in Examination's Industry Specialization Program for which coordinated issue papers have been released:

- Aerospace
- Commercial Banking
- Construction/Real Estate
- Data Processing
- Employee Plans/Exempt Organizations
- Food
- Forest Products
- Gaming
- Ground Transportation
- Healthcare
- Life Insurance
- Maquiladora
- Mergers and Acquisitions
- Mining
- Motor Vehicle
- Petroleum
- Pharmaceutical
- Property and Casualty Insurance
- Retail
- Savings and Loan
- Securities and Financial Service Firms
- Shipping and Air Transportation
- Utilities

Furthermore, there are ten papers that apply for all industries. They cover aspects of amortization, covenants not to compete, customer-based intangibles, dollar-value LIFO computations, employment contracts and meal allowances.

The Office of Corporate Examination has assembled a Coordinated Issue Summary list that outlines the issues reviewed in each of the industries listed above.

The Industry Specialization Program has also identified three industries for further study: agricultural commodities, cafeteria plans and sports franchises. Significant issues or coordinated issue papers have yet to be developed for these areas.