The Pre-Filing Agreement Program for Large Businesses Has Yielded Modest Results

 

September 2005

 

Reference Number:2005-30-151

 

 

This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.

 

September 22, 2005

 

 

MEMORANDUM FOR COMMISSIONER, LARGE AND MID-SIZE BUSINESS DIVISION

 

FROM:††††††††††††††††††††††††††† Pamela J. Gardiner /s/ Pamela J. Gardiner

†††††††††††††††††††††††††††††††††††††††† Deputy Inspector General for Audit

 

SUBJECT:†††††††††††††††††††† Final Audit Report Ė The Pre-Filing Agreement Program for Large Businesses Has Yielded Modest Results (Audit # 200430028)

 

This report presents the results of our review of the Internal Revenue Serviceís (IRS) Pre-Filing Agreement (PFA) Program.The overall objective of this review was to determine whether the Large and Mid-Size Business (LMSB) Division[1] PFA process is being administered in accordance with IRS policies and procedures.

In summary, unlike regular examinations where tax issues[2] are often resolved long after the tax return is filed, the objective of the PFA program is to resolve a potential contentious tax issue before a tax return is filed.The PFA process, according to the LMSB Division, is reducing burden on large business and making more effective use of its resources.Because of these and other benefits, the LMSB Division is seeking to increase the use of PFAs by expanding the length and scope of a PFA.Issued in December 2004, the new revenue procedure (Rev. Proc. 2005-12) expanded and enhanced the original revenue procedure and will provide large business with the opportunity to resolve tax issues for a period of up to 5 years.While the changes are important for attracting large businesses to the program, it will be equally important that the LMSB Division strengthen its ability to resolve more tax issues before returns are filed while ensuring PFA closing agreements fully protect the Federal Governmentís interest. Additionally, user fees[3] need to be evaluated to provide assurances that they are recovering the costs of a PFA.

The LMSB Division has designed and implemented a system of controls (techniques and procedures) that guide the PFA process through screening and accepting applications, developing tax issues for resolution, and executing PFA closing agreements.However, we identified two control areas that could be strengthened to help reach agreement on more tax issues before returns are due and better protect the Federal Governmentís interest.To date, the PFA program has experienced only modest success in meeting its primary objective of reaching agreement on tax issues before returns are filed.Also, numerous PFA closing agreements have been executed for tax issues that were accepted into the PFA program against the advice of Office of Chief Counsel technical attorneys.[4]We believe there are important reasons for strengthening these areas.

Examination teams are responsible for reviewing PFA applications and documenting their recommendations for the Industry Director[5] to use in deciding whether or not to accept the tax issue for a PFA.They are also responsible for developing and implementing a work plan that develops the tax issues for resolution within the compressed time period available before the tax return is due.We reviewed 91 PFA applications and case files supporting 12 PFA closing agreements and found examination teamsí recommendations were documented and forwarded to the Industry Directors for consideration.However, preliminary work plans were not developed until after the Industry Director accepted the PFA application into the program.Additionally, the work plans that were developed did not contain key elements that are used to effectively plan and monitor the process of developing and resolving tax issues as described in the IRS manual.We found little or no documentation outlining the resources needed, procedures to be used, and the milestones and dates that must be met to resolve the tax issue within the overall time period available before the return was filed.

The LMSB Division recently implemented a dispute resolution process for the initial screening of PFA applications that is designed to settle differences between Office of Chief Counsel attorneys and Industry Directors over whether a particular tax issue is suitable for a PFA.This feature was added after concerns were raised that Industry Directors were accepting applications into the PFA program contrary to the advice received from Chief Counselís technical attorneys.While this feature is an improvement, it may not be enough to fully protect the Federal Governmentís interest.We found instances, for example, where the examination teamís work surfaced additional facts that changed the nature of the tax issue originally accepted for a PFA. Despite having substantive tax law knowledge and subject matter expertise, Chief Counselís technical attorneys have relatively little required involvement in a PFA beyond the initial screening process.

We made three recommendations to the Director, Pre-Filing and Technical Guidance, LMSB Division, that may help reach agreement on more tax issues before returns are due and better protect the Federal Governmentís interest.First, PFA program guidelines need to include a requirement that examination teams develop preliminary work plans in support of recommendations for accepting or not accepting tax issues for a PFA.Second, actions are needed to establish a process that monitors and evaluates how well concerns raised by Chief Counselís technical attorneys over tax issues submitted for a PFA are resolved.Third, user fees need to be evaluated to ensure they are recovering the Federal Governmentís cost of providing a PFA.

Managementís Response:The LMSB Division agreed that it needs to address the recommendations we made for developing preliminary work plans and evaluating user fees.The LMSB Division will revise the template used to provide information to the Industry Director to include a section for a brief, high-level, preliminary plan that includes milestones and resources needed.The LMSB Division will also work with the IRSí Enforcement Committee to determine the appropriate user fee to charge for PFAs.

The LMSB Division indicated in its response that, by implementing the new Rev. Proc. 2005-12, it addressed our recommendation to establish a process that monitors and evaluates how well concerns raised by Chief Counselís technical attorneys over tax issues submitted for a PFA are resolved.The LMSB Division noted that Rev. Proc. 2005-12 requires involvement of Chief Counselís technical attorneys in the screening process to provide technical expertise and help resolve legal issues.It further noted that participation by the Office of Chief Counselís technical attorney is not required or necessary throughout the whole process, except for the five issues in Rev. Proc. 2005-12 for which the Associate Chief Counsel (International) concurs on the agreement.The LMSB Division also had some general comments on the draft of this report.Managementís complete response to the draft report is included as Appendix IV.

Office of Audit Comment: While Rev. Proc. 2005-12 expanded and enhanced previous procedures, we do not believe it sufficiently addresses our recommendation to provide assurance that tax issues remain suitable for a PFA beyond the screening process.As we noted in the report, examination teams have surfaced additional facts that changed the nature of the tax issues originally accepted for a PFA.

With respect to the LMSB Divisionís general comments, we incorporated their suggested technical changes where appropriate.In addition, the LMSB Division commented that the PFA applications and cases reviewed were entirely governed by a previous revenue procedure and that the procedural concerns identified by the Treasury Inspector General for Tax Administration are likely attributable to the prior guidance.We agree that the previous revenue procedure covered all of the PFA applications and cases we reviewed. However, the concerns we raised are common to both new and old procedures.Additionally, our fieldwork on the review was conducted between October 2004 and April 2005 while the new revenue procedure was issued in December 2004. Therefore, few, if any, PFA applications and cases would have been completed for us to review under the new procedure.

Copies of this report are also being sent to the IRS managers affected by the report recommendations.Please contact me at (202) 622-6510 if you have questions or Curtis Hagan, Assistant Inspector General for Audit (Small Business and Corporate Programs), at (202) 622-3837.

 

Table of Contents

Background

Expanded Length and Scope of Pre-Filing Agreements Could Boost Interest in the Program

Steps Could Be Taken to Enhance the Planning Process and Better Protect the Federal Governmentís Interest

Recommendations 1 and 2:

Pre-Filing Agreement User Fees Need to Be Evaluated

Recommendation 3:

Appendix I Ė Detailed Objective, Scope, and Methodology

Appendix II Ė Major Contributors to This Report

Appendix III Ė Report Distribution List

Appendix IV Ė Managementís Response to the Draft Report

 

Background

Unlike regular examinations, where tax issues[6] are often resolved long after the tax return is filed, the objective of the Pre-Filing Agreement (PFA) program is to resolve a potential contentious tax issue before the tax return is filed.The PFA process, according to the Large and Mid-Size Business (LMSB) Division[7] is reducing burden on large business and making more effective use of its resources.The PFA program was established in January 2001 following a pilot project[8] that successfully validated the objective for the program.

The LMSB Division has broad discretion in deciding which tax issues will be accepted into the program.Generally, the tax issues accepted into the program must be factual in nature and related to the application of well-established tax law.The LMSB Division also accepts issues that involve a methodology for determining how an item should be properly reported on a tax return. Among the tax issues specifically excluded from the program are ones where advice is sought before a transaction is completed (i.e., prospective tax issues) or a particular action is taken.

The primary tool used by the LMSB Division to determine which issues to accept into the program is the review of the PFA application.The review is conducted by the PFA program manager; Chief Counselís technical attorneys;[9] LMSB Division technical advisors, the LMSB Division examination team, if one is on site; and, if an international tax issue is involved, the Director, International, LMSB Division. Once reviewed, the decision to accept or reject a tax issue is generally the responsibility of the LMSB Division Industry Director.[10]

Once accepted, a team is formed, which includes the Examination team, representatives of the taxpayer, LMSB Division Counsel field attorneys,[11] and other personnel appropriate to develop the facts surrounding the tax issue and reach agreement with the large business on how the tax issue will be resolved.Once agreement is reached, a PFA closing agreement is drafted by LMSB Division Counsel field attorneys with the assistance of the examination team and the representative of the taxpayer, and other interested parties, such as Technical Advisors, when appropriate.The PFA closing agreement is signed by a representative of the large business and the Industry Director or designee that contractually binds both parties.

This review was performed at the LMSB Division Headquarters in Washington, D.C., and at Internal Revenue Service (IRS) offices in Chicago, Illinois; New York, New York; San Diego, California; and Tampa/St. Petersburg, Florida, metropolitan areas during the period October 2004 through April 2005.The audit was conducted in accordance with Government Auditing Standards. Detailed information on our audit objective, scope, and methodology is presented in Appendix I.Major contributors to the report are listed in Appendix II.

Expanded Length and Scope of Pre-Filing Agreements Could Boost Interest in the Program

Since its inception in January 2001, the PFA program has, on average, annually received 38 applications, accepted 26 applications for a PFA, and executed 15 PFA closing agreements. The programís modest results are due in part to restrictions placed on the length and scope of a PFA that limited interest in the program.

Under the original revenue procedure[12] that set forth the rules for the program, a PFA was generally limited to 1 year.However, many large businesses sought to resolve tax issues covering multiple years.The revenue procedure also limited the scope of international tax issues eligible for the program, which further hampered the programís popularity. Figure 1 provides a summary of the program results from January 2001 through December 2004 by showing the number of applications received and accepted, as well as the number of agreements reached.

Figure 1 was removed due to its size.To see Figure 1, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

To encourage more large business participation in the program, the IRS decided to increase the length and number of issues suitable for a PFA.Issued in December 2004, the new revenue procedure (Rev. Proc. 2005-12) expanded and enhanced the original revenue procedure and will provide large businesses with the opportunity to resolve tax issues for a period of up to 5 years.Unlike the original revenue procedure, the new one also provides that generally any international tax issue requiring a determination of facts or the application of well-established legal principles is ďlikely suitable for a PFA.ĒWhile the changes are important for attracting large businesses to the program, it will be equally important that the LMSB Division strengthen its ability to resolve more tax issues before returns are filed while ensuring PFA closing agreements fully protect the Federal Governmentís interest.

The LMSB Division has designed and implemented a system of controls (techniques and procedures) that guide the PFA process through screening and accepting applications, developing tax issues for resolution, and executing PFA closing agreements.Our evaluation of 91 PFA applications active in Calendar Years 2003 and 2004 found the applications were screened for suitability and forwarded to the Industry Directors with recommendations for deciding whether or not to accept the application for a PFA.

Our review of closed case files supporting 12 PFA closing agreements that involved tax issues totaling $2.2 billion found examination teams developed and documented evidence to support recommended adjustments of $76 million to the original PFA application tax issues.The recommended adjustments were discussed and agreed upon with representatives from the large business and accurately incorporated into PFA closing agreements approved by the Industry Director or their designee.

Steps Could Be Taken to Enhance the Planning Process and Better Protect the Federal Governmentís Interest

Despite the emphasis on resolving tax issues expeditiously, we identified two control areas that could be strengthened to help reach agreement on more tax issues before returns are due and better ensure the Federal Governmentís interest is protected.As mentioned earlier, the PFA program has experienced only modest success in meeting its primary objective of reaching agreement on tax issues before returns are filed.Also, numerous PFA closing agreements have been executed for tax issues that were accepted into the PFA program against the advice of Chief Counselís technical attorneys.We believe there are important reasons for strengthening these areas.

The planning process for developing tax issues for resolution could be improved

For each PFA application submitted, examination teams are required to review the tax issue outlined in the application and document their recommendation for the Industry Director to use in deciding whether or not to accept the tax issue for a PFA.They are also responsible for developing and implementing a work plan that develops the tax issue for resolution within the compressed time period available before the tax return is due.

The PFA applications files we reviewed showed examination teams documented and forwarded recommendations to the Industry Director to consider whether or not to accept the tax issue for a PFA.However, guidelines do not specifically require examination teams to develop a preliminary work plan for resolving a particular tax issue until after the Industry Director decides to accept the tax issue for a PFA.Consequently, the decision process is not as strong as it could be because timeline projections, resource requirements, and other relevant information is not developed showing whether a particular tax issue will in fact be resolved before the tax return is due.

Additionally, we found when work plans were developed they did not contain key elements that are used to effectively plan and monitor the process of developing and resolving tax issues as described in the Internal Revenue Manual (IRM).[13]We found little or no documentation, for example, outlining the resources needed, specific procedures to be used, and the milestones and dates that must be met to resolve the tax issue within the overall time period available before the return was filed.

As a result of this control weakness, we found only 35 out of the 102 PFA applications accepted into the program were completed before the filing deadline.The results of the remaining 67 PFA applications consisted of 25 PFAs completed after the return was filed, 23 withdrawals from the program, and 19 open PFA examinations of which 16 have already passed the filing deadline.

Office of Chief Counsel attorney involvement throughout the PFA process is a key element for protecting the Federal Governmentís interest

The LMSB Division recently implemented a dispute resolution process for the initial screening of PFA applications that is designed to settle differences between Chief Counselís technical attorneys and Industry Directors over whether a particular tax issue is suitable for a PFA.This feature was added after concerns were raised that Industry Directors were accepting applications into the PFA program contrary to the advice received from Chief Counselís technical attorneys.While this feature is an improvement, it may not be enough to fully protect the Federal Governmentís interest.

We found instances, for example, where the examination teamís work surfaced additional facts that changed the nature of the tax issue originally accepted for a PFA.Despite having substantive tax law knowledge and subject matter expertise, Chief Counselís technical attorneys have relatively little required involvement in a PFA beyond the initial screening process.There is no requirement, for example, that Chief Counselís technical attorneys ensure tax issues remain suitable for a PFA when examination teams are developing and resolving tax issues.While LMSB Divisional Counselís attorneys are assigned to the PFA team to provide legal advice and assistance during issue development, they are usually not the subject matter experts on the tax issue in question.Additionally, LMSB Division Industry Directors do not need the concurrence of Office of Chief Counsel attorneys before entering into a PFA closing agreement except in the case of certain international tax issues.[14]

Recommendations

To help reach agreement on more tax issues before returns are due and better protect the Federal Governmentís interest, the Director, Pre-Filing and Technical Guidance, LMSB Division, should:

1.                  Revise PFA program guidelines to require that examination teams provide Industry Directors with preliminary work plans supporting their recommendations to accept or not accept tax issues for a PFA.We do not envision that developing the work plan will involve an extensive amount of detail or time.However, it should contain estimates of the resources needed, the general audit procedures to be used, and milestones to be met if a particular tax issue is to be resolved before the return is filed.

Managementís Response:The LMSB Division will revise the template used to provide information to the Industry Director to include a section for a brief, high-level, preliminary plan that includes milestones and resources needed.

2.                  Initiate actions to establish a process that monitors and evaluates how well concerns raised by Chief Counselís technical attorneys over tax issues submitted for a PFA are resolved.The process should be designed to provide assurance that tax issues remain suitable for a PFA and that advice from Counselís technical attorneys is fully considered before closing agreements are executed.

Managementís Response:By implementing the new Rev. Proc. 2005-12, the LMSB Division indicated it addressed our recommendation to establish a process that monitors and evaluates how well concerns raised by Chief Counselís technical attorneys over tax issues submitted for a PFA are resolved.The LMSB Division noted that Rev. Proc. 2005-12 requires involvement of Chief Counselís technical attorneys in the screening process to provide technical expertise and help resolve legal issues.It further noted that participation by the Office of Chief Counselís technical attorney is not required or necessary throughout the whole process, except for the five issues in Rev. Proc. 2005-12 for which the Associate Chief Counsel (International) concurs on the agreement.

Office of Audit Comment:While Rev. Proc. 2005-12 expanded and enhanced previous procedures, we do not believe it sufficiently addresses our recommendation to provide assurance that tax issues remain suitable for a PFA beyond the screening process.As we noted in the report, examination teams have surfaced additional facts that changed the nature of the tax issues originally accepted for a PFA.††

Pre-Filing Agreement User Fees Need to Be Evaluated

User fees are defined by the Office of Management and Budget (OMB) Circular A-25, User Charges, as charges individuals and businesses are required to pay for special benefits received beyond those received by the general public.[15]The fees are based on the principle that those who receive special benefit from a Federal Government program or activity should bear the cost of receiving such benefit.

In accordance with OMBís directive, the IRS established a three tier user fee structure for the LMSB Division PFA program.The structure is based on the assets of a business in the following amounts:

  • The fee for a business having assets of $250 million or more is $10,000.
  • The fee for a business having assets of at least $50 million, but less than $250 million is $5,000.
  • The fee for a business having assets of at least $10 million, but less than $50 million is $1,000.

Since the programís inception in January 2001 through December 2004, the LMSB Division reported it collected and deposited into the United States Treasuryís general fund $928,000 in user fees related to work on 102 PFAs.We estimate during this time period, the LMSB Division incurred, at a minimum, salary and benefit costs of $2.9 million or an average of $35,678 for issue development of each PFA.

The $2.03 million difference between the salary and benefit costs incurred and what was recovered in user fees could be higher.Our estimate does not include other cost factors, such as management and supervisory costs, because the IRS had not determined the direct or indirect costs of providing a PFA due to an oversight.For us to evaluate the additional costs and appropriateness of the fee structure would have required more time and resources than were available.

Recommendation

3.      To provide assurances that user fees are charged in accordance with guidelines, regarding recovering program costs, we are recommending the Director, Pre-filing and Technical Guidance, LMSB Division, take the necessary steps to comply with OMB Circular A-25.

Managementís Response:The LMSB Division will work with the IRSí Enforcement Committee that is currently working on a Service-wide initiative to evaluate user fees to determine compliance with Circular A-25 to determine the appropriate user fee to charge for PFAs.

Office of Audit Comment:The LMSB Division had some general comments on the draft of this report.With respect to these comments, we incorporated their suggested technical changes where appropriate.In addition, the LMSB Division commented that the PFA applications and cases reviewed were entirely governed by a previous revenue procedure and the procedural concerns we identified are likely attributable to the prior guidance.We agree the previous revenue procedure covered all of the PFA applications and cases we reviewed.However, the concerns we raised are common to both new and old procedures.Additionally, our fieldwork on the review was conducted between October 2004 and April 2005 while the new revenue procedure was issued in December 2004.Therefore, few, if any, PFA applications and cases would have been completed for us to review under the new procedure.

 

Appendix I

 

Detailed Objective, Scope, and Methodology

 

The overall objective of this review was to determine whether the Large and Mid-Size Business (LMSB) Divisionís Pre-Filing Agreement (PFA) process is being administered in accordance with Internal Revenue Service (IRS) policies and procedures.Work on this review was performed in the IRS Office of Chief Counsel and LMSB Division Headquarters[16] in Washington, D.C., and in LMSB Division offices in the Chicago, Illinois; New York, New York; San Diego, California; and Tampa/St. Petersburg, Florida, metropolitan areas.We chose these metropolitan areas primarily to achieve coverage in geographically dispersed offices.

During the review, we relied on the IRSí internal management reports and databases.We did not establish the reliability of these data because extensive data validation tests were outside the scope of this audit and would have required a significant amount of time.Additionally, we used judgmental sampling techniques unless otherwise noted to minimize time and travel costs.To accomplish the objective, we:

             I.      Reviewed extensive source material to gain an understanding of the PFA program, processes, and user fees.These sources included the IRS Internal Revenue Manual, policy statements, training materials, revenue procedures, and the Office of Management and Budget Circular A-25, User Charges.[17]

          II.      Analyzed all 91 PFA applications that were opened in Calendar Years (CY) 2003 and/or 2004 (through September 30, 2004) along with a judgmental sample of case files supporting 12 of 28 PFA closing agreements completed in Fiscal Year 2004 to assess if IRS policies and procedures were followed in screening and accepting PFA applications into the program, planning and developing tax issues[18] for resolution, and executing PFA closing agreements.

       III.      Compared the IRS salary and benefit costs associated with 83 PFA application examinations closed between CYs 2001 and 2004 to the PFA user fee structure to assess the likelihood that user fees were covering the costs of the program.

       IV.      Interviewed numerous IRS officials who were involved with or affected by the PFA process to obtain their opinions about how well the process was working and learn about the status of any ongoing changes to improve the program.

 

Appendix II

 

Major Contributors to This Report

 

Curtis W. Hagan, Assistant Inspector General for Audit (Small Business and Corporate Programs)

Richard J. Dagliolo, Director

Philip Shropshire, Director

Frank Dunleavy, Audit Manager

Earl Charles Burney, Lead Auditor

William Tran, Senior Auditor

Ali Vaezazizi, Auditor

 

Appendix III

 

Report Distribution List

 

CommissionerC

Office of the Commissioner Ė Attn:Chief of StaffC

Deputy Commissioner for Services and EnforcementSE

Chief CounselCC

Deputy Chief Counsel (Operations)CC

Deputy Chief Counsel (Technical)CC

Deputy Commissioner, Large and Mid-Size Business DivisionSE:LM

Director, Pre-Filing and Technical GuidanceSE:LM:PFTG

National Taxpayer AdvocateTA

Director, Office of Legislative AffairsCL:LA

Director, Office of Program Evaluation and Risk AnalysisRAS:O

Office of Management ControlsOS:CFO:AR:M

Audit Liaisons:

Deputy Commissioner for Services and EnforcementSE

Commissioner, Large and Mid-Size Business Division SE:LM

Chief CounselCC

 

Appendix IV

 

Managementís Response to the Draft Report

 

The response was removed due to its size.To see the response, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.



[1] The LMSB Division is one of the four Internal Revenue Service operating divisions serving corporations, sub-chapter S corporations, and partnerships with $10 million or more in assets.

[2] Tax issues are potential areas of controversy because from the IRS perspective they could represent noncompliance.

[3] User fees are defined as charges individuals and businesses are required to pay for special benefits received beyond those received by the general public

[4] Chief Counselís technical attorneys are within the Office of Chief Counsel.They are considered to be technical experts that have substantive tax law knowledge in specific areas of the Internal Revenue Code and are located in Washington, D.C.

[5] Industry Directors are executive-level managers who oversee the deployment of resources and resolve operational concerns within the LMSB Divisionís five industry segments.

[6] Tax issues are potential areas of controversy because from the Internal Revenue Service (IRS) perspective they could represent noncompliance.

[7] The LMSB Division is one of the four IRS operating divisions.It serves corporations, sub-chapter S corporations, and partnerships with $10 million or more in assets.

[8] Pilot projects are designed to test the effectiveness and efficiency of an approach or idea before full-scale implementation.

[9] Chief Counselís technical attorneys are within the Office of Chief Counsel.They are considered to be technical experts that have substantive tax law knowledge in specific areas of the Internal Revenue Code and are located in Washington, D.C.

[10] Industry Directors are executive-level managers who oversee the deployment of resources and resolve operational concerns within the LMSB Divisionís five industry segments.

[11] LMSB Division Counsel is a component of the Office of Chief Counsel that works closely with the LMSB Division on strategy and program planning matters, such as identifying and prioritizing emerging issues and developing published guidance needs, as well as on operations matters, such as day-to-day legal advice and field litigation.

[12] A revenue procedure is an official statement of procedure that, among other things, affects the rights or duties of taxpayers under the Internal Revenue Code.Revenue Procedure 2001-22 set forth the original process and procedures for the PFA program.

[13] The IRM serves as the official compilation of procedures, instructions, and guidelines that govern operations in the IRS.

[14] Rev. Proc. 2005-12 Section 3.06 Eligible international issues requiring Associate Chief Counsel (International) concurrence in execution. Page 313.

[15] OMBís mission is to assist the President in the development and implementation of budget, program, management, and regulatory policies.Its Circulars are used to communicate instruction and information to Federal agencies.

[16] The IRS Office of Chief Counsel is expected to provide the correct legal interpretation of the tax law, represent the IRS in litigation, and provide legal support the agency needs to carry out its mission.As one of the four IRS operating divisions, the LMSB Division serves corporations, sub-chapter S corporations, and partnerships with assets greater than $10 million.

[17] The Office of Management and Budgetís mission is to assist the President in the development and implementation of budget, program, management, and regulatory policies.Its Circulars are used to communicate instruction and information to Federal agencies.

[18] Tax issues are potential areas of controversy because from the IRS perspective they could represent noncompliance.