Since 2006, the IRS has used Tiered Issue rankings to set priorities for tax examinations and enforcement in tax areas that it believed posed the highest challenges in compliance or the abuse of tax law. Now, however, the tiered issue process is being replaced with what the IRS Large Business and International division is calling a “knowledge management network” to be used by Issue Practice Groups (IPGs) concentrating on domestic tax issues, and International Practice Networks (IPNs) concentrating on international tax issues. The new IPGs and IPNs within the IRS will collaborate with the IRS Office of Chief Counsel.
The issues formerly ranked as Tier I, Tier II or Tier III are no longer tiered, and IRS auditors have been instructed that, in audit, all such issues are to be risk-assessed and examined “in the same manner as any other issue in an audit.”
All prior Industry Director Directives (IDDs) relevant to the tiered issues are withdrawn by the IRS and should no longer be consulted or followed in audit routines. To the extent any of the IDDs included guidance or tools relevant to risk assessment of an issue, the guidance or tools will be made available through the IRS IPG and IPN websites. References to tiered issues in other IRS guidance such as the Internal Revenue Manual, Coordinated Issue Papers, or Industry Guides, are no longer valid. The IRS plans to review such previously existing administrative guidance, and update it according to the new IRS “knowledge management network” process.