IRS Announces the End of Tiered Issues

Effective Aug. 17, 2012, the IRS will no longer use the tiered management process to set examination priorities and address important issues in the Large Business & International division (LB&I). Instead, it will examine the former Tier I, II, and III issues and assess risk in the same manner as any other issue in an examination (LB&I-4-0812-010). As part of this process, all industry director directives (IDDs) on tiered issues are withdrawn.


In place of the tiered issue process, the LB&I Division is developing a knowledge management system consisting of Issue Practice Groups (IPGs) and International Practice Networks (IPNs), which will provide IRS examination teams with technical advice. Relevant guidance from the former IDDs will be retained on the IPG and IPN websites. Other guidance will be updated.

Issue tiering, a practice established in 2006, involved separating examination issues into one of three tiers (for a more complete explanation, see “IRS Tiered Issues,” Corporate Taxation Insider, Jan. 28, 2010):

  • Tier I issues were those of high strategic importance that had a significant impact on one or more industries.
  • Tier II issues were those with significant compliance risks that were emerging issues or issues that the IRS needed to further develop its position on.
  • Tier III issues were those that presented a high compliance risk for a particular industry.

In place of the tiered issue process, the new IPGs and IPNs (currently being piloted by the IRS) are designed to foster knowledge sharing across LB&I and the Office of Chief Counsel.

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