Last week, the IRS announced that it was realigning and renaming its Large and Mid-Size Business division, with a goal of creating a centralized organization better geared to international tax compliance. The new group will be known as the Large Business and International (LB&I) division. As part of the reorg, the agency's international examiners now will report up through this group. Along with the existing staff of 600, about 875 examiners who specialize in international tax matters within other departments of the IRS now will come under the LB&I umbrella. Mike Danilack, deputy commissioner of international, will head the new unit, which will focus on businesses with at least $10 million in assets.

The changes will boost tax compliance in several ways, the IRS says:

• Agents will be able to identify international compliance issues more quickly. 
• The new organization will increase coordination among IRS staff specializing in international tax matters, further boosting their expertise.
• It will consolidate oversight of international information reporting.
• The change will centralize and enhance the IRS' focus on transfer pricing.
• The IRS will be able to handle international cases with greater consistency and efficiency.

This restructuring actually is reminiscent of a similar shift that took place about two decades ago, when a commissioner for international tax matters oversaw the work of all international examiners, says Don Rocen, a tax attorney with Miller & Chevalier in Washington D.C., and former deputy chief counsel with the IRS. That lasted until the late 90s, when the IRS moved to an industry-based structure.

Over time, however, a focus by industry proved less than ideal, Rocen says. "As the economy became more global and international in nature, they (tax examiners) lost some of their edge in the international area." That's largely because the examiners were spread around the country, and lacked their own reporting chain. Moreover, many international tax issues, such as transfer pricing, cross industry lines, making the industry-based structure less meaningful.

The new reporting structure will allow the international tax examiners to interact with each other more easily and frequently, enabling them to gain insight into the issues their colleagues are facing, and learn from others' experience. "It will help develop expertise," Rocen says.

For CFOs who may be dealing with IRS agents, the restructuring should be an overall net positive, Rocen says. To be sure, some may wonder if working with less astute agents offers greater benefits; after all, they might be less likely to pick up on any issues that the company prefers to overlook. However, most exams go more smoothly when the agents know which areas to focus on, and which are less important. Taxpayers overall also benefit, as the exams should be more effective and efficient.

Still, the moves do signal a shift in emphasis. The reorganization, along with the appointment of a transfer pricing director to handle the recently launched transfer pricing practice within LB&I, "unequivocally signals an intensified emphasis, if not a dragnet, on transfer pricing examination and enforcement," according to an August report by the Washington, D.C.-based law firm of Caplin & Drysdale. Moreover, this reorganization follows the release in July of a report by the House Ways & Means Committee that examined six multinational companies with unusually low global effective tax rates, all made possible by their transfer pricing structure, the report noted.

The upshot for CFOs? While they can expect more effective exams, their businesses need to get their transfer pricing practices in order.