The FPS Program evolved from tax shelters involving commodity, option and government security straddles into a vast array of complex tax issues.

FPS can impact all types of tax examinations, including examinations of:

Financial products are instruments utilized in the global marketplace. They include, but are not limited to, conventional financial instruments such as:

Financial products also include derivatives of conventional financial instruments, such as:

Derivative securities markets have revolutionized how capital is raised and risk is managed. Financial products are primarily marketed by investment bankers and securities firms. Inter-bank lending and borrowing, foreign exchange trading and security sales occur in global markets, twenty-four hours a day.

Financial arrangements include re-packaging new products or hedging with existing products. Transactions often arbitrage different tax laws that exist between the U.S. and foreign markets and occur in U.S. and foreign subsidiaries or branches.

Financial products often involve the financing of business or the direct products or services rendered by a business. FPS may also be used to manage direct product risk, for example, the hedging of price changes.

Generally, issues center around functions handled by the Chief Financial Officer, Treasurer, Comptroller or any other department responsible for worldwide funding, risk management, investing or refinancing in corporations, rather than the tax department.

Financial products tax issues exist for not only the dealer who creates and markets transactions, but also for the customer or end user of the product or transaction. Issues can be geographic. For example, there may be many dealer issues in locations with major financial centers and few or no dealer issues in locations where there are no major financial markets.

Financial product tax issues involve:

Approaching a financial products issue begins with a series of questions such as:

By law, the IRS has the authority to conduct examinations under Title 26, Internal Revenue Code, Subtitle F - Procedure and Administration, Chapter 78, Discovery of Liability and Enforcement of Title, Subchapter A, Examination and Inspection, which includes but is not limited to:

For additional information see IRM 4.10, Examination of Returns, and IRM 4.46, LB&I Examination Process.

The FPS program provides an organizational structure that is flexible and allows for the timely identification and dissemination of information in a uniform and consistent manner.

The FPS program is organized under FIP which is within the Enterprise Activities Practice Area of the LB&I Division. The FPS program is responsible for providing technical expertise across all operating divisions.

The FPS is supported by Director, Financial Institutions and Products, territory managers (TTM), team managers (TM) and FP specialists located throughout the country.

FP specialists are revenue agents who possess broad expertise in tax law and who have been given special training in financial instruments and terminology, financial industry practices and the taxation of financial instruments and markets. FP specialists serve as issue team members within the LEP. See IRM 4.46.1.1.3.5, Issue Team Member Roles and Responsibilities.

Within LB&I, the issue-based examination process is intended to facilitate execution and decision making in a collaborative process where all parties work together to resolve issues at the earliest appropriate point in an examination. All practice areas of LB&I share an equal responsibility in conducting a thorough examination. See IRM 4.46.1.1.3, Roles and Responsibilities.

All IRS personnel have the responsibility to ensure all taxpayer rights are protected and observed. See IRM 4.10.1.2, Taxpayer Rights and Pub 1, Your Rights as a Taxpayer.

The FPS program seeks to identify, develop, and resolve financial products tax issues that are:

FPS participates in the LB&I Examination Process (LEP), generally as issue team members and issue team managers. FPS collaborates with the geographic practice area managers in review of potential tax risks and performs timely, effectively planned and managed examinations of financial products and transactions providing for quality results and minimization of burden to the Internal Revenue Service and to taxpayers.

FPS accumulates and disseminates to the field examination techniques, information about tax avoidance and evasion schemes, and other information useful in planning and conducting examinations.

FPS monitors the progress and results of issues through various information management systems.

FPS works closely with geographic practice area exam teams, international examiners, subject matter experts within the practice networks, and the Office of Chief Counsel in order to achieve FPS objectives and goals.

The Issue Management System (IMS) is a case management application sponsored by LB&I. IMS provides case management functionality to LB&I, SB/SE speciality groups, and Appeals. IMS is used to monitor various elements of FPS inventory. For example, Information Document Requests ((IDRs), approving examination plans, risk analysis, and Notice of Proposed Adjustment (NOPAs).

FP management periodically reviews reports using the Issue Based Management Information System (IBMIS). IBMIS is a reporting tool containing day-to-day information gathered on the Audit Information Management System (AIMS). The system provides team managers, territory managers, executives and analysts a centralized system for managing case information for tracking, planning, and reporting.

See Exhibit 4.37.1-2, Acronyms, for a list of commonly used acronyms.

The FPS website is https://irssource.web.irs.gov/LBI/Lists/FP/AllItems.aspx.

More information can also be found on the Knowledge Management site at:https://portal.ds.irsnet.gov/sites/vl039/Pages/Default.aspx.

Financial Products Specialty workload is identified through various processes.

Large Corporate Compliance (LCC) cases are a mandatory FPS referral at the beginning of the examination to allow the Financial Products specialist to participate during the planning phase.

HII cases are a mandatory FP SRS referral for all new starts, including related pick-ups, as of June 21, 2022.

The FPS program encourages referrals. Returns not requiring mandatory referrals may be referred if FP specialist assistance is appropriate. Examiners should make referrals as early as possible upon identification of a financial products issue. Informal assistance is available to determine if a referral should be made. Informal assistance may not be used in lieu of mandatory referral requirements.

Although not identified as mandatory referrals on SRS, the FPS program recommends that CBF assignments be made for Form 1065 partnerships and joint ventures with assets greater than $10 million in order for an initial risk assessment to be conducted.

FP specialists will follow IRM 4.46.6.2, Workpaper Organization and Considerations. This includes the WP Naming Convention and the requirement to have documents uploaded to IMS.

Upon completing an assignment, the FP specialist will prepare an FP specialist's report. The report will be prepared for all referrals, including no changes.

The FP specialist's report will use the proper forms required in IRM 4.46.6, Workpaper and Reports Resources, and IRM 4.10.8 , Report Writing, depending on the nature of the referral.

The FP report must include a cover sheet, listing administrative data such as date started, date completed, time charged and proposed adjustments by UIL code and disposition. See Exhibit 4.37.1-1 for a sample FP specialist's report cover sheet.

The FP specialist's report will be routed to the FP team manager for review and approval.

The FP team manager, or designee, will review and approve the FP specialist's report promptly (generally within five business days) to avoid any delay in disposition and closure of the case.

The final FP specialist’s report will be forwarded to the referring manager.