IRS Requires Tighter Deadlines for Information Document Requests
IRS Large Business and International Division (LB&I) on November 4, 2013 announced its new, mandatory procedures for the issuance and enforcement of information document requests (IDRs) which virtually eliminate an agent’s discretion when taxpayers provide a late or incomplete response.
The new enforcement procedure provides a mandatory three step process for LB&I examiners to follow when a taxpayer does not provide a complete response by the IDR due date.
This will result in:
- A delinquency notice;
- A pre-summons notice; and
- A summons.
The procedures are mandatory and the exam team has no discretion to extend the time period. The procedures will apply to high wealth individuals, audited by LB&I, as well as to large corporations.
The new directive (LB&I-04-1113-009) requires agents to discuss in advance potential IDRs with the taxpayer and explain their purpose and scope before the IDRs are issued.
Each IDR must:
- Clearly state the issue being considered;
- Request only information related to that issue;
- Be clearly and concisely written with each item of information separately numbered or lettered; and
- Specify a date by which the agent will respond as to whether the taxpayer’s response is adequate.
Taxpayers will be given an opportunity to review a draft of the IDR, discuss its contents and negotiate a reasonable time frame for responding to it. If a mutually agreed upon response date is not reached, the agent will set a reasonable response date. If the taxpayer disagrees with the requested information and/or the response date, this is the only point in time that the taxpayer has an opportunity to elevate its concerns with the IDR to the exam team manager. It is too late to elevate the taxpayer’s concerns after the IDR is served and later becomes delinquent.
A taxpayer’s failure to provide an adequate and timely response puts in play mandatory enforcement actions that have three graduated steps:
- A delinquency notice;
- A pre-summons letter; and
- A summons.
The mandatory enforcement actions have short turnaround times; allow little discretion to the examination team; and are intended to involve a more senior corporate executive, or in the case of an individual, the individual himself, rather than the individual’s representative.
The new IDR guidelines are intended to make the IDR process as efficient and transparent as possible. However, there is concern among taxpayers that the stricter rules could make the examination process more contentious and strain relationships between a taxpayer and an examination team.
It is imperative that taxpayers and their advisors understand the new procedures and be actively involved in the IDR process before the IDR is issued. As previously mentioned, the time to elevate a taxpayer’s concerns about a draft IDR is before the IDR is served and not when it becomes delinquent because IRS upper management has almost no flexibility at this point.
The new IDR enforcement process will become effective January 2, 2014, and will only apply to IDRs that have been properly issued in accordance with the directive’s requirements. Although all LB&I agents have received formal training on the new IDR enforcement procedures, the training apparently did not include the requirement that the IDR contain a response date by the agent with respect to the adequacy of the taxpayer’s response. If a previous IDR does not meet all of the directive’s requirements, it must be reissued to conform to the new requirements and must include a new response date. Any delinquent IDRs at that point will be subject to the new enforcement procedures.