Recent IRS Directive Announces New IDR Enforcement Process
Nov. 14, 2013
On Nov. 4, 2013, the IRS Large Business and International (LB&I) Division issued an internal directive that makes significant changes for enforcing compliance with deadlines for information document request (IDR) responses. As a result, taxpayers need to carefully consider their ability to comply with IDR requirements before agreeing to deadlines with the IRS during an audit. Taxpayers have the ability to discuss and negotiate with the IRS a realistic deadline for submitting an IDR response prior to the IDR’s issuance. Once the deadline is set, however, the IDR guidelines leave little flexibility for taxpayers and the IRS examination team.
The recent directive also reiterates prior guidance that requires all IDRs issued after June 30, 2013:
- Be issue-focused, meaning that the IDR must clearly state the issue and request only information that is relevant to the stated issue
- Be discussed with the taxpayer prior to issuance
- Provide a reasonable deadline for response
When all of these requirements are met, the information-gathering phase of the IRS audit process is expected to be more efficient and result in less need to enforce IDRs through summonses.
New Enforcement Procedures
Effective Jan. 2, 2014, a mandatory three-step enforcement process applies if information requested in a properly issued IDR is not received by the response deadline.
- Delinquency Notice. An IDR will be considered delinquent if the taxpayer fails to respond or provides an incomplete response by the IDR response deadline. If an IDR is considered delinquent, a delinquency notice will be issued within 10 calendar days of the expired IDR deadline. The delinquency notice establishes a new response deadline of not more than 15 calendar days from the date of the delinquency notice and must be approved by the audit team manager. A territory manager must approve any extension of more than 15 days.
- Pre-summons Letter. If the taxpayer does not provide the requested information by the response deadline provided in the delinquency notice, then the IRS will issue a pre-summons letter within 14 calendar days after the due date of the delinquency notice. The pre-summons letter establishes another new response deadline of not more than 10 calendar days from the date of the pre-summons letter and advises the taxpayer that a summons will be issued if the taxpayer fails to respond by the deadline provided in the pre-summons letter.
- Summons. If the taxpayer fails to timely respond to the pre-summons letter, or the response is deemed to be incomplete, the IRS examiner will coordinate the issuance of a summons with IRS counsel.
Because the new audit procedures leave little flexibility for taxpayers and the IRS once deadlines are established, upfront planning for IDR responses will be critical.
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