Press Room: Tax Release
IRS Revises New Procedures for Information Document Requests
IRS Large Business and International Division (LB&I) on February 28, 2014 clarified and revised its new, mandatory procedures for the issuance and enforcement of information document requests (IDRs) that originally eliminated an agent’s discretion when taxpayers provided a late or incomplete response.
The new enforcement procedure still provides a mandatory three-step process for LB&I examiners to follow but gives the examiner the discretion to grant an extension of up to 15 business days when a taxpayer does not provide a complete response by the IDR due date. If the taxpayer still fails to provide a complete or timely response by the extended date, the mandatory procedures will continue to result in (1) a delinquency notice, (2) a pre summons notice and (3) a summons.
These procedures will apply to high wealth individuals, audited by LB&I, as well as to large partnerships and corporations. The revised enforcement procedures became effective on March 3, 2014.
The new directive (LB&I-04-1113-009) continues to require examiners to discuss potential IDRs with the taxpayer in advance 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
However, the new directive creates one exception to the requirement that an IDR state an issue. An IDR issued at the beginning of an examination that requests basic books and records and general information about a taxpayer's business is not subject to this requirement.
The directive now states that when an agent provides a draft of the IDR and discusses its contents with the taxpayer, the process should generally be completed within 10 business days. The earlier directive gave no time table and implied that the process was much shorter than 10 business days. This 10-day period gives a taxpayer an opportunity to take time to review the IDR, determine a reasonable response date, discuss with the agent and elevate any of its concerns to the exam team manager. If a mutually agreed upon response date is not reached, the agent will set a reasonable response date. The best 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 the most flexibility at this point.
The most significant revision is the one that gives the agent the discretion to grant an extension of up to 15 business days when the taxpayer fails to make any response to the IDR or fails to make a complete and adequate response. This new discretion to extend the response time at least provides an opportunity to obtain additional time to respond when the taxpayer encounters unforeseen obstacles in making a timely response or locating the information requested. The extension of 15 business days, or less, begins when the agent decides to grant an extension and informs the taxpayer of the extension.
The revised IDR enforcement process became effective March 3, 2014, and applies only to IDRs that have been properly issued in accordance with the directive’s requirements. 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 but delinquency notices will not be issued before April 3, 2014.
Recommended Action: It is imperative that taxpayers and their advisors understand the new procedures and are 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 the most flexibility at this point. Once the IDR becomes delinquent on either the original due date or any extended date, the mandatory three-step process must be implemented.