On June 18, 2013, the Acting LB&I Commissioner issued a directive (LB&I Control No: LB&I-04-0613-004) to LB&I employees announcing that for all IDRs issued after June 30, 2013:
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The examiner must identify and state the issue that has led the examiner to request the information included in the lDR.
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The examiner must discuss the lDR with the taxpayer in advance of issuing it, and
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Both parties must discuss and determine a reasonable timeframe for response.
When all of these steps are followed, the expected outcome is that the lDR process will be more efficient, and as a result, there will be less need to enforce IDRs through summonses.
The directive also stated that changes to the enforcement process would be announced in the coming months.
Now on November 4, 2013, the IRS has issued a second directive to LB&I employees, that fleshes out the components of the June 18, 201 directive (LB&I Control No: LB&I-04-1113-009); which provides that as of November 4, 2013, all LB&I managers, examiners and specialists must ensure that all outstanding and future IDRs comply with the new requirements for issuing IDRs. The new IDR Enforcement Process involves three graduated steps:
- a Delinquency Notice;
- a Pre-Summons Letter; and
- a Summons.
This process is mandatory and has no exceptions!
It requires LB&I managers at all levels to be actively involved early in the process and ensures that Counsel is prepared to enforce IDRs through the issuance of a summons when necessary.
Pursuant to this Directive, the IDR Enforcement Process is effective beginning January 2, 2014.
We already have a couple of audits that are in compliance with this new directive and it is apparent that both the taxpayer's representatives and the IRS are going to have huge learning curve during its implementation.
Our initial impression is that delivery dates are at best unrealistic, since they are agreed to at the very beginning of the audit, when neither side truly understands the extent or scope of the issues and/or the availability of the requested information or the difficulty in producing or re-creating credible evidence for the years requested. (e.g. where a Corporation was bought out or merged with a new Corporation; where a taxpayer switched computer systems and the requested information is stored on old system, etc.).
We would advise the IRS to not strictly adhere to this rigid framework!
Where it is apparent that the original agreed to delivery dates are at best unreasonable or were upon further reflection impossible; the Revenue Agent should issue a second set of amended agreed to dates especially where the facts support it!
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