IRS Issues Directive Revising the Information Document Request Enforcement Process for LBI Examinations: IRS Large Business and International Division Revises and Expands Earlier Directive on Requirements for Revenue Agents Who Issue Information Document Requests

Sullivan & Cromwell LLP - November 19, 2013

The Commissioner of the Internal Revenue Service (“IRS”) Large Business and International Division (“LBI”) issued a directive on November 4, 2013 (the “November Directive”), to revenue agents responsible for audits conducted by LBI. LBI oversees audits of corporations and partnerships with assets in excess of $10 million, as well as certain high net-worth individuals.

The November Directive expands upon an earlier directive issued on June 18, 2013 (the “June Directive”). The June Directive listed a number of requirements that revenue agents must follow before issuing an information document request (“IDR”), including (i) discussing the underlying issue and content of the IDR with the taxpayer and (ii) discussing the appropriate deadline for responding to the IDR with the taxpayer. The June Directive also noted that the IRS would announce changes to the IDR enforcement process in the coming months.

The November Directive expands upon the June Directive’s requirements for revenue agents to follow before issuing IDRs. But more importantly, the November Directive provides for the mandatory issuance of Delinquency Notices, Pre-Summons Letters and summonses (each described in further detail below) in the event a taxpayer fails to deliver a full response to an IDR by the applicable deadline.

Significantly, the November Directive removes a revenue agent’s discretion to extend the deadline after an IDR has been issued. This means that taxpayers will have to negotiate IDR deadlines very carefully in advance. Due to the consequences of missing an IDR deadline, taxpayers should negotiate for more time to respond to IDRs even if the relevant documents are readily available. The central role of early negotiations in establishing deadlines for IDRs, and the requirement of informal discussions between taxpayers and revenue agents before revenue agents issue IDRs, also make it more important that taxpayers maintain a good working relationship with the revenue agent assigned to their audits.