IDR Archives - TAX CONTROVERSY 360

No IDR Enforcement During COVID-19

by Kevin Spencer and McDermott Will & Emery | Mar 27, 2020 | IRS Audits, IRS Guidance, Uncategorized

Yesterday, the Internal Revenue Service (IRS) announced in a memorandum to all Large Business & International (LB&I) division employees that it was suspending the normal Information Document Request (IDR) procedures. The letter suspends enforcement until July 15, 2020; however, LB&I managers will have the discretion to continue with the IDR enforcement process when in their judgment the interests of tax administration warrant (e.g., cases with short statutes, listed transactions or fraud development). The memorandum, however, does not tell examining agents to stop issuing IDRs or working on their cases as the suspension relates only to enforcement of IDRs.

Practice Point: The suspension of the IDR enforcement procedures is welcome news to taxpayers with ongoing audits. With tax professionals displaced in their homes while mandatory self-isolation continues, meeting IDR deadlines has been challenging. We suggest, however, that taxpayers try to continue to work on their responses to IDRs the best they can so that when the world goes back to normal, responding to IDRs will not be high on the list of things to be done.

IRS Releases Several Transfer Pricing Directives

by Lowell D. Yoder and McDermott Will & Emery | Jan 17, 2018 | IRS Audits, IRS Guidance, Transfer Pricing Resource, Uncategorized

The Internal Revenue Service (IRS) Large Business and International (LB&I) Division recently released several directives (LB&I Directives) geared toward transfer pricing. LB&I acknowledges that significant LB&I resources are devoted to transfer pricing issues, and such issues make up a substantial portion of the LB&I inventory. It appears that these directives are aimed at ensuring that LB&I resources are utilized in the most efficient and effective manner on transfer pricing issues. A link to each LB&I Directive and a short summary is provided below.

Interim Instructions on Issuance of Mandatory Transfer Pricing Information Document Request (IDR) in LB&I Examinations

This LB&I Directive advises LB&I examiners that it is no longer necessary to issue the mandatory transfer pricing information document request (IDR) to taxpayers that have filed Form 5471, Information Return of U.S. Person with Respect To Certain Foreign Corporations, or Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, or engaged in cross-border transactions. An update to Part 4.60.8 of the Internal Revenue Manual will be made in the future to further explain this change. (more…)

Maintaining Confidentiality While Navigating Cross-Border Transactions

by McDermott Will & Emery and McDermott Will & Emery | Dec 14, 2017 | IRS Audits, IRS Guidance, Privilege and Non-Disclosure, Uncategorized

Today, taxing authorities across the globe, including the Internal Revenue Service (IRS), are increasing their efforts to gather and share sensitive taxpayer information, often aggressively seeking copies of tax advice, opinions and analysis prepared by counsel and other advisors. In some situations, tax advisors specifically draft their advice to be shared with third parties, but frequently the IRS seeks advice that was always intended to be confidential client communications—for example, drafts and emails containing unfinished analysis and unguarded commentary. Sharing this latter type of advice could be problematic for taxpayers because such advice could be used as a road map for examiners during an audit and may mislead the IRS regarding the strength or weakness of a taxpayer’s reporting positions.

Last month, we spoke to tax executives at Tax Executives Institute forums in Houston and Chicago about the IRS’s increased use of treaty requests to obtain US taxpayers’ documents and information from international tax authorities. (more…)

To Agree or Not to Agree, That Is the Question

by McDermott Will & Emery and McDermott Will & Emery | May 17, 2017 | IRS Appeals, IRS Audits, Uncategorized

The last few years have seen significant changes in audit procedures employed by the Internal Revenue Service (IRS). These changes range from the new Information Document Request (IDR) procedures to substantial changes at the IRS Appeals level. This post focuses on the IRS’s attempt to develop an agreed set of facts before a case is submitted to IRS Appeals.

As taxpayers and practitioners are aware, IDRs are the most-used tool by IRS revenue agents to obtain information and develop the factual record (other common tools include interviews and site visits). Revenue agents use IDRs in several ways, including to request documents, understand taxpayer positions and identify key personnel involved. The end result of this information gathering is a notice of proposed adjustment, which then forms the basis for the revenue agent’s report in an unagreed case. (more…)

IRS Updates LB&I Examination Process Guide

by McDermott Will & Emery | Mar 4, 2016 | IRS Audits, IRS Guidance, Tax Refunds, Uncategorized

Effective May 1, 2016, the Internal Revenue Service (IRS) will begin applying previously announced changes to the Large Business & International (LB&I) Division’s examination process. Publication 5125 begins by setting forth expectations for the LB&I exam team and the taxpayer or its representatives. It then addresses IRS expectations regarding refund claims. Finally, the publication discusses the three stages of the LB&I examination process—planning, execution and resolution—and how the IRS and taxpayers should conduct themselves during each stage.

The IRS had previously released draft publication 5125 in November 2014, which concerned some taxpayers, particularly with respect to the statement that informal refund claims would only be accepted within 30 days of the opening conference. Final Publication 5125 retains the 30-day period for making informal refund claims, but provides that LB&I will not require a formal claim after the 30-day period if an issue has been identified for examination (unless IRS published guidance specifically requires a formal claim). Exceptions may also be granted by LB&I senior management.

Publication 5125 also made changes to the examination process based on the recent shift to an issue-based audit approach. The case manager will have overall responsibility for the case, which may be beneficial to taxpayers involved in recent audits where domestic and international personnel appeared to share responsibility for the conduct of the audit. Factual and issue development are also heavily stressed, with an emphasis on the information document request (IDR) process and a focused and useful examination plan. The publication also states that IRS team members are expected to seek the taxpayer’s acknowledgment of the facts and to resolve any disputes prior to the issuance of Form 5701, Notice of Proposed Adjustment.

Taxpayers should review Publication 5125 to familiarize themselves with the current audit process and to ensure that IRS team members are following the guidance. To the extent an IRS team member is not following the guidance, taxpayers should not hesitate to discuss the matter with the team manager.