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Large Business and International Directive on Information Document Requests Enforcement Process

February 28, 2014

LB&I Control No: LB&I-04-0214-004
Impacted IRM 4.46.4

MEMORANDUM FOR LB&I Employees
FROM: Heather C. Maloy
Commissioner, Large Business & International Division
SUBJECT: Updated Guidance for Examiners on Information Document Requests Enforcement Process

 

The Large Business & International (LB&I) Division has issued two Directives relating to Information Document Requests (IDRs); Directive LB&I-- 04-0613-004 issued on June 18, 2013 and Directive LB&I-04-1113-009 issued on November 4, 2013 (the “Prior Directives”).  These Directives reflect, in part, the best practices applicable to IDRs that are being utilized by LB&I examiners across the Division.   This Directive incorporates and supersedes the Prior Directives and provides further clarification of the use of the new IDR processes. 

This clarification is necessary to ensure that the procedures governing IDR issuance and enforcement are easily and clearly understood.  In addition, it is important to continue to emphasize the importance of both the IRS and taxpayers engaging in robust discussions that include the issue that is the subject matter of an IDR, what information is necessary to evaluate that issue and why, what information the taxpayer has and how long it will take to provide it, and how long it will take the IRS to review the information for completeness and respond to the taxpayer. 

Meaningful communication between the IRS and taxpayers in advance of an IDR being issued is essential to provide efficiencies for both parties.  For example, the IRS will be better able to manage field specialists, determine reasonable estimated closing dates, and reduce unproductive time waiting for information.  Similarly, taxpayers will be better able to manage their tax department resources with focused IDR requests that have reasonable time frames.

It is anticipated that when both the IRS and taxpayers engage in robust, good faith communication in advance of an IDR being issued, enforcement procedures will be needed only infrequently. 

Introduction

Over the last several months, all LB&I examiners and specialists should have completed two mandatory training sessions on IDRs, one covers requirements for issuing IDRs and one covers new procedures for enforcing IDRs. This training and the IDR procedures set forth in this Directive are designed to make the IDR process as efficient and transparent as possible. These new procedures should improve our ability to gather information timely and reduce the need to enforce IDRs through summonses.

Planning and Examination Guidance

This Directive incorporates the guidance in the Directive dated June 18, 2013, given to LB&I examiners and specialists to follow when issuing an Information Document Request (IDR) during the information gathering phase of an examination.   Attachment 1 to this Directive contains a summary of the Requirements for Issuing IDRs.  In addition, this Directive sets forth the enforcement process that must be used when a taxpayer does not timely and completely respond to an IDR that is issued in the manner described in this Directive; that is, an IDR that is issue focused, has been discussed with the taxpayer, and contains a response date that has been discussed with the taxpayer and, in most instances, has also been mutually agreed upon.   Attachment 2 to this Directive describes the IDR Enforcement Process. 

There is one exception to the requirement that an IDR state an issue. An IDR that is 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.  All other IDRs must state an issue in compliance with the requirements in Attachment 1. 

The new IDR Enforcement Process involves three graduated steps: (1) a Delinquency Notice; (2) a Pre-Summons Letter; and (3) 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. 

If during the discussion of an IDR, a taxpayer indicates that the requested information will not be provided without a Summons, the IDR enforcement procedures do not apply and the IRS should move directly to the issuance of a Summons.   

Pursuant to this Directive, the IDR Enforcement Process is effective beginning March 3, 2014.  As of that date, the process applies only to IDRs that have been issued in accordance with the requirements contained in Attachment 1.  If an IDR does not meet these requirements, it must be reissued to conform to the new requirements including a new response date, at which time the enforcement procedures described in Attachment 2 will apply to that IDR. In addition, to ensure a smooth transition to these new enforcement procedures, examiners and specialists should not issue Delinquency Notices prior to April 3, 2014.

This Directive is not an official pronouncement of law and cannot be used, cited or relied upon as such.

cc:

     Division Counsel, LB&I

 

Attachment 1

LB&I Directive on Information Document Requests (IDRs)

Requirements for Issuing IDRs

IDRs are an important part of the information gathering process during any examination.  When issuing IDRs, LB&I examiners and specialists should follow the requirements listed below:

1.        Discuss the issue related to the IDR with the taxpayer.

2.        Discuss how the information requested is related to the issue under consideration and why it is necessary.

3.        After this consultation with the taxpayer, determine what information will ultimately be requested in the IDR.

4.        Ensure the IDR clearly states the issue that is being considered and that the IDR only requests information relevant to the stated 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 4.  Once this initial IDR has been issued, subsequent IDRs must state an issue in compliance with this requirement 4.

5.        Prepare one IDR for each issue.

6.        Utilize numbers or letters on the IDR for clarity.

7.        Ensure that the IDR is written using clear and concise language.

8.        Ensure that the IDR is customized to the taxpayer or industry.

9.        Provide a draft of the IDR and discuss its contents with the taxpayer.  Generally, this process should be completed within 10 business days. 

10.      After this discussion is complete, determine with the taxpayer a reasonable timeframe for a response to the IDR.

11.      If agreement on a response date cannot be reached, the examiner or specialist will set a reasonable response date for the IDR.

12.      When determining the response date, ensure that the examiner or specialist commits to a date by which the IDR will be reviewed and a response provided to the taxpayer on whether the information received satisfies the IDR. Note this date on the IDR.  

 

Attachment 2

LB&I Directive on Information Document Requests (IDRs)

IDR Enforcement Process

IDRs that are issued in compliance with the requirements of Attachment 1 are subject to the enforcement process set forth in this Attachment 2. 

This process involves three graduated steps: (1) a Delinquency Notice; (2) a Pre-Summons Letter; and (3) a Summons.  This process is mandatory and has no exceptions.  The timing of the application of the Enforcement Process is set forth below in a separate section.   

Extension Authority 

Before the Enforcement Process is triggered, an examiner or specialist has the authority to grant a taxpayer an extension of up to 15 business days before the Enforcement Process begins.  This extension may be granted in the following two situations.  An examiner or specialist may grant one extension with respect to the same IDR.

  1. Taxpayer Fails to Respond.  If a taxpayer fails to provide any response by the IDR due date, the examiner or specialist, should, within 5 business days of the IDR due date, discuss with the taxpayer the cause of the failure to respond and determine if an extension is warranted.  If the examiner or specialist determines that the taxpayer’s explanation warrants it, the examiner or specialist may grant the taxpayer an extension of up to 15 business days from the date the extension determination is made and communicated to the taxpayer. 
  2. Taxpayer Provides Incomplete Response.  If a response is received but the examiner or specialist determines that it is not complete, the examiner or specialist should discuss with the taxpayer the reasons why the response is not complete and determine within 5 business days whether an extension is warranted.   If the examiner or specialist determines that the taxpayer’s explanation warrants it, the examiner or specialist may grant the taxpayer an extension of up to 15 business days from the time the extension determination is made and communicated to the taxpayers. 

Timing of application of IDR Enforcement Process

The timing of the application of the IDR Enforcement Process is set forth below.

No Response Received by Due Date

  1. If no response is received by the IDR due date and no extension is granted, the IDR enforcement process begins on the date the extension determination is communicated to the taxpayer.
  2. If an extension is granted and no response is received by the extended due date, the IDR enforcement process begins as of the extended due date.

Response Received by Due Date

If a response is received by the due date, the IRS must determine whether the response is complete.  This determination should be made on or before the date the examiner or specialist stated in the IDR.

  1. If the IDR is considered complete upon review, the examiner or specialist must notify the taxpayer that the IDR is complete and closed. 
  2. If the IDR response is not complete, the timing of the enforcement process is as follows:
    1. If the IDR response is not complete, and no extension is granted, the IDR enforcement process begins on the date the extension determination is communicated to the taxpayer.
    2. If the IDR response is not complete and an extension is granted
      1.  If no additional information is received at the end of the extension period (may be up to 15 business days), the IDR enforcement process begins at the end of the extension period.
      2.  If additional information is received at the end of the extension period, this information must be reviewed for completeness.  This review should be completed as soon as practical but in most cases not more than 15 business days from receipt of the response.  If the IDR response is determined to be incomplete, the IDR enforcement process begins on the date the examiner or specialist notifies the taxpayer that the response remains incomplete.   If the IDR is complete, the examiner or specialist should notify the taxpayer and close the IDR.

 

IDR Enforcement Process

The process has three graduated steps: (1) a Delinquency Notice; (2) a Pre-Summons Letter; and (3) 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.  

Delinquency Notice (Letter 5077)

Once the IDR Enforcement Process applies based on the timing described in section titled “Timing of application of IDR Enforcement Process,” the examiner or specialist along with their manager must complete the first phase of the enforcement process, the Delinquency Notice, by following the procedures described below:

1.        Discuss the Delinquency Notice with the taxpayer.  During this discussion, ensure that the taxpayer understands the next steps in the enforcement process if the information requested in the IDR is not provided by the response date established in the Delinquency Notice.  

2.        Issue the Delinquency Notice signed by the Team Manager to the taxpayer within 10 days of the application of the Enforcement Process.

3.        The Delinquency Notice should include a response date that is generally no more than 10 business days from the date of the Delinquency Notice.  A Territory Manager must approve any date beyond 10 business days.

4.        Provide a copy of the Delinquency Notice and the IDR to your assigned Counsel.

Pre-Summons Letter (Letter 5078)

If a taxpayer does not provide a complete response to an IDR by the Delinquency Notice response date, the examiner or specialist must complete the next phase of the enforcement process, the Pre-Summons Letter, by following the procedures described below:

1.        Discuss the lack of a complete response to the Delinquency Notice with the Team Manager, Specialist Manager, the respective Territory Managers and Counsel and prepare the Pre-Summons Letter.   

2.        The appropriate Territory Manager must discuss the Pre-Summons Letter with the taxpayer. During this discussion, ensure that the taxpayer understands the next steps in the enforcement process if the information requested in the IDR is not provided by the response date established in the Pre-Summons Letter.

3.        Issue a Pre-Summons Letter signed by the appropriate Territory Manager. This must be done as quickly as possible but generally no later than 10 business days after the due date of the Delinquency Notice.  Address this letter to the taxpayer management official that is at a level equivalent to the LB&I Territory Manager. This should be a level of management above the taxpayer management official that received the Delinquency Notice.  

4.        Include a response date in the Pre-Summons Letter that is generally 10 business days from date of Pre-Summons letter. 

5.        A Director of Field Operations (DFO) must approve any date beyond the 10 business days response period.

6.        Discuss the Pre-Summons Letter with Counsel.

7.        DFO(s) must be made aware of the Pre-Summons Letter prior to issuance.

Summons

If a taxpayer does not provide a complete response to an IDR by the Pre-Summons Letter response date, the examiner or specialist must complete the next phase of the enforcement process, the Summons, by following the procedures described below:

1.        Discuss the lack of response to the Pre-Summons Letter with the Team Manager, Specialist Manager, the respective Territory Managers and DFOs, and Counsel and prepare the Summons.

2.        Coordinate the issuance of the Summons with assigned Counsel.

3.        Summons procedures can be found in IRM Section 25.5.

Page Last Reviewed or Updated: 28-Feb-2014