Information Document Requests from the IRS
Focusing on the information needed to address the issue
INSIGHT ARTICLE |
Our system of taxation is a self-reporting system: taxpayers calculate and report their tax liability to the government. The IRS examination seeks information that supports the taxpayer’s determination of income, deductions and tax. Information Document Requests or IDRs are the basic tool used by IRS examiners to gather information and determine facts.
At the outset of an examination, the revenue agent will issue general IDRs to gather basic information such as the taxpayer’s financial statement, book-tax accounting difference, accounts payable and receivable, and similar information. After an initial IDR to gather basic financial information, the examiner will use issue focused IDRs to delve into specific issues.
Issue focused IDRs request information on specific, identified issues. Limiting the information request to a specific issue helps both the IRS and the taxpayer focus on the information needed to address the issue. Before issuing the IDR, the revenue agent should discuss the request with the taxpayer to ensure the agent is requesting relevant material and the taxpayer can inform the agent as to documents and materials that are available to address the issue. Advanced discussion of a draft IDR reduces the taxpayer’s efforts and zeros in on the relevant information to address the issue.
Before the final IDR is issued, the agent and the taxpayer will agree to a time frame to respond. Once agreed upon, the taxpayer is committed to providing the information by the agreed-upon deadline. Failure to respond timely will trigger a four-step process to enforce the document request. If the taxpayer fails to answer the document request, the agent will issue a delinquency notice, giving the taxpayer 15 days to respond. If the taxpayer does not respond, the IRS will issue a pre-summons letter—a prelude to issuing a summons. The pre-summons letter will be sent to an executive within the taxpayer’s corporation, not just the tax director. The taxpayer will have 10 days to respond. Failure to respond to the pre-summons letter will result in the IRS issuing a summons to the taxpayer. The summons can then be enforced in a United States District Court if the taxpayer does not respond.
In most cases, the taxpayer and the IRS will agree on the information needed to address an issue and will do the appropriate follow-up. In rare instances, a taxpayer may assert a privilege against producing documents, such as an attorney-client privilege. Before asserting such a position, the taxpayer should consult an attorney, as failure to respond to an information request could result in litigation.
From a strategy standpoint, there is a real benefit to discussing an IDR before it is finalized and issued. The taxpayer can guide the agent to the available information that bears on the issue. The taxpayer can provide additional detail or commentary to explain the issue and the tax treatment. By working with the agent, many issues can be resolved early on without extensive document production. Negotiating the timing of the IDR response with the agent allows the taxpayer a convenient period to respond while giving the IRS some certainty as to when to expect a response. The IDR process can be beneficial to the taxpayer, but to be effective, the taxpayer has to keep the lines of communication open and work in good faith with the revenue agent.