LB&I Revises IDR Directives

The February 2014 TAXING TIMES edition covered the Large Business & International Division’s (LB&I’s) issuance and enforcement procedures for Information Document Requests (IDRs) contained in two Directives that were issued in 2013. After the February TAXING TIMES edition went to press, LB&I delayed the implementation of the procedures outlined in the Directives. Then, on Feb. 28, 2014, LB&I released a revised IDR Enforcement Directive that “incorporates and supersedes” the earlier Directives in order to “clarify” the IDR enforcement process. This administrative hiccup evidently resulted from complaints by the National Treasury Employees Union, which asserted that LB&I did not adequately consult the union before issuing Directives that remove discretion from managers and agents. Not surprisingly, the new Directive allows for some additional discretion on the part of LB&I managers, agents and specialists in the enforcement process. However, the new Directive still incorporates what can fairly be described as a rigid process. It repeats the admonition that the process “is mandatory and has no exceptions.”

The changes to the earlier Directives described in the February 2014 TAXING TIMES for the procedures agents and specialists must follow in order to issue an IDR are relatively minor. The earlier Directives did not expressly acknowledge that agents still need to issue general IDRs at the beginning of the examination seeking books and records and general information about the company. The new Directive clarifies that agents are permitted to issue the same types of general opening IDRs they have always issued. After the general IDRs are issued, however, all subsequent IDRs must be issue-focused, as previously described. In another change, the new Directive provides that the process for providing and discussing a draft IDR with the taxpayer before issuing the final IDR “should be completed in 10 business days.” The earlier Directives did not suggest or require a time period for reviewing the draft IDR. Fortunately, the new 10-day period is not mandatory; however, agents may be inclined to read a “should” as a “must.” For this reason, tax department personnel should promptly engage the exam team regarding not only the content of an impending draft IDR but also the timing of the issuance of the draft.

The changes to the enforcement procedures add a layer in which the agents and specialists have a little more discretion in dealing with non-compliance. The new Directive still involves three steps after the enforcement procedures are triggered by non-compliance or perceived non-compliance by the taxpayer—a Delinquency Notice, a Pre-summons Letter, and a Summons. However, the new Directive gives the agent or specialist the discretion to extend the time for compliance before triggering the three-step process. If a taxpayer does not respond or provides an incomplete response to an IDR, the agent or specialist is supposed to discuss the non-compliance with the taxpayer and determine if an extension of up to 15 days from the date the extension decision is communicated to the taxpayer is appropriate. The Directive advises that the agent or specialist “should” have the discussion, make the decision, and communicate it to the taxpayer within five business days after the IDR due date.

The triggering of the enforcement process depends on whether the taxpayer does not respond to the IDR by the due date or, on the other hand, provides an incomplete response. If the taxpayer does not respond to the IDR by the due date and no extension is granted, the enforcement process begins on the date the agent or specialist communicates to the taxpayer the decision not to grant an extension. If the taxpayer does not respond on or before the due date, an extension is granted, and the taxpayer does not respond on or before the extended date, the enforcement process begins on the extended due date.