Practice notes: the quality examination process potentially effective tool not to be overlooked.

• Author: DePew, Joseph M.

This is one in a series of "practice notes," providing readers with background or updates on important issues affecting the avoidance or resolution of controversies with tax authorities. Reader comments should be sent to the authors or to editor@tei.org.

The Internal Revenue Service has contacted you to let you know that it will be opening an examination of the company's tax return. Or, perhaps, your company is one of those lucky companies under constant examination, a Coordinated Industry Case. In either situation, the IRS examination team will be required to engage in the Quality Examination Process (QEP). (1) The QEP became effective for all examinations beginning after June 1, 2010. The QEP includes all LB&I cases, both Coordinated Industry Cases and Industry Cases.

The QEP seeks the cooperation and input on the part of both the taxpayer and examination team from the initial contact through the closing of the examination and all the steps in between. Before the QEP, the examination team may have used a planning process known as the Joint Audit Planning Process. The Joint Audit Planning Process, launched in 2003, was outlined in a 39-page document issued by the Large and Mid-Size Business Division (LMSB, now LB&I) in collaboration with TEI. (2) The Joint Audit Planning Process, created to advance the goal of collaborative tax administration, sets out the steps to be performed at each stage of an examination. The Joint Audit Planning Process, however, was not uniformly used by IRS examination teams. Further, when it was used, it was often simply viewed as a process to be completed as part of a checklist, instead of a meaningful opportunity for the examination team and the taxpayer to plan the examination together.

Taxpayers that have been through the Joint Audit Planning Process have reported that it varied greatly depending on the examination team working on the case. Some taxpayers were frustrated about the issuance of information document requests by the exam team without prior discussion or advance notice. (3) Perhaps most disappointing, because many at the IRS saw the processes discretionary, the Joint Audit Planning Process was not used universally in practice. (4) In contrast, with the QEP, the IRS now appears to be serious about establishing a process which includes active taxpayer participation and facilitates conducting examinations in an efficient and effective manner.

The QEP is the effort by the IRS to put in place a process...