Improving the audit process: a cooperative venture.

Introduction

The Chicago Chapter of Tax Executives Institute and the Chicago District of the Internal Revenue have jointly produced a video entitled Improving the Audit Process: A Cooperative Venture. The video is intended to give taxpayers and IRS agents alike a glimpse of the audit process from the other's perspective. It conveys a range of impressions of many different players on the proper role of the examination function in the coordinated examination program--from the company's chief financial officer and tax director, to the IRS district and national office, to the U.S. Tax Court. It also demonstrates that, where an examination falters in developing factual matters, the result may be costly, time-consuming, and needless litigation.

Most important, the video provides insights into the examination process that, taken together with the concepts discussed in this brochure, will permit tax and non-tax personnel to appreciate the need for both sides to keep open and improve the channels of communication. This article is intended to complement the video by providing tax executives, examing agents, and other interested parties with information on how the goals of currency and burden reduction can be attained by improving the examination process.

Improving the Audit Process: A Cooperative Venture brings home the message that, though taxpayers and the IRS sit on opposite sides of the table, both have an interest in ensuring that resources expended in examining corporate tax returns are used efficiently, wisely, and minimally. Thus, the IRS and taxpayers have recognized that the effective management of increasingly scarce resources demands that audits be initiated and concluded as promptly as possible. The IRS, for its part, has undertaken several initiatives to improve the currency of examinations. Likewise, taxpayers have found that applying total quality management techniques (such as statistical process controls, seeking frequent customer (IRS) feedback, etc.) and increasing communication with the IRS on the audit plan and document requests will improve the audit process and, ultimately, expedite issue resolution and the closing of tax years.

Maintaining a Cooperative Process

Improving the examination process involves a commitment by both the IRS and taxpayers to the idea that their counterpart is committed to the same process goals, even though there may be, and often are, disagreements on specific audit issues. At the inception of an examination the IRS and taxpayer will have their best opportunity to agree to joint objectives including involving the taxpayer in planning the examination, identifying the proper...