IRS tackles inefficiency in its examinations of large taxpayers.

• Author: Chambers, Valrie

In a March 2012 speech to the Tax Executive Institutes (TED midyear meeting, Steven Miller, then the IRS deputy commissioner for Services and Enforcement, described the large taxpayer examination process as too long and too costly, and he outlined ways in which he thought the process should change. As a backdrop for his suggestions, he sketched a picture in which currently a very significant investment of IRS resources is dedicated to an important but relatively small number of very large corporations and partnerships. Often these examinations are conducted by teams of IRS examiners and specialists, and it is not uncommon for the examinations to extend over many months and sometimes years. Because of the size and importance to the economy of these largest entities, Miller explained that the IRS would always maintain some examination presence among them, but he suggested there was an opportunity to create a far more efficient form of oversight.

Furthermore, in the Service's view, it was critical that new efficiencies be found so the IRS can redirect resources to other pressing compliance challenges. Among the identified candidates for the redirected staffing are middle-market cases, cross-border transactions, emerging financial products, and the many issues that emerge from the burgeoning universe of passthrough entities.

The IDR Problem

As part of the TEI presentation, the deputy commissioner described steps he believed would facilitate more efficiency in large case examinations. First, in his view, was the need to improve the information document request (IDR) process. The IDR is the formal vehicle by which IRS examiners solicit specific documents and information they believe may be relevant to determining the validity of specific tax return positions.

As explained to the TEI membership, the IRS believes some taxpayers unnecessarily delay the examination process by providing late or inadequate IDR responses. Not surprisingly, many taxpayers do not share the IRS's assessment, believing instead that the IDR process is burdened by imprecise and overly broad requests that cost taxpayers significant time and money to produce information that often is not germane to the issues identified within the examination.

Premature Referrals to Appeals

In the IRS's view, another contributor to the delay and costs of the examination process is the tendency for cases to go to Appeals before they are completely developed. The IRS believes that these cases...