Joint audit planning process.

• Author: Ely, Mark H.
• Position: Between the IRS and the Tax Executives Institute

Individuals from the IRS's Large and Mid-Size Business Division and members of the Tax Executives Institute (TEI) recently teamed up to create a new joint audit planning process. (Although TEI members and staff participated in the project, this is not an official TEI position.) This process combines many of the best practices occurring in audits today. The goals are to provide a consistent approach to audit planning and an issue-focused plan to encourage efficiency and accountability. The process has six parts: (1) preliminary meetings and discussions; (2) involvement of IRS counsel, specialists and technical advisors; (3) audit scope; (4) audit timeline/monitoring progress; (5) information document requests (IDRs); and (6) issue resolution/ Notices of Proposed Adjustment (NOPAs). Each part is detailed below.

Preliminary Meetings and Discussions

As part of the new process, the examination team will have several preliminary meetings with the taxpayer to learn about the latter's business, begin identifying areas of potential risk and establish audit timelines. In the timeline discussion, the taxpayer should address any concerns as to times during the year when it will not be able to dedicate its resources to the examination (e.g., filing season).This will prove to be crucial once the taxpayer and the IRS agree on response times for IDRs and NOPAs.

Involvement of IRS Counsel/ Specialists/Technical Advisers

Specialists will be involved earlier in the process; they will be part of audit planning and will be able to offer input as to the audit's scope and depth. At the initial meetings, the examination team will alert the taxpayer as to the specialists who will be involved in the audit and their roles and responsibilities. Specialists will meet with the taxpayer before issuing IDRs to ensure that they are clear and the information being requested is appropriate. In some cases, IRS Counsel may need to assist in risk analysis or provide technical advice.

Audit Scope

In determining the examination's scope, the audit team will perform a risk analysis to prioritize the issues to be examined; it will establish materiality thresholds to further limit scope. The team and specialist managers, the audit team and the taxpayer will all be involved in determining the examination's scope and depth. The risk analysis should be a continuous process revised based on the examination's findings. As part of the joint audit planning process, the IRS encourages the...