IRS Large Business and International (“LB&I”) employees oversee most large case examinations. In a Feb. 25, 2020 Memorandum, LB&I management removed many procedural roadblocks previously required for LB&I to seek to enforce summonses during examinations of listed transactions and transactions of interest ( “Reportable Transactions”).
The IRS uses summonses to gather information during taxpayer examinations. The use of a summons bears the threat of court enforcement if a taxpayer does not comply and turn over requested information. Until very recently, the Internal Revenue Manual has required that in all cases its LB&I agents take certain specifically enumerated steps prior to issuing a summons.
In general, those steps required LB&I managers at all levels to be involved early in the information document request process. LB&I agents also are subject to both suggested and mandatory guidelines prior to issuing a summons. The rules, while setting very real deadlines for both agents and taxpayers, ensured that due process occurred in advance of any court enforcement.
As a threshold, the IDR compliance guidelines (found in IRM 18.104.22.168.1) provide that among other things, prior to issuing an IDR, LB&I examiners should ensure that they address only one issue in each IDR, utilize letters and numbers on the IDR for clarity, and discuss with the taxpayer how the information requested is related to the issue under consideration and why it is necessary.
Enforcing a Summons
After ensuring compliance with the IDR procedures of IRM 22.214.171.124.1, the general LB&I process for enforcing a summons required three graduated steps: a delinquency notice; a pre-summons letter; and finally a summons. However, the February 25 Memorandum removed the requirement that LB&I agents auditing Reportable Transactions follow the threshold IDR procedures and the specific three-step summons procedure for any document requests issued on or after February 25, 2020.
Instead, LB&I agents auditing Reportable Transactions may now skip the general IDR guidelines and the three-step summons procedure. In other words, in examinations of Reportable Transactions, LB&I agents now have an easier wielded weapon when seeking to compel taxpayer information disclosure, as they may now resort more directly to summons enforcement.
The February 25 IRS Memorandum also removed the requirement that LB&I agents examining Reportable Transactions provide a Written Acknowledgement of Facts (which provides procedures for examiners to address any additional or disputed facts identified by taxpayers) prior to completing an examiner’s report (Form 886-A) and issuing a Notice of Proposed Adjustment. There is a valid concern that the IRS removal of these protective procedures in investigations will not only provide for more “efficient” reviews by the IRS but perhaps make investigations less sensitive to taxpayer rights.
If you have questions regarding your or a client’s tax matter, please contact Steven Miller of alliantNational at [email protected]