Responding to IDRs

Jones Day Presents: LB&I Examination Strategies: Responding to IDRs

In the second installment of Jones Day’s video series on the IRS's Large Business & International Division ("LB&I") exam process, partner and tax litigator Chuck Hodges discusses changes in how the division issues Information Document Requests ("IDRs") and explains how taxpayers should respond to these requests.

Read the full transcript below:

Chuck Hodges:

In 2016, the IRS Large Business and International Division or LB&I changed its exam process. One of the critical changes is how they issue information document requests or IDRs, and I like to discuss those changes and a possible approach for taxpayers responding to IDRs now. The LB&I new approach is more of an issue-based approach to issuing IDRs. They want to issue an IDR that focuses upon one issue. But before they even issue it, they invite taxpayer involvement.

Chuck Hodges:

At Jones Day, we tell our clients to consider a three-step approach in responding to these new IDRs, involved, defense, reserve. Not ironically, IDR. First, involved. Be more involved than you ever have been before in the issuance of the IDR. Be openly and candid, especially through your representative, on the issue and really appreciate what exactly is the IRS looking for. So then you can discuss what you have and don't have and hoping to craft the IDR in a way that will be a lot easier for you to respond to.

Chuck Hodges:

But two, you can't let down your defenses. Whenever you're doing discovery responses, a litigator always thinks about, I'm answering your discovery, but I got to make sure I preserve my defense in here and incorporate that defense into my response. Too many times I read IDR responses that are just answering the IRS's questions and they're not thinking at all about, but wait, what's my defense? Make sure that it gets incorporated in there to the extent that you can. Lastly is that the IDR process is very early in the audit process and this case may go on for some time.

Chuck Hodges:

You want to reserve the right to supplement or even change an answer to the extent information becomes available that impacts your original answer. So in the end, you need to know LB&I has a new IDR process. I think it presents a lot of great opportunities for the taxpayer if the taxpayer will be involved, not let down their defenses, and to reserve the right to supplement or change at a later date.

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