On January 2, 2014, the Large Business & International (“LB&I”) Division of the Internal Revenue Service began using a new mandatory enforcement process for delinquent information document requests (“IDRs”) in tax examinations. The IRS issues IDRs in virtually all corporate audits as its primary means of obtaining business records and information from taxpayers. Compliance with an IDR technically is not mandatory and IDRs cannot be enforced directly. Rather, the IRS must first issue a summons for the same information, which then has to be enforced in federal district court. LB&I’s new procedures, outlined in a November 4, 2013 directive (“new directive”), mandate strict, uniform, and swift compliance with IDR response dates, and eliminate the discretion previously possessed by LB&I exam teams to grant extensions to taxpayers who, for whatever reason, could not meet IDR deadlines. Under the new policy, once an IDR deadline passes, the following three-step enforcement process begins: (1) issuance of a delinquency notice; (2) issuance of a pre summons letter; and (3) issuance of a summons. The new IDR enforcement process is “mandatory and has no exceptions.”

Due to the inflexibility of and accelerated timeframes outlined in the new IDR procedures, taxpayers under examination should create an evidentiary record that supports the reasonableness of their actions. That record could be useful to a taxpayer in the event of a subsequent summons enforcement proceeding. Taxpayers must also critically assess and evaluate, as soon as possible, their document production capabilities and limitations, and whether they possess: (1) large volumes of potentially responsive electronically stored information and the format of that data; (2) potentially responsive materials housed in multiple locations; (3) potentially responsive information located in foreign jurisdictions; and (4) substantial volumes of privileged documents that may be relevant to issues under examination. Often such information is time consuming to locate, access, organize, review and produce.