IRS Audit Process RevisedApril 15, 2016 | By Erik Lincoln
The IRS Large Business & International (LB&I) Division released the final version of Publication 5125 (2-2016), Large Business & International-Examination Process (the IRS Audit Process), which revises its audit process. There are three phases to the audit process: Planning, Execution and Resolution.
IRS Audit Process
Planning: This phase determines the scope of the audit (i.e., the issues selected for examination).
Execution: This phase involves issue development which means identifying and documenting all relevant facts, applying the law to those facts, and clearly presenting the legal positions. LB&I issue teams and taxpayers should discuss any factual differences, legal disputes, and other areas of disagreement. Resolution strategies should be considered throughout the examination to resolve issues at the earliest appropriate point. With respect to IDRs, issue teams and taxpayers must follow the LB&I IDR Directive.
Resolution: The goal of each examination is to reach agreement, if possible, on every issue. LB&I encourages the use of all available issue resolution tools to lessen the burden on both parties and now requires the consideration of Fast Track Settlement with Appeals for all unagreed issues.
Under the new IRS Audit Process, LB&I expects exam teams and taxpayers to work together to develop the audit steps and timelines for the issues in the examination plan to resolve issues at the earliest appropriate point. Taxpayers and their representatives will need to focus on: (1) identifying personnel for each issue with sufficient knowledge to assist in the development of the issue; (2) following the procedures in the IDR Directive; and (3) collaborating with each issue team to arrive at a written acknowledgement of the facts, or if facts remain in dispute, documenting where the dispute lies.