After years of decreasing operating budgets, the US Internal Revenue Service (IRS) is actively reevaluating how it audits large businesses. The most recent development has been to reorganise and reorient the Large Business and International Division (LB&I) to focus on high-risk issues and efficiently address non-compliance in an era of smaller IRS budgets and greater IRS responsibilities. The first phase in this effort included dividing LB&I into nine new practice areas, including four geographic areas and five issue-based groups in the Autumn of 2015. The next phase is underway now, and includes the continuous roll-out of compliance campaigns, the first 13 of which were announced in January.

A new way of auditing companies

The campaigns include not just substantive issues, but also involve new processes not previously used by the IRS. In addition to traditional audits, this will include efforts to increase voluntary compliance, including the issuance of new guidance, forms, instructions and training materials, as well as outreach to taxpayers with particular issues on their returns. Some of these processes will feel quite new to taxpayers, such as ‘soft letters’ warning taxpayers that the IRS has identified a position taken on the taxpayers’ returns and providing taxpayers with the opportunity to amend their returns correcting a particular issue or position. Soft letters might also seek information from taxpayers in a manner that does not rise to the level of a full examination.

Jul-Sep 2017 Issue

Ropes & Gray LLP