Things will be tougher for tax exempt and government entity retirement plans with more strict deadlines on Information Document Requests (IDRs) by the IRS. Examiners will now have less discretion to extend deadlines on responses to IDRs.
The new procedures announced earlier this month will become effective April 1, 2017 affecting the timing of the deadlines for IDRs which are central to the IRS audit.
In the past, examiners had more discretion. Under the new procedures, just two 15 day extensions may be granted to comply with the IDR may be granted after calls with the plan sponsors with the second one only with the approval of the IRS examiner’s manager.
Previously, there was much more room for negotiations depending on the circumstances of the case, according to Toth Law, allowing the plan sponsor to bring in a professional to consult. Toth explains that extensions were often granted and needed because:
Examinations can be difficult; data can be hard to find, subject to interpretation and dispute; people can be hard to find; business conditions can be difficult; and IDRs have been a dynamic tool used throughout the examination process to establish (or even disprove) an examiners position. Discretion and flexibility in the process is necessary, to both reward and to impose accountability.
The penalties for not complying can be onerous including a delinquency notice and even a summons notice. It appears that the IRS is trying to impose more discipline in the process which may make it more difficult for sponsors and examiners.
This guidance will be incorporated into the following Internal Revenue Manuals by a date not to exceed two years from November 21, 2016:
- IRM 4.71.1, Overview of Form 5500 Examination Procedures
- IRM 4.75.10, Exempt Organizations Pre-Audit Procedures
- IRM 4.75.11, On-Site Examination Guidelines
- IRM 4.81.5, Tax Exempt Bonds Examination Program Procedures – Conducting • the Examination
- IRM 4.86.5, Conducting Indian Tribal Government Examinations
- IRM 4.90.9, Federal, State and Local Governments (FSLG) – Procedures, Workpapers and Report Writing
