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IRS Circular 230 Required Notice--IRS regulations require that we inform you q g q ythat to the extent this communication contains any statement regarding federal taxes, that statement was not written or intended to be used, and it cannot be used, by any person (i) for the purpose of avoiding federal tax penalties that may be imposed on that person or (ii) to promote market or recommend to may be imposed on that person, or (ii) to promote, market or recommend to another party any transaction or matter addressed herein.

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AgendaWe take certain ideas of how our IRS exam will play out and have certain expectations on the people involved. But those ideas needs to be in check

Understand how to manage the new IDR process to benefit your case.

Why you need to develop a plan and But those ideas needs to be in check while the exam is underway, because sometimes it is not as always as expected.

Why you need to develop a plan and milestones, that keeps all parties accountable to deadlines.

h h h h ffWhat happens when the exam gets off script? How do you get it back on track?

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Example of ExpectationsISSUE: R&D CreditsISSUE: R&D Credits

Spend time and consume valuable corporate resources capturing documentation on projects p g p jbefore return is filedSpend more time reviewing and improving documentation when it become apparent that IDRwill be issuedExpect the documentation to be sufficientExpect the documentation to be sufficientExpect the IRS to assign experienced and qualified “experts” to the audit who will have time for the experts to the audit who will have time for the audit

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Example of Expectation-Cont.Expect the IRS will review the information they requested in the IDR before jumping to doing “interviews”“interviews”

IRS Engineer receives documentation, but immediately requests interviews and says it is y q ystandard procedure

Do you acquiesce and allow the interviews?What are your options, any?

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P f d R&D C di DPreferred R&D Credit DocumentsTo interview or not to interview?To interview or not to interview?Do the courts place more value on contemporaneous documentation or oral testimony?contemporaneous documentation or oral testimony?If there is a document showing or explaining the process of experimentation, why perform an p p , y pinterview on the same topic?Should interviews during exam only be used if the d i i ffi i ? E i documentation is not sufficient? Engineer, agent, and consultant should give reason as to the necessity of such interviewsnecessity of such interviews.

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Managing IDR processManaging IDR processEstablish regular discussion with your IRS team; suggest regular meetingsregular meetings

Know your issue

Limit IDR scopeEducate the IRS via presentations and conversationsReview and suggest wording changes to “draft” IDRDetermine the amount of detail you provide in writingy p g

Establish working procedures with the IRS team leaderYou don’t want IDRs coming from multiple disciplines (exam agent engineers consultants computer specialists etc )agent, engineers, consultants, computer specialists, etc.)

Have a response date in mindPlan ahead for problems and delays and make sure IRS commits i iti t i b i d tin writing to review response by a given dateStick with the pre-agreed response time (30 days), never commit to a shorter time 8

Best practice for IDR processBest practice for IDR processKeep certain IDRs in “draft” as long as possible

IDRs in draft form do not start the clock and can help in preparing for time consuming IDRs

Identify sources of information early and identify Identify sources of information early and identify their schedule bottlenecksPrepare IDR log with timeline for response dates Prepare IDR log with timeline for response, dates, and sourcesPrepare internal factual memo on IRS conversationspSend correspondence to agent with what was discussed and agreed

Send in such a way to require IRS to respond in the affirmative

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Keeping to the planAt the beginning of the exam the IRS should follow its At the beginning of the exam, the IRS should follow its Quality Examination Plan (QEP) principles

These include key milestone dates and typical response times to issues

It is not within the QEP for the IRS to withhold any feedback to the taxpayer during reviewfeedback to the taxpayer during review

There should be periodic feedback on resolving the issues

Request copy of Risk Analysis Worksheet which will i di h IRS ill f diindicate areas where IRS will focus auditGetting specialists involved from the IRS can deviate from the planfrom the plan

It is important to inform your agent if a specialist is not following the agreed upon plan 11

Getting back on tracki di i i h h d if Periodic conversations with the agent and if

necessary their managerIf a specialist is assigned remember that they have If a specialist is assigned, remember that they have a manager too and different prioritiesMake the exam team aware of missing deadlines for Make the exam team aware of missing deadlines for both the taxpayer and the IRSElevate further if necessary

There are managers for the managers and don’t accept the reason, “well this is the way it has always been done”been done

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