IRS Exam: Assumptions, Expectations and Collaboration - Presentation delivered by Bryan Peterson, Vice President of Tax, ACI Worldwide at the Tax Officers Summit Fall 2014, Red Rock Resort, Las Vegas, Nov 13-15

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2. IRS Circular 230 Required Notice--IRS regulations require that we inform you
that 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
another party any transaction or matter addressed herein.
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3. Agenda
y We take certain ideas of how our IRS
exam will play out and have certain
expectations on the people involved.
y But those ideas needs to be in check
y Understand how to manage the new
IDR process to benefit your case.
y Why you need to develop a plan and
while the exam is underway, because
sometimes it is not as always as
expected.
milestones, that keeps all parties
accountable to deadlines.
y What happens when the exam gets off
script? How do you get it back on
track?
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4. Example of Expectations
ISSUE: R&D Credits
y Spend time and consume valuable corporate
resources capturing documentation on projects
before return is filed
y Spend more time reviewing and improving
documentation when it become apparent that IDR
will be issued
yy Expect the documentation to be sufficient
y Expect the IRS to assign experienced and qualified
“experts” to the audit who will have time for the
audit
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5. Example of Expectation-Cont.
y Expect the IRS will review the information they
requested in the IDR before jumping to doing
“interviews”
y IRS Engineer receives documentation, but
immediately requests interviews and says it is
standard procedure
y Do you acquiesce and allow the interviews?
y What are your options, any?
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6. Preferred R&D Credit Documents
yy To interview or not to interview?
y Do the courts place more value on
contemporaneous documentation or oral testimony?
y If there is a document showing or explaining the
process of experimentation, why perform an
interview on the same topic?
y Should interviews during exam only be used if the
documentation is not sufficient? Engineer, agent,
and consultant should give reason as to the
necessity of such interviews.
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8. Managing IDR process
y Establish regular discussion with your IRS team; suggest
regular meetings
y Know your issue
y Limit IDR scope
y Educate the IRS via presentations and conversations
y Review and suggest wording changes to “draft” IDR
y Determine the amount of detail you provide in writing
y Establish working procedures with the IRS team leader
y You don’t want IDRs coming from multiple disciplines (exam
agent, engineers, consultants, computer specialists, etc.)
y Have a response date in mind
y Plan ahead for problems and delays and make sure IRS commits
in writing to review response by a given date
y Stick with the pre-agreed response time (30 days), never
commit to a shorter time 8

9. Best practice for IDR process
y Keep certain IDRs in “draft” as long as possible
y IDRs in draft form do not start the clock and can help
in preparing for time consuming IDRs
yy Identify sources of information early and identify
their schedule bottlenecks
y Prepare IDR log with timeline for response, dates,
and sources
y Prepare internal factual memo on IRS conversations
y Send correspondence to agent with what was
discussed and agreed
y Send in such a way to require IRS to respond in the
affirmative
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11. Keeping to the plan
yy At the beginning of the exam, the IRS should follow its
Quality Examination Plan (QEP) principles
y These include key milestone dates and typical response times to
issues
y It is not within the QEP for the IRS to withhold any
feedback to the taxpayer during review
y There should be periodic feedback on resolving the issues
y Request copy of Risk Analysis Worksheet which will
indicate areas where IRS will focus audit
y Getting specialists involved from the IRS can deviate
from the plan
y It is important to inform your agent if a specialist is not
following the agreed upon plan 11

12. Getting back on track
y Periodic conversations with the agent and if
necessary their manager
yy If a specialist is assigned, remember that they have
a manager too and different priorities
y Make the exam team aware of missing deadlines for
both the taxpayer and the IRS
y Elevate further if necessary
y There are managers for the managers and don’t
accept the reason, “well this is the way it has always
been done”
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