WHAT TO DO IF YOU CANNOT ACCESS NECESSARY DOCUMENTS FOR A TAX AUDIT OF YOUR BUSINESS BECAUSE OF COVID-19

On: October 21, 2020

It is a huge burden at any time for a business to be subject to a tax audit.  This burden is only increased during COVID-19 when even routine tasks can become arduous, and in some cases, based on government restrictions, even impossible, for businesses to complete.

What should a business do if it cannot access necessary documents for a tax audit because of COVID-19?

Tax Audits Under The “People First Initiative”

Recognizing certain practical limitations of conducting tax audits during a global pandemic, the Internal Revenue Service, on March 25, 2020, as part of its “People First Initiative”, announced new rules for tax audits that are applicable through July 15, 2020.

The IRS will generally not start new field, office and correspondence examinations through July 15, 2020.  However, the IRS may start new examinations where deemed necessary to avoid expirations of statute of limitations.

As to existing examinations, in-person meetings will be suspended through July 15, 2020.  While there will be no in-person meetings, IRS examiners, when possible, will continue their examinations remotely.

Thus, existing audits may continue remotely, but only when possible, suggesting a certain flexibility on the part of the IRS regarding tax audits, which should be expected under an announcement that is described as a “People First Initiative”.

Apparent Flexibility Regarding Delivery Of Documents In Tax Audits Because Of COVID-19

Specifically regarding the delivery of documents in a tax audit, some generally useful language for taxpayers appears in the Internal Revenue Service’s announcement of the “People First Initiative”.

The IRS generally stated in its “People First Initiative” on March 25, 2020 that taxpayers are encouraged to respond to requests for information on examination activity if they can do so.  The IRS further generally stated in its “People First Initiative” on March 25, 2020 that taxpayers are encouraged to respond to any other IRS correspondence requesting additional information if possible.

Thus, taxpayers may respond to requests for information on examination activity, but only if they can do so, and taxpayers may respond to any other IRS correspondence requesting additional information, but only if possible, in each case suggesting an apparent flexibility on the part of the IRS regarding the delivery of documents in tax audits because of COVID-19.

The Internal Revenue Service’s Large Business and International Division announced, on March 25, 2020, that it was generally suspending through July 15, 2020 information document request (“IDR”) enforcement procedures for taxpayers who are unable, due to COVID-19, to respond timely to an IDR.  While not expressly applicable to all audits, it still provides further evidence of an apparent flexibility of the IRS if your business cannot access necessary documents for a tax audit because of COVID-19.

An apparent flexibility is not the same as a mandatory exemption.  As in any audit, communication is critical.  If your business cannot access necessary documents because of COVID-19, you should not simply ignore a document request from the IRS.  Instead, you should speak to the examiner, cite the various language and arguments described above, and thereby hopefully receive an extension of time to obtain the necessary audit documents until COVID-19 does not prevent you from doing so.

If you need tax help, always make sure to call Leading Tax Group and don’t attempt to do it yourself.