Guide to IRS Information Document Request (IDR) and Form 4564
The IRS has broad statutory authority to examine a taxpayer’s records during an audit. One primary method for the IRS to obtain this information is through Information Document Requests, or IDRs for short.
If you receive an IDR, you should answer the request within the prescribed timeline but also be careful in framing your responses. This is because the information gathered through IDRs can form a basis for a notice of proposed adjustment, as described further below.
To that end, this article will first provide an overview of what an IDR is. We will also discuss how to respond to an IDR, the potential consequences for failing to respond to an IDR, and who can help you respond to such requests.
What is an IDR Request?
The primary tool for the IRS to obtain information from a taxpayer under audit is through an IDR. The IRS will typically issue such information requests on Form 4564.
In general, the Service’s power to obtain taxpayer records is quite expensive, encompassing everything from specific questions on the taxpayer, financial records, emails to information held by relevant third parties.
That said, the IRS faces certain restrictions on what information it can request.
Revenue agents use IDRs to understand taxpayer positions better and develop factual record. More importantly, based on its findings from the IDRs, the IRS may issue a Form 5701, Notice of Proposed Adjustment, and Form 886-A, Explanation of Items (collectively, a so-called “NOPA”). The NOPA will outline tax return adjustments (e.g., changes to income, deductions, and/or other tax items) for the taxable year under audit and an explanation for why the adjustments were made.
How to Respond to an IDR
Since the IRS has most likely done a fair amount of preparation work before issuing an IDR, you should be honest and candid in your responses and provide answers within the prescribed time frame. You need to maintain a positive working relationship with the IRS audit team to prevent an examination from escalating into something more.
At the same time, you should also get a sense of the focus and direction of the audit. Because the findings from an IDR can form the basis for a NOPA, it would be advisable for you to draft your responses carefully and incorporate any potential defenses to the extent applicable.
Additionally, the IRS faces certain limitations on what type of information they can request in an IDR. You and your tax attorney/tax professional should vet whether the requests are protected by attorney-client privilege and/or they are not relevant to the scope of the examination.
What Happens if You Don’t Respond to an IDR?
When the IRS issues, an IDR, Form 4564 should have a date by which you need to respond. If you fail to respond to an IDR, the IRS has the statutory power to issue a summons to compel your testimony or the production of documents requested in the IDR. If you do not voluntarily comply with the summons, the Service can file a lawsuit in the applicable U.S. District Court to enforce the summons.
The Service’s summons authority is not unlimited as with other IRS powers. Generally, revenue agents need to abide by the following principles outlined by the U.S. Supreme Court in United States v. Powell, which have also been incorporated in the Service’s Internal Revenue Manuals:
- The investigation must have a legitimate purpose;
- The inquiry may be relevant to the purpose;
- The information sought is not already within the Service's possession; and
- All administrative steps required by the Code have been followed.
Still, in light of the Service’s summon’s authority, you should make every effort to respond to an IDR (unless you believe the information requested is protected by the attorney-client privilege or not relevant to the scope of the examination). If you anticipate that you will not be able to respond by the due date in Form 4564, you should request an extension or otherwise work with the revenue agents assigned to your case on a mutually agreeable due date.
Who Can Help with this Type of Request?
If you receive an IDR from the Service, you should work with a tax attorney or a tax practitioner well versed in IRS examinations and procedures to help you respond to Form 4564.
Your tax professional can help you with an IDR in a few important respects. First, IRS audits can be a very complex process. Your tax professional can explain and help guide you through an examination, including what to expect beyond the IDR requests.
Perhaps more importantly, your tax advisor can help you get a sense of the focus and direction of the audit and appropriately frame your responses within this context, including any applicable defenses. As already mentioned above, revenue agents can use the information from IDRs as a basis for the NOPA. Your tax advisor can help you respond strategically and raise objections to any requests protected by attorney-client privilege and/or not relevant to the scope of the examination.
As described above, an IDR is an essential tool for the IRS during an audit. Revenue agents primarily use IDRs to develop an audited taxpayer’s factual record and, if applicable, to build a case for issuing a NOPA. Additionally, while a taxpayer is not required to respond to an IDR initially, the Service has the authority to issue a summons to force you to comply with its request potentially.
Given these circumstances, you should work closely with a tax attorney or practitioner experienced in IRS audit matters to help you respond to an IDR within the prescribed time frame. A tax attorney or practitioner can demystify the examination process for you and help you develop strategic responses to the IDR. At TaxCure, you can find local tax professionals that can help with IDR requests and tax audits. You can start your search for a tax audit professional here.