An End-of-Examination Checklist
The Expert: S. Starling Marshall

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S. Starling Marshall

Nearing the end of an Internal Revenue Service exam cycle can feel like time to wrap up the process quickly and move on to the next task and then the next cycle. However, considering a few things to do now can result in a faster, more successful resolution of issues not only during this cycle but also during future ones.

What should be on your end-of-exam-cycle checklist?

Answer: When developing a checklist for the end of an IRS exam cycle, take stock of the issues that presented themselves in this cycle and take action. Taking these steps now can have profound benefits.

Taking Stock of Issues

Make a list of issues that presented themselves during this audit cycle. Evaluating the full scope of the issues that arose will help you to address them head-on and identify patterns. At the conclusion of the audit, you are afforded the opportunity to review any adjustments that your exam team proposes. That review is your chance to decide which adjustments you will contest and which you will resolve at exam. Although it is important to review the proposed adjustments, it is also useful to examine the audit holistically. For unagreed issues, identify which issues will recur and which are standalone. How you resolve them now may depend on whether they will recur later. For agreed issues, consider how each is being resolved and how those resolutions affect other items, other years, and your procedures going forward.

Corrective Action: Audit Process

Taking stock of the issues you spent time resolving during the audit will help you identify opportunities to fine-tune internal procedures to make the next cycle more efficient. During an audit, debating new or contested issues may be unavoidable. Examine your list for issues that were resolved but drained significant time and resources. If these items will recur, it is worth exploring how the inefficiencies they cause can be avoided in the future. For example, did the IRS request substantiation for expenses or deductions that was difficult to find or took a long time to organize? How could you change internal policies and procedures to prepare for the next cycle and to avoid this stumbling block later? Considering a corrective action plan even before the current audit cycle is over helps you to tailor your plan to address specific items that slowed the process while things are fresh in everyone’s minds. Consult your audit team to ensure that the plan you put in place gives the parties what they need to resolve the issues smoothly next time.

Corrective Action: Agreed Items

Your list may include proposed adjustments that will recur. If you have agreed to those adjustments, corrective action may be needed to change how these items are treated within your company. Once again, addressing required changes while an issue is fresh will help you craft a plan that responds to the issues and affords you the opportunity to solicit input from your audit team on any changes. Documenting all steps taken will allow you to easily demonstrate any changes, should the treatment of that item become an issue in the future.

Building Your Case

If you have decided to contest some proposed adjustments, it is never too early to start developing your case. Whether the controversy is resolved at appeals or leads to litigation, your task is the same: to develop a cohesive theory of the issue and marshal evidence to support that theory. Documents and witness statements can lend credibility to your position, but the longer you wait to gather these key pieces, the harder it can be. During the audit, you were responding to requests from the audit team, and you may think you have assembled every document you could possibly need. However, pause to consider your theory of the issue and what facts are crucial to your narrative. The focus of building a proactive case may differ completely from the reactive case that emerged during the audit. Different facts, witnesses, and experts may be relevant. Begin to consider how you would want a new third-party arbiter to view the issue and what you would present if given a fresh start. Appeals may be your chance to do so. You should, however, also consider what level of escalation is appropriate. If you begin to interview executives for “deposition preparation,” alarm bells may ring at your organization because those terms trigger procedures for anticipated litigation. If it is time to have those conversations and ring those alarms, proceed. If you don’t believe the issue has progressed to that point, you can still do some legwork to prepare for administrative appeal, thus also preparing for the possibility of litigation, no matter how remote. A cohesive and supported theory of your position can help you resolve a matter at any stage.

View From the Other Side

Another step to consider adding to your end-of-audit procedures is a Freedom of Information Act (FOIA) request.1 FOIA requires that federal agency records be made available unless specifically required or permitted to be withheld. After an unagreed exam concludes, you may consider filing a FOIA request for the exam team’s files before proceeding to appeals. Although the IRS may withhold certain information from the FOIA production based on exceptions to FOIA and privileges, the files will give you a glimpse into what the exam team considered when it made the adjustments and what the Appeals Officer will have read before your conference.2 Having at least part of this information can help you tailor your presentation at appeals. However, having the file is useful only if you have the time and resources to review it. FOIA files can be large and time-consuming to review, and you must pay IRS copying costs and a fee for the IRS’ review and search time. In your request, you may ask for the entire exam file or for files related to a specific issue. If you believe the records will be voluminous, you may consider narrowing your request to focus on unagreed issues or offering to review the records yourself at the IRS and copy only what you like. Another consideration before filing a FOIA request is your relationship with your exam team. They may view such a request as checking their work and may not be pleased that you have sought production of their files. This issue might be eliminated with a conversation or by making a FOIA request a routine step at the conclusion of every unagreed audit.

Resolve Agreed Issues

Whether the IRS has accepted your position or you have agreed to an adjustment, consider the form of that resolution and its effect on other years. If an issue is resolved at exam, with very limited exceptions, appeals will not reopen that issue.3 However, acceptance of a return position at exam does not bind the service in future years. In addition, while it is the policy of the IRS not to reopen agreed issues, should the IRS later determine that more tax is owed, it may make an additional assessment so long as the statute remains open.4 Make sure you file protective claims for open years to preserve your rights should the IRS challenge your position later. The reverse is also important to keep in mind; your acceptance of a disallowance does not preclude you from contesting the IRS position in that year or others. Consenting to assessment does not eliminate your right to file for a refund so long as the statute for a refund is open.5 Unlike other resolutions, closing agreements bind both parties and can cover more than one year. If you have a recurring issue, or a change in one year that will affect many other years, consider pushing for a closing agreement to resolve the issue with more finality. Depending on the nature of your agreed issue, you may want to consult with your tax counsel about filing with the IRS to make a voluntary change in method of accounting and to learn the potential effects of filing on future audits.

Consider Meeting With Executives

If your exam team will be returning, consider setting up a meeting with executives on the team at the end of the cycle to review the audit. This meeting should be separate from a review of proposed adjustments and should focus on process and on making the next cycle efficient and effective for all parties.

Final Calculations

One last step before you put this cycle behind you and move on: the final numbers. Running your own calculations of refunds or adjustments is most likely something you have done throughout the audit. Before you make a payment or the IRS issues a refund, double-check the calculations. Interest calculations and partnership interest changes can complicate these calculations, and the time to resolve discrepancies efficiently is before the check is cut. Explore how other years might affect the payments to or from the IRS. For example, if you have agreed to a deficiency for this cycle, but have a refund due for another year, you may be able to net the two years. Because refunds of over two million dollars have to go through extra layers of approval, netting two years may avoid delays caused by triggering those procedures.


  1. 5 U.S.C. section 552.
  2. Internal Revenue Manual (IRM) (2).
  3. IRM
  4. 26 C.F.R. section 601.105 (b)(4).
  5. Id.

S. Starling Marshall is a special counsel at Covington & Burling’s New York office.

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