Motor Fuels Tax Minute Episode 122: Received an IRS Information Document Request? Audit Response Best Practices

Leanne and Kelly talk with Bryan Ruwaldt, a former auditor who now works on Weaver’s motor fuel tax team, about audit response best practices for IRS Information Document Requests (IDRs). Bryan explains why taxpayers should provide only the information requested, keep responses within the scope of the examination and organize documentation in a way that is easy for auditors to review. The discussion also covers how clear labeling and supporting documentation can help streamline audits and reduce the risk of expanding the review unnecessarily.

Key Takeaways:

• Providing only the documents and information specifically requested can help keep the audit focused and reduce the risk of expanding the examination beyond its intended scope.
• Organizing responses by request number and clearly labeling supporting documentation can make Information Document Requests (IDR) easier for auditors to review and help streamline the audit process.
• Timely, concise and well-supported responses can improve communication with auditors, reduce follow-up questions and contribute to a more efficient audit experience.

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Detailed Description of Weaver’s Motor Fuels Tax Minute, Episode 122

00:00:00
Leanne: Welcome to Weaver’s Motor Fuels Tax Minute, the vlog where we talk all things motor fuel. Today, we’ve got our former auditor, Bryan, with us to tell us about some best practices when you’re preparing an Information Document Request (IDR). Those primarily come from the IRS, but sometimes they can come from the states.

00:00:16
Leanne: So, Bryan, put your audit hat back on and tell us: What do the auditors want to see from the documents?

00:00:23
Bryan: It’s been a little while since I’ve worn it, but I will do my best. In general, you want to provide exactly what’s been requested by the auditor to the letter of the request, as long as it fits within the scope of the examination or the review.

00:00:37
Bryan: It’s in your best interest to present the documentation or responses in a way that’s easy for the auditor to understand. Just throwing a pile of documents, or a ZIP file full of attachments, that you haven’t reviewed at an auditor will just slow down the process.

00:00:50
Bryan: If you haven’t taken the time to review what you’ve thrown at them, then you may accidentally provide additional information that’s outside the scope of the audit. And that could just open up a whole other can of worms.

00:01:00
Bryan: I’ve seen this done a multitude of different ways over the years. Probably the best version I’ve seen was a response to an IRS IDR from a client. They redrafted the questions in a separate document. They numbered them to match the IDR request. The client provided detailed but pertinent responses that stayed within the scope of the request. They provided documentation to support their stance and only for the audit period set forth by the auditor. They even named the documents to tie directly to the IDR request.

00:01:31
Bryan: And all of this was collated within a three-ring binder and presented to the auditor upon arrival. From start to finish, the IDR response was easy to follow. They had supporting documentation that could readily be identified by the auditor, responses that addressed the specific questions posed by the service and made all of it available by the deadline set forth in the request.

00:01:52
Bryan: The auditor was impressed with the response. They actually complimented the client in the meeting, and they spent the majority of their time just documenting what had been laid out for them. As far as that goes, you don’t have to go as far as printing and collating the entire request into a three-ring binder if you’re under audit.

00:02:11
Bryan: Just keep it simple. Just follow a few simple steps or rules.

• Respond directly and timely.
• Keep it short.
• Stay within the scope of the audit request.
• Make the responses easy to follow. A little organization goes a long way.
• Label documentation in simple ways that make sense.

00:02:27
Bryan: And hopefully, this helps you out during your next audit or review.

00:02:31
Kelly: Absolutely. And I remember working in internal audit, a little bit different, back in the day when I first started my career, and I remember ticking and tying and all the labeling that goes along with it. And to your point, it just makes things a lot easier when the external auditors would come in and try to follow it.

00:02:47
Kelly: So, quick follow-up question before we wrap this up, Bryan. Do you notice there being a big change over to supplying more electronic documents instead of that nice three-ring binder that we were talking about?

00:03:00
Bryan: Yes and no. I don’t know if the IRS is ever going to get away from fax. They do seem willing to accept emails, at least, when you’ve met face to face. So you can provide documentation that way. But in general, yeah, I think electronic data is preferred by the auditors.

00:03:18
Leanne: I do think it’s e-fax with the IRS, so a little bit less paper for them. But everything I heard, and it’s so critical, is that organization is key and to keep it to what they’ve asked for. There’s no reason to go beyond the scope.

00:03:33
Bryan: Right. Just keep it simple.

00:03:36
Kelly: Well, that is this week’s Motor Fuels Tax Minute. Thank you so much, Bryan, for joining us.

00:03:40
Bryan: Of course.

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Motor Fuels Tax Minute Episode 121: Using Process Mapping to Improve Motor Fuel Tax Reporting and Reduce Risk