The U.S. Internal Revenue Service audit, already a feared ordeal, will get even sharper teeth in January when the IRS will start setting strict deadlines for delivery of information it wants from companies and wealthy people it is auditing.
No such deadlines now exist. So taxpayers can put off IRS requests for documents or personal interviews and drag out audits for months, sometimes even years, said tax experts familiar with the rules.
The new deadlines will apply only to people or companies with more than $10 million in assets, the IRS said in a recent memo from its Large Business and International division.
Initial requests for information will continue to be made under flexible deadlines negotiated by an IRS agent and the taxpayer. If that deadline is not met, then under the new policy a 49-day clock will start ticking.
During that period, if the taxpayer does not comply, the IRS will issue two warnings, including possibly a notice to the company's chief financial officer.
After 49 days, if the information still is not divulged, the agency will go to court to seek a summons - a step that could expose the audit to the public and pose a risk to investors.
"It's a dramatic change and it has adverse consequences," said Larry Langdon, a former tax official at the IRS who also worked at Hewlett-Packard and is now with law firm Mayer Brown LLP.
The new deadlines will have the biggest impact in "transfer pricing" audits, said Kevin Brown, a former IRS acting commissioner now at accounting firm PricewaterhouseCoopers LLP.
Transfer pricing is an area of frequent dispute involving how multinationals move and price capital and assets among units in different countries. Billions of dollars in disputed taxes can hinge on small details buried in a company's documents.
"I have heard anxiety expressed about the compressed timeframes," Brown said of the new deadlines. "It introduces an element of uncertainty and perhaps friction."
If the new timetables are strictly enforced, "we're going to see a whole lot more summons enforcement cases," said Armando Gomez, a partner at Skadden, Arps, Slate, Meagher & Flom LLP.
An IRS summons request can signal IRS trouble for a company, risking a hit to the share price, Langdon said.
"That is a major downside risk," he said.