IRS Issues Guidance to Shorten Audits for Large Businesses

On July 25, 2025, the IRS released IR‑2025‑77, announcing new interim guidance that aims to shorten audit cycle times for large corporate and international taxpayers. The change comes from the Large Business & International (LB&I) Division, which oversees some of the most complex and resource-intensive examinations in the IRS system.

For CPAs, tax counsel, and in-house finance teams, this shift signals a move toward more streamlined, collaborative, and time-bound audits with the potential to reduce disruption and improve predictability in the compliance process.

What’s Changing?

The interim guidance outlines a framework focused on four priorities:

1. Time-Bound Issue Resolution

Audits will now be expected to reach issue closure within 12 to 18 months, depending on complexity. Extensions will require LB&I director-level approval.

2. Risk-Based Issue Selection

Examiners will focus only on material items based on audit planning risk assessments, moving away from blanket reviews of all tax return components.

3. Streamlined IDRs (Information Document Requests)

IDRs must be narrowly tailored, clearly relevant, and sent early in the process. Responses will be subject to firm due dates and tracked more transparently.

4. Collaborative Planning

LB&I agents are instructed to collaborate early with taxpayer teams—sharing timelines, contact points, and issue scopes at the beginning of each cycle.

Why It Matters

For Multinational Corporations

• This change reduces the drag of multi-year audit cycles, enabling better financial statement finality.

• Helps avoid delayed positions, reserve volatility, and prolonged taxpayer burden.

• Encourages earlier settlement of controversial items or fast-track mediation.

For CPAs and External Advisors

• Expect tighter deadlines and more consistent expectations from IRS agents.

• Early engagement and documentation planning will be crucial—waiting until mid-cycle could limit flexibility.

• Strategy should shift from reactive defense to front-loaded substantiation.

For Mid-Market Businesses in LB&I Scope

• Firms hovering at the LB&I threshold ($10M+ in assets) will benefit from faster closure and narrower issue focus.

• Offers clarity on audit risks early in the cycle, improving tax forecasting.

Action Steps for Tax Professionals

• Review audit histories to identify frequently flagged issues. Prepare early documentation.

• Assign dedicated audit liaisons to maintain communication and meet IDR timelines.

• Educate internal stakeholders about condensed cycle time—particularly CFOs and legal teams.

Looking Ahead

While the guidance is “interim,” IRS leadership has signaled it will likely become permanent policy in FY2026 if successful. This is part of a broader shift to modernize LB&I audits, reduce backlog, and reallocate IRS enforcement resources more efficiently.

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