The IRS Shows "Restraint"

In its FAQ, the IRS also clarifies its policy of restraint. "In any discovery situation, anyone can go nuts and make life crazy," Eliason says. With its policy of restraint, the IRS is limiting the scope of information it will request from taxpayers.

In October 2010, the that it was expanding the policy in connection with its decision to require some companies to file Schedule UTP. The announcement discussed documents the company had both discussed with its attorneys and tax advisors and also made available to its auditors. Normally, documents shared with a firm's attorneys or tax advisors are protected. However, sharing a document with an auditor normally means that it no longer is privileged. The IRS said it would "not assert during an examination that such privilege has been waived by such disclosure."

The IRS FAQ also says that this policy applies even if an examination reaches an appeals stage, says Wayne Corini, partner and regional tax business line leader with the accounting firm BDO. "It's an evolution in the policy of restraint."