Posts Tagged ‘Audits’

Deadlines for Us, But Not for Them: GAO Gives IRS an F on Correspondence Audits

Saturday, July 12th, 2014

Most reviews of IRS programs are conducted by TIGTA (the Treasury Inspector General for Tax Administration). However, the GAO (U.S. Government Accountability Office) also can review IRS programs. The GAO is an investigative arm of Congress. Last week, a GAO report on IRS correspondence audits was released. (Hat tip: NAEA EAlert) The study’s conclusions weren’t a surprise to me (or likely most tax professionals), but likely were for Congress.

The first paragraph of the highlights (aka executive summary) spares no punches:

The notices the Internal Revenue Service (IRS) sends during correspondence audits have misled taxpayers by providing unrealistic time frames on when IRS would respond to their correspondence. For example, notices stated that IRS would respond within 30 to 45 days when it has consistently taken several months to do so. Further, as of early 2014, IRS data show that it had not responded timely to more than 50 percent of the correspondence taxpayers sent. In many cases, refunds are held up until the audit is finished. According to IRS tax examiners, notices caused taxpayer frustration and generated unnecessary taxpayer calls to IRS. Furthermore, examiners who answer such calls said they do not know when IRS will respond. IRS recently revised the notices, but the revisions were not based on analysis of historical data nor did IRS have a plan to analyze data to ensure it is responding timely per revised notices. [emphasis added]

Yes, the IRS isn’t responding timely in half the cases. There isn’t much to add to this. There are deadlines for the taxpaying public but not for the IRS.

The Executive Summary has a quotation from an IRS tax examiner:

The taxpayers cannot understand why IRS would send a letter out with such unrealistic time frames and there is no acceptable way we can explain it to them. That is why they are so frustrated. It puts us in a very awkward and embarrassing situation…. I try to gain control of the situation and tell the taxpayer I understand the frustration so that he will calm down so we can make the phone call productive, but this takes time and wastes time for both the taxpayer and me.

Source: tax examiner focus group interview.

But there’s more. The IRS doesn’t have information to note the impact of the correspondence audit program on taxpayer compliance. There aren’t objectives for the program.

…[I]t is not possible to tell whether the program is performing better or worse from one year to the next. Beyond the measures, IRS did not have guidance on how IRS managers were to use program data to make decisions. In some cases, the program data being used are incomplete. For example, IRS did not track data on the number of times a taxpayer called IRS or sent documents. Using incomplete information limits insights on the additional revenues identified from IRS’s audit investments and on how much burden the audits impose on the taxpayers.

The IRS’s response to this report is interesting. You might have already guessed what the IRS complained about: its budget. From the response:

It is important to note that reductions in the IS budget have stretched enforcement resources across the agency. In Fiscal 2014, the IRS budget has been reduced by nearly $850 million less compared to Fiscal 2010. During the same period, the IRS has seen the number of key enforcement personnel drop by 3,000 positions.

The actual IRS responses to the GAO recommendations are also enlightening. To a cynical observer like me they appear to say, “Sure, the IRS would love to agree with these and maybe we’ll do something in the future.” For example, here’s the GAO’s first recommendation and the IRS response:

Recommendation 1: To reduce the need for taxpayer calls, ensure that IRS is providing taxpayers with more realistic timeframes on when IRS will respond, and more efficiently use IRS resources, collect data to analyze whether IRS is responding within the timeframes cited in the revised audit notices. If IRS delays are continuing, further revise the notices to provide more realistic response times based on the data and take other actions appropriate to ensure efficient use of IRS tax examiner resources. For example, IRS could choose to provide taxpayers who call IRS with a recorded message notifying them of delays in IRS responding and when to expect an IRS response.

Comments: The IRS agrees it is important to provide taxpayers accurate information which may in turn reduce the need for additional taxpayer inquiries. We will collect and monitor data related to response timeframes and use that information to initiate programming changes to our letters and phone messages if realistic timeframes are not being reflected.

It hasn’t been a good week (month, or year) for the IRS. This report does nothing to change that conclusion. Until something drastic changes, there will continue to be deadlines for you and I but not for the IRS.

A Tale of Two Audits

Wednesday, September 25th, 2013

Yesterday and today I represented two taxpayers in examinations (audits). I took a day trip to Texas yesterday, and today spent some time in downtown Las Vegas. One thing is certain: The IRS has far nicer quarters here in Las Vegas than they do in the Texas town I visited. In Texas, the IRS was in a drab government building straight out of the 1950s; here, the IRS is in a nice corporate center.

Both audits went quite well for the taxpayers. Both taxpayers had heeded what I had told them: Keep good records. As I’ve said before (and will undoubtedly say again), if you have documentation for what’s on your return, an audit is usually an inconvenience. For my audit today, I carried in two briefcases full of paper (almost two reams of paper–1000 sheets). That’s a lot of documentation.

Meanwhile, while the IRS examiner and I were having a pleasant conversation we could hear snippets of the examination in the next cubicle. “I can’t allow this–you have no documentation.” “I asked for your automobile records in the Information Request.” “Do you have anything that shows your trip was related to the business and wasn’t a vacation?” I assume that audit didn’t go quite as well as mine.