Editor: John L. Miller, CPA
The IRS Practice and Procedures Committee held its semiannual meeting with executives of the Internal Revenue Service at the AICPA offices in Washington, DC, on May 18 and 19, 2009. Attendees from the IRS were Chris Wagner, commissioner of the Small Business/Self Employed Division (SB/SE); Steve Miller, commissioner of the Large and Mid-Size Business Division (LMSB), along with Paul DeNard, deputy commissioner; Doug O’Donnell, director of International Operations; Rick Byrd, commissioner of the Wage and Investment Division (W&I), along with Doreen Viglione; Sarah Hall Ingram, commissioner of the Tax Exempt/ Government Entities Division (TE/GE), along with Joseph Grant, deputy commissioner; Diane Ryan, chief of appeals; Nina Olson, taxpayer advocate; Floyd Williams III, director of the Office of Legislative Affairs; and David Williams, director of Electronic Tax Administration.
Each of the IRS executives made a brief statement updating the committee on what is happening within their various divisions. This was followed by a dialogue with the committee members on a number of issues. Committee members presented issues based on experiences they and other AICPA members have had.
The most common theme discussed across the various divisions of the IRS was the current economic climate in the United States. Collection problems are increasing along with bankruptcies. Offer in compromise requests and installment agreements are becoming more common. The IRS expressed concern over the increased defaults in installment agreements. The Service is trying to work with taxpayers in an effort to understand their difficult financial circumstances while making sure the government is collecting taxes due. The employment tax area has received increased focus, not only in collections but also with compliance examinations. The worker classification issue is alive and well.
High-income and high-wealth taxpayers are coming under additional scrutiny. Compliance examinations are on the increase, as are examinations of flowthrough entities. Taxpayers, especially high-wealth individuals, are increasingly using flowthrough entities and multiple entities to siphon off income before it becomes a part of the individual’s tax return. Specialty flowthrough examination groups have been set up and trained in the SB/SE and LMSB areas, with their primary focus on the misuse of these types of entities.
Abusive transactions continue to be of major concern. There has been an increase in offshore transactions as well as new abusive domestic schemes. The IRS has specially trained agents “surfing the web” looking for solicitations and descriptions of new and questionable transactions.
Globalization is an increasing challenge. More and more entities do business overseas and are setting up operations overseas. This leads to compliance issues related to whether the government is getting its proper share of tax. An issue the IRS is trying to plan for is the accounting problems that will be encountered when GAAP is replaced by IFRS. The Internal Revenue Code is based largely on GAAP, which will present differences after the switch to IFRS.
The committee took the opportunity to discuss a number of troubling areas, including audit reconsiderations, misuse and lack of consistency in the application of penalties and correspondence examinations, and overreaching information document requests (IDR). IDRs are supposed to be focused on individual exams, but it was noted that many agents are asking for more documents than appear to be required.
The Service finally received its budget in February 2009, which included new hiring authorizations. Because of the late date, the IRS divisions are cooperating with one another to hire and train new agents. They are finding that with the current state of the economy, applications from individuals with substantial private sector experience are on the increase. That could present savings in training and result in having the new agents in the field sooner than expected.
The IRS Practice and Procedures Committee is a tool for all members of the AICPA to use whenever they see a systemic problem (or problems) with the IRS. All members are encouraged to make use of it.
John Miller is a faculty instructor at Metropolitan Community College in Omaha, NE. Lawrence Carlton is director of taxes at Carlton & Duran, CPAs, PC, in Bedford, MA. Mr. Miller and Mr. Carlton are members of the AICPA Tax Division’s IRS Practice and Procedures Committee. For further information about this column, contact Mr. Miller at email@example.com.