The October 2008 Tax Practice and Procedures column included an item on the work of the IRS Practice and Procedures Committee and how it could benefit the AICPA membership (see 39 The Tax Adviser 692 (October 2008)). The committee’s annual IRS tax issues meeting was held in Washington, DC, on October 29, 2008.
The tax issues meeting is generally attended by the IRS operating division commissioners and some additional IRS executives. It provides the membership with an update of what is happening at the IRS and allows time for participants’ questions. Many problematic issues are brought up and corrective action is often initiated. The 2008 meeting was conducted by Michael Dolan, committee chair and member of KPMG. Speakers included Faris Fink, deputy commissioner of the Small Business/ Self-Employed Division (SB/SE); Frank Ng, commissioner of the Large and Mid- Size Business Division; Brady Bennett, director of compliance at the Wage and Investment Division (W&I); Sarah Hall Ingram, chief of appeals; Phyllis Gattos, acting director for Strategic Services of Electronic Tax Administration; Michael Chesman, outgoing director of the Office of Professional Responsibility; and Nina Olson, national taxpayer advocate.
At a midafternoon panel discussion on correspondence audits, participants included John Caggiano, campus examination policy director (SB/SE); John Lindsley, discretionary exam and innocent spouse director (W&I); and committee members Danny Snow of Thompson Dunavant PLC and Lawrence Carlton of Carlton & Duran, CPAs, PC.
IRS Commissioner Douglas Shulman set the tone with a luncheon address to the Tax Division on October 27, 2008. Each of the operating divisions echoed his desire for a better balance of enforcement and service.
The SB/SE reported that 62% of all individual taxpayers and 81% of all business taxpayers use a paid preparer. These statistics underscore the preparer’s role in maintaining our tax system. The National Research Project (NRP) on S corporations has been completed, and the results should be available shortly. The ongoing NRP on individual returns will continue to better define selection criteria so that returns chosen for audit will most likely be those with compliance problems. Reduction of the tax gap continues to be the IRS’s driving force. Increased outreach and educational activities will accompany enforcement initiatives.
Challenges for the IRS
A common problem throughout the IRS is lack of experience. Due to retirements and past hiring freezes, two-thirds of revenue agents have less than four years’ experience. More than half of all revenue officers have less than four years’ experience. This lack of experience is bound to lead to difficulties from time to time.
Employment taxes have become an increasing compliance issue. The Service feels that it has put too little effort into the employment tax area and is initiating new programs and collection activities to deal with this challenge. Its goal will be to identify problem taxpayers more quickly. Employment tax delinquencies average ten quarters. The Service will be trying to reach those in arrears much sooner to get them current with filings and payments. Worker classification, officer compensation, and tip reporting are other areas of growing interest.
The LMSB faces the escalating challenge of business globalization and the adoption of IFRS. The U.S. tax system is based on GAAP. With many taxpaying entities adopting IFRS, the IRS will have to reconcile the two methods with the current tax system. The IRS will be looking at FAS 109 and FIN 48 disclosures as indicators of potential tax issues.
The IRS’s underreporter program will see more “soft notices” being issued. In tests, the Service has noted that although taxpayers have not filed many amended returns, there has been an 80% decrease in noncompliance in subsequent returns. The soft notice approach will be used throughout the United States, and the volume is expected to grow from 2,500 notices in 2008 to 31,000 in 2009. (For more on the soft notice initiative, see Schreiber, “IRS Automated Underreporter Initiative,” 40 The Tax Adviser 49 (January 2009).)
All of the above indicate a greater commitment on the IRS’s part to attack the tax gap by generating greater taxpayer compliance. The focus will be not only on enforcement but also on outreach efforts to taxpayers and tax professionals. The government looks at the tax preparer community as a partner in assuring that the tax system is effective.
Many representatives of the various state society tax committees attend the annual tax issues meeting. The chairs of every state’s federal tax committee or their designates are invited to attend at no charge. Every state society should be represented to help enlighten all members.
The IRS Practice and Procedures Committee stands ready to assist all AICPA members. Please let the committee know of any issues that may be systemic or create a hardship for a class of taxpayers. The e-mail address is firstname.lastname@example.org.
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, and is a member of the AICPA Tax Division’s IRS Practice and Procedures Committee. For further information about this column, contact Mr. Miller at email@example.com.