The American Institute of CPAs told the Internal Revenue Service Oversight Board at a hearing Tuesday that the IRS needs to improve its correspondence audit program to lessen the burden on taxpayers.

“AICPA members are very familiar with the difficulties and challenges taxpayers have faced with correspondence examinations,” said Patricia Thompson, the chair of the AICPA Tax Executive Committee.

The AICPA is urging the IRS to fix several problems, including the excessive amount of time it takes for the IRS to resolve cases, the difficulties that taxpayers face when trying to contact the IRS about the status of their cases, and the numerous telephone inquiries made by taxpayers or their representatives that are not returned by the IRS.

The IRS employs correspondence audits to get more information from taxpayers about a few limited issues on the taxpayer’s return. Correspondence audits are generally narrower in scope than a traditional audit of a tax return and are generally conducted through written communications.

Thompson recommended that the IRS conduct an internal review to determine if the correct types of returns are being selected for review under the correspondence audit program. 

“Taxpayers are often requested to substantiate specific tax deductions like miscellaneous itemized deductions, state and local income taxes, and real estate taxes,” she said. “However, it appears that the IRS may be making this substantiation request to a large number of taxpayers who happen to be in an alternative minimum tax position, with these types of deductions having no impact on the taxpayer’s ultimate tax liability. The net result is a ‘no-change’ audit for the taxpayer and a waste of resources for the IRS. We suggest that the IRS create an additional ‘filter’ for its correspondence audit selection process to remove these types of case from the Service’s active case file.”

The IRS's upcoming CADE 2 customer account database upgrade could help speed up the processing, Thompson acknowledged. She noted that the AICPA supports concerns from the National Taxpayer Advocate and the Treasury Inspector General for Tax Administration about the linkage between improving taxpayer service and the ability of the Service to properly address taxpayer rights.  "We believe the IRS has made positive strides by improving its telephone customer service lines and the handling of taxpayer correspondence, but obviously further improvements are warranted," she added.

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