by Ken Rankin
Washington -- The kinder, gentler Internal Revenue Service that taxpayers have encountered in recent years needs to re-sharpen its claws and start auditing tax returns more aggressively, representatives of the nation’s tax accountants told the IRS Oversight Board.
Noting that hordes of IRS auditors and other enforcement personnel have been reassigned to “taxpayer service” due to changing “operational priorities” at the agency, American Institute of CPAs Tax Executive Committee vice chair Stephen R. Corrick blamed the redeployment of examiners for the “continuing reports about the extremely low audit rates and the lack of collection activity.”
Citing a “steady erosion” in taxpayer audits by the IRS in recent years, Corrick voiced concern that the agency’s audit rate fell to 0.49 percent in 2000, down sharply from 1.68 percent in 1995.
“It is vital to our voluntary compliance tax system that this lack of audit and collection activity be reversed immediately,” Corrick said in testimony during one in a series of late January meetings held by the board to find ways of improving IRS performance.
Corrick wasn’t alone in calling for a more vigorous enforcement stance by the tax service.
A day earlier, AICPA IRS Practice and Procedures Committee chair Mark VanDeveer told the oversight board that “strengthened enforcement activities” should be one of three highest priorities for the tax service in the years ahead.
In addition to encouraging the IRS to place a “clear focus on deterring persons from evading their legal tax obligations,” VanDeveer expressed support for efforts by the tax service to address the “erosion in practitioner standards by some practitioners.”
Although several of the nation’s largest accounting firms have drawn heavy fire in Washington for their role in promoting questionable tax avoidance schemes, VanDeveer told the oversight board that the institute supports the agency’s recent crackdown on “abusive tax shelters.”
The institute “has a clear position on abusive tax transactions -- they should be eradicated,” he said, adding that the AICPA is actively lobbying Congress for tougher penalties for taxpayers and accountants who engage in these activities.
American Bar Association Taxation Section chair Richard Shaw joined the AICPA in calling for more rigorous enforcement by the IRS.
In his presentation to the oversight board, Shaw said that improvement in IRS enforcement activity is necessary, and called on the agency to “continue its efforts to encourage tax practitioners to help promote compliance” with the tax laws. Shaw also called the agency’s recently proposed tax shelter opinion revisions to Circular 230 “a major step in the right direction.”
Paul Cherecwich Jr., another tax attorney who addressed the oversight board, called for the IRS to ratchet up its audit activity for smaller businesses and self-employed individuals. “The number of tax returns filed by this group increases yearly, so that maintaining the same percentage of audits each year means increasing the absolute number of audits,” he said.
Cherecwich, the immediate past chair of the IRS Advisory Council, suggested that the agency publicize its enforcement actions in order to scare taxpayers into compliance. “Taxpayers need to be discouraged from playing the ‘audit lottery,’” he told the board.
“Another way to increase compliance would be to target unethical or incompetent tax preparers,” Cherecwich said. “It is possible to identify those preparers whose returns have an inordinate number of problems, and penalize or otherwise prosecute those preparers.”
Speakers at the meeting were near-unanimous in praising top IRS officials for vigorously pursuing the agency’s long-range reorganization plan, but were far less charitable to the rank-and-file IRS staffers who are responsible for implementing the reforms.
The AICPA’s Corrick, for one, told the board that CPAs and other tax practitioners “are finding that there is often a disconnect in communications between the IRS national office and senior-level officials within the operating divisions, and middle-management and rank-and-file IRS employees.”
Although the reforms advanced by top officials are “highly positive,” too often they “find implementation floundering once a program reaches the level of IRS middle-management and mainstream employees,” he said. At least in part, Corrick attributed these problems to “cultural inertia” among veteran tax-service employees.
A number of speakers blamed poor training of IRS employees for many of the problems that practitioners encounter with the tax service. Others attributed these problems to poor communications between headquarters and rank-and-file employees.
Barbara J. Kosnar, a representative of the American Bankers Association, told the board that her members “recognize that a reorganization of a massive bureaucracy, such as the IRS, will take time -- and it will take much longer for real change to occur at the examination level.”
While the agency’s national office “may believe it has resolved a particular issue, that information is sometimes slow in reaching the IRS field agents,” she said. “Some banking institutions have reported frustration with respect to agents who are unaware of current developments.”
VanDeveer made a similar point in his remarks, noting that while communication between top IRS officials and AICPA members has improved due to the agency’s reorganization efforts, “their experience on the local IRS level has been less consistent.”
“In many parts of the country, practitioner groups have experienced a decline in the amount of information and interaction compared to many of the outreach and advisory activities sponsored by the former district offices,” he said.
The reason for this may be the division of local IRS staff responsibilities among the four new operational divisions, VanDeveer noted. “Most practitioners represent clients covered by more than one of the four operating divisions and, therefore, need communication vehicles that can keep them abreast of service-wide issues,” he said.
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