The dark side of the IRS
I must take exception to and disagree with the main premise of "Don't bring your gun" (Accounting Today, April 18-May 1, 2005, page 1), that the Internal Revenue Service will freely negotiate with taxpayers about payment of their back taxes, and also the statement by the IRS representative that the "IRS is flexible in the area of penalty reduction."
First, regarding penalty abatement, this statement is 100 percent incorrect! In my experiences in representing my clients in front of the IRS Collection Division, the IRS is very inflexible and hardly ever abates penalties. Most taxpayers who are assessed penalties cannot pay their taxes for one simple reason, because they do not have money, i.e., the money was spent elsewhere. Unfortunately, this excuse does not fall within the guidelines of reasonable cause.
In addition, I find that the IRS is very inconsistent in applying standards on what constitutes reasonable cause. In my opinion, IRS collection managers have given an edict to all revenue officers to simply deny 100 percent of all penalty abatement requests by taxpayer's, unless the case involves a death or severe disability of the taxpayer or in the taxpayer's close family. Most of my cases where we are requesting penalty abatement must go to the Appeals Division, and even then the chances of success are less than 50 percent. Most taxpayers cannot navigate this system without representation by an experienced tax professional, contrary to what [IRS spokeswoman Pat] Brummer states.
Secondly, yes there are different methods to repay the IRS for back taxes, such as an installment agreement or an offer in compromise. However, once again the IRS is very rigid and inflexible in this area. For instance, in determining the amount that you can pay the IRS on a monthly basis, the IRS has national standards for housing, transportation and living expenses that, in my opinion, are unreasonably low, and in most cases most taxpayers exceed these national standards.
However, even though the Internal Revenue Manual directs the revenue officers to individually evaluate each situation and to consider deviating from the national standards, in reality the IRS never budges from the national standards. In addition, what I find is that IRS offer-in-compromise specialists will routinely deny a filed offer in compromise, and then revenue officers will force taxpayers into an installment agreement that they cannot afford and therefore are doomed to failure and default, which leads to bank levies, wage garnishments and tax liens!
Lastly, I will address the statement that the IRS is willing to negotiate directly with taxpayers. Sure, if you're willing to take your chances! I think IRS revenue officers like to pick on taxpayers who don't have a tax professional representing them because they don't know their rights as a taxpayer and the IRS can get away with a lot more. IRS revenue officers will bully the taxpayers and threaten severe collection action unless they comply with their demands.
Most taxpayers don't know that when dealing with IRS, they have appeal rights all along the way, such as the right to appeal a denied penalty abatement, the right to appeal a denied installment agreement, or the right to appeal a notice of intent to levy or notice of tax lien. Most taxpayers in tax trouble should certainly hire an experienced tax professional and not go it alone.
You have been duped by the IRS representative for IRS propaganda purposes. The next time you want an accurate opinion about the flexibility of the IRS to negotiate for payment of back taxes and to abate penalties, ask an experienced tax professional - not the IRS!
Michael Franskoviak, CPA
Franskoviak & Co. PC
Troy, Mich.
CPAs are creating financial dialogue
I just wanted to address two points related to Lou Grumet's excellent commentary, "CPAs should create a national financial dialogue" (Accounting Today, May 2-15, 2005, page 6).
Lou asks the question, "Can the CPA profession have a role in helping to determine an accurate assessment of the government's financial situation?" Later in the article, he says, "Even though the federal government isn't required to undergo an audit ..."
As a matter of fact, the federal government is required to undergo an audit, and CPA firms have been doing much of the heavy lifting in terms of assessing the government's financial condition.
The Chief Financial Officer's Act of 1990 mandated, among other things, that the 24 largest federal executive branch agencies begin having annual audits. The Government Management Reform Act of 1994 extended this audit requirement to many other executive branch agencies, and mandated other financial management reforms, including the requirement for annual consolidated financial statements (and audits).
More recently, the Accountability of Tax Dollars Act of 2002 extended the requirement for annual audited financial statements to all agencies receiving $25 million or more in appropriations.
Not only is most of this audit work being done by CPA firms, but CPA firms are also helping with most of the accounting system improvement work that these laws have made necessary. The Government Accountability Office is responsible for the consolidated audit, but the GAO works with, and relies on the work of, CPA firms (working with inspectors general) for most of the agency-level audit work.
While it is true that the government has not yet reached an unqualified opinion at the consolidated level, most executive branch agencies have been getting unqualified opinions for many years.
In the early 1990s, some questioned the cost-benefit ratio of these reforms. But that questioning went away when we found that the improvement in federal financial management that had accompanied these reforms was reaping savings that were far in excess of the costs. The reduction in improper payments alone has exceeded $10 billion dollars per year, according to the GAO.
The federal government is working hard to improve its accounting and financial management, and CPAs - within both the government and the private sector's CPA firms - are in the thick of these efforts. There is still a lot to be done, but substantial progress has been made. Professional skeptics like Lou Grumet and me tend to see half-empty glasses. But the federal financial management improvement glass is more than half full at this point, and filling fast.
Keep up the good work.
David L. Cotton, CPA, CFE, CGFM
Cotton & Co. LLP
Alexandria, Va.
