By now, most practitioners are aware that the Internal Revenue Service has unveiled a new "National Research Program" which plans to audit up to 54,000 individual and business income tax returns in an effort to improve future compliance and boost the agency’s coffers.
The IRS, in its new taxpayer-friendly capacity, promises that these audits will not be ruthless or cruel, and that the data collected in this sample will help formulate a better system to detect non-compliance for future tax years.
Sounds OK, right? Well, it raises a number of red flags to taxpayer advocates like Beanna Whitlock. This Southern dynamo, who works as an enrolled agent and financial planner when she’s not testifying before Congress or volunteering for the National Society of Accountants, is worried that taxpayer rights are in serious danger of being trampled.
"I think that they will go beyond the validation of numbers placed on a tax return to becoming intrusive about the private lifestyle of taxpayers," she warned.
For instance, Texas operates under common law, and it’s possible that an unmarried couple with three children would file a joint return. "I want (revenue agents) to be very cautious in these kinds of cases and not start asking, ‘Where’s your marriage license?’" Whitlock said.
She also noted that these audits are going to cost taxpayers – who filed tax returns -- either time or money. Meanwhile, non-filers aren’t being targeted at all, leading her to conclude that compliant taxpayers are being unfairly punished.
And after listening to an IRS presentation to the revenue agents who will be training the field agents conducting these audits, Whitlock is even less optimistic of how these audits will be conducted.
"Make no mistake, the IRS believes the American taxpayer to be grossly non-compliant and more than just negligent in the reporting of income," Whitlock told the NSA’s Bernie Phillips in a memo following the presentation.
She also noted that the IRS now has an "arsenal" of technology that it didn’t have in 1988 when these kinds of audits were last conducted, and warned that any discrepancies between what the IRS knows about the taxpayer and what’s reported on the tax return will easily qualify as "criteria" for examination.
Whitlock represented the NSA at the IRS presentation, and spent more than an hour in efforts to educate the revenue agents about the importance of taxpayer rights.
The fact that the agency allowed her and a representative from the American Institute of CPAs to attend and help counsel the revenue agents is a step in the right direction. And her fears about the audits may not materialize or may not be as significant as she paints. But her concerns about the power of the IRS being brought to bear on thousands of taxpayers who may be guilty of nothing but timely filing of their tax returns should be heeded, and this audit experiment needs to be closely watched.
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