IRS Should Manage Correspondence Audits Better
Any tax professional who has handled audits knows that they can be much more difficult than they have to be. Inquiries go unanswered. Documents are not reviewed. Explanations are ignored, and sometimes, decisions are made without an opportunity to set forth your client’s position.
The Government Accountability Office, found that the notices sent by the IRS during correspondence audits have misled many taxpayers by providing unrealistic time frames on when the IRS would respond to their correspondence. For example, the notices stated that the IRS would respond within 30 to 45 days when it has consistently taken several months to do so, according to the GAO.
As of early 2014, IRS data showed that the agency had not responded in a timely manner to more than half of the correspondence that taxpayers sent to the IRS.
In many cases, tax refunds are held up until an audit is finished causing taxpayer frustration and unnecessary taxpayer calls to IRS.
“The taxpayers cannot understand why IRS would send a letter out with such unrealistic time frames and there is no acceptable way we can explain it to them,” said one tax examiner who was interviewed by the GAO in a focus group. “That is why they are so frustrated. It puts us in a very awkward and embarrassing situation…. I try to gain control of the situation and tell the taxpayer I understand the frustration so that he will calm down so we can make the phone call productive, but this takes time and wastes time for both the taxpayer and me.”
Examiners who answer such calls told the GAO they do not know when the IRS will respond.
The IRS uses correspondence audits, which are done by mail and constitute the majority of IRS audits, to resolve disputes over tax return reporting of relatively simple issues. Tax observers and the IRS itself have concerns that these audits impose unnecessary burden on taxpayers or costs on IRS.
For audits closed in fiscal year 2012, correspondence audits accounted for 1.1 million of the 1.5 million audits that year, or about 76 percent, and approximately $9.2 billion of the $15.3 billion, or 60 percent, in recommended additional taxes due and refunds disallowed by the IRS.
The IRS recently revised the notices, the report pointed out, but the revisions were not based on analysis of historical data nor did the IRS have a plan to analyze data to ensure it is responding timely per revised notices.
The IRS said it does not have information to determine how the correspondence audit program affects its strategic goals for compliance, taxpayer burden, and cost. The IRS also said it has not documented objectives for the program. While the RS has many program measures such as how many audits are closed annually, they are not linked to the compliance, burden and cost goals. Thus, it is not possible to tell whether the program is performing better or worse from one year to the next, the GAO noted.
Beyond those measures, the IRS also did not have guidance on how IRS managers were to use program data to make decisions. In some cases, the program data being used are incomplete, the GAO pointed out. For example, the IRS did not track data on the number of times a taxpayer called the IRS or sent documents. “Using incomplete information limits insights on the additional revenues identified from IRS’s audit investments and on how much burden the audits impose on the taxpayers,” said the GAO.
If you or your client needs legal assistance with an audit, call your Kansas City Tax Attorney, Jeffrey R. Siegel at 913-735-4829.