The recently announced reorganization of the IRS Large Business & International Division (LB&I) provides a once in a generation opportunity to affect the manner in which IRS audits are conducted. In the view of many taxpayers, IRS audits have become increasingly inefficient and unmanageable. Done well, the reorganization of LB&I should result in more efficient and effective audits for both taxpayers and the IRS. Taxpayers have participated in previous IRS efforts to improve and streamline the audit process, but their involvement in recent years has been limited to providing comments on proposed forms or process changes rather than active involvement in improving the process.
Key to whether the LB&I reorganization succeeds is taxpayer input. The Coalition for Effective & Efficient Tax Administration will seek to effect constructive administrative changes and/or legislative solutions to IRS audit process issues identified by coalition members.
Legislation Introduced to Improve IRS Audits and Exams
In recent years, many large companies have experienced frustration in dealing with the Internal Revenue Service’s audit practices as the agency has increasingly invoked litigation tactics that limit the taxpayer’s use of the independent IRS appeals process. Companies involved in audits have also expressed concern about the IRS practice of outsourcing audits of confidential taxpayer information to private law firms or other contractors.
Those frustrations and concerns may now be addressed by new legislation in the House of Representatives. Introduced by Representative Jason Smith (R-MO) and Representative Terri Sewell (D-AL) on July 13, 2017, the Preserving Taxpayers’ Rights Act (HR 3220) aims to streamline and improve IRS audit processes and restore a more collaborative approach to resolution of disputes between taxpayers and the agency.
Introduced with bipartisan support -- the bill has an ever-growing number of Republican and Democrat cosponsors -- the legislation has four main objectives to improve IRS audit processes. First, it would give taxpayers a legal right to have their case heard by the independent and impartial IRS Office of Appeals to ensure the timely, efficient, and cost-effective resolution of any tax disputes that may arise between a taxpayer and the IRS.
Second, the bill would ensure that cases the IRS “designates for litigation,” which is a procedure that removes a case from the process that otherwise would lead to Appeals, can only be used where the matter involves a tax abuse that is a recurring, significant legal issue affecting a large number of taxpayers.
Third, the bill would further ensure that the extraordinary use of designated summonses that extend the time period for the IRS to assess a tax liability are properly authorized and only used when taxpayers are uncooperative and refuse to provide information requested by the IRS.
And fourth, the bill would prevent the IRS from outsourcing federal tax audits of private taxpayers to outside law firms. The bill thus prevents a recent development, and a practice unprecedented in the history of the IRS, from becoming routine.
Rep. Smith, Rep. Sewell and the cosponsors of HR 3220 emphasize that their aim is to reinstitute “good government” by restoring an audit process that was generally collaborative between taxpayers and the IRS, reduces costs for the IRS, courts and taxpayers, and reinvigorates the IRS’ mission of helping taxpayers meet their tax responsibilities. The bill would also help the agency to manage better with its limited resources and help taxpayers experience swifter resolution of their concerns, according to supporters.
CEETA Member Reaction to HR 3220