By Deanna C. White
The American Institute of CPAs (AICPA) has raised a number of concerns with the IRS about the burden its correspondence audit program places on taxpayers selected for examination, Patricia Thompson, the chair of the AICPA Tax Executive Committee, told the IRS Oversight Board at a February 28 meeting.
"AICPA members are very familiar with the difficulties and challenges taxpayers have faced with correspondence examinations," Thompson said. She said CPAs have identified the following problems that the AICPA has urged the IRS to correct:
- The excessive time it takes the IRS to resolve cases.
- The difficulties taxpayers face when trying to contact the IRS about the status of their cases.
- The numerous telephone inquiries made by taxpayers or their representatives that are not returned by the IRS.
The IRS uses correspondence audits to obtain additional information from taxpayers about a few limited issues on the taxpayers' returns. Correspondence audits are generally narrower than a traditional audit of a taxpayer's return and are conducted via written communications.
Thompson recommended that the IRS conduct an internal review to determine if the correct types of returns are being selected for review under the correspondence audit program.
"Taxpayers are often requested to substantiate specific tax deductions like miscellaneous itemized deductions, state and local income taxes, and real estate taxes." Thompson said. "However, it appears that the IRS may be making this substantiation request to a large number of taxpayers who happen to be in an alternative minimum tax position, with these types of deductions having no impact on the taxpayers' ultimate tax liability."
Thompson said, "The net result of the correspondence audit process is a 'no-change' audit for the taxpayer and a waste of resources for the IRS. We suggest that the IRS create an additional 'filter' for its correspondence audit selection process to remove these types of cases from the IRS' active case file."
In her testimony, Thompson acknowledged that the AICPA recognizes the IRS is laboring under increased budget cuts and understands why the agency relies heavily on the less labor intensive correspondence examinations as the "workhorse" for its overall examination program.
"However, it is the increase in the computerization and mechanization of the correspondence audit program which triggers taxpayer concerns and problems with the program," Thompson said, citing a 2009 report by National Taxpayer Advocate Nina Olson. The report identified that IRS employees spent an average of only 1.6 hours in "direct time" on each correspondence examination in fiscal year 2008, as compared to 8.5 hours on each office examination, and 46.4 hours on each field examination.
Thompson offered several additional suggestions as to how the IRS could improve service to taxpayers and reduce the taxpayer burden, including:
- Improve the IRS' telephone assistance lines to enable taxpayers to speak directly with an IRS staffer about their correspondence audit case.
- Conduct an internal review regarding whether the IRS is pulling the correct types of returns for examination under its correspondence audit program.
- Streamline its incoming mail program to decrease IRS delays in the posting or proper handling of correspondence mailed by a taxpayer – "a major concern" CPAs have with the correspondence examination program.
- Ensure the IRS effectively implements its Customer Account Data Engine 2 (CADE 2) technology program to provide taxpayers with faster refunds as well as quicker account updates and transaction processing.
"We stand ready to assist the IRS by providing input on ways it might make further improvements in these areas in general and with respect to the correspondence examination program specifically," Thompson said.