At the heart of the issues with the IRS is how it is handling the fact that it's seen a severe cut in its financial resources. In the past five years, the IRS has cut its training by 83 percent. Ask Taxpayer Advocate Nina Olson for confirmation! The lack of training of auditors and personnel has resulted in so many issues. The Service continues to react and we, the taxpayer and the practitioner, are seeing the problems.
To start with, the IRS continues to believe that all taxpayers should be treated equally. In today's world, that's ridiculous.
The reality is that there are at least three (maybe more) different groups of people that the IRS has to deal with. The needs and wants are very, very different.
The first group is what I call the wage earner. These people use a "H&R Block type" preparer and have little understanding of what is done. The IRS is currently using "correspondence audits" to raise taxes from this group. The auditors for these audits are not properly trained in tax law, but are trained only to look at what their supervisor/instructor taught them. There are numerous ways of proving deductions but these auditors are not trained to understand that. The result here is that the IRS is finding that these audits lead to additional tax. As CPAs, we have found that it is a folly to allow these audits and we demand a transfer to a field auditor who is somewhat better trained.
The second group consists of those who believe that they can prepare their own returns and correspond with the IRS without any help. You've heard the expression that an attorney who represents himself has a fool for a client? Same here. They might be smart enough but the Service uses its automation to harass and ignore until the taxpayer pays. The Service (in action, not intent) no longer cares to collect the proper tax. It wants anything it can get, proper or not. This group needs more support and more honest answers than the Service can provide. This group realizes it must use a CPA-type preparer (see group three) once it has the experience of interacting with the IRS on any significant issue.
The third group contains those who have figured out that they need someone who understands how to deal with the IRS! The IRS has a special telephone number for some of the issues. The problem is the IRS thinks that dealing with experienced representatives should be the same as taxpayers. More than half the time, we have to educate the IRS about its own rules.
Too many of the IRS personnel work for the IRS because they enjoy the power they have. These types tell you they are following the rules. They are not. They are usually narrow-minded and have never worked where their job was dependent on making good decisions. They hide behind their own incompetence.
The IRS is trying to enforce ethics rules on all preparers, thinking that groups one, two, and three are the same and all square pegs will fit into the round hole. It would help everyone if the IRS required its own employees to follow the same rules.
Audits follow a strict set of rules. As a result, reports are issued every 30 to 60 days disallowing everything for no reason other than that the agent must show they are working the case. The fact that they are giving the taxpayer more than 45 days to provide additional support is not sufficient: I once had an agent refuse additional time even though the taxpayer was going to South America for three weeks to deal with his wife's father, who had cancer.
The tax system needs fixing, but as long as Congress uses the funds allocation as a political game (like the tax system) the IRS will also need fixing.
About the author:
Fred Slater is a CPA with MS 1040 LLC, in New York City. He has specialized in taxes for more than 25 years. He is a past chair of the Relations with IRS Committee of the New York State Society of Certified Public Accountants. The opinions are his own and do not necessarily reflect those of the committee or the NYSSCPA.