AICPA testifies on IRS nonfiler program.

Deborah Walker, vice-chairperson of the American Institute of CPAs tax executive committee, told the House Subcommittee on Oversight the Institute strongly supports the Internal Revenue Service nonfiler program.

Walker said the AICPA condemned nonfiling by any individual and had engaged in a year-long effort to educate its members and state CPA societies about the program and to encourage nonfilers to come forward (see Highlights, JofA. Mar93, page 4; "Nonfiler Program May Be Extended to Employment Excise Taxes," May93, page 32; and "IRS Commissioner's Agenda Outlined at Tax Division Meeting," Aug.93, page 29). She said she believed the complexity of the tax law had contributed to problems with nonfiling and stressed the need for constant attention to simplicity as an important part of a system that strives for voluntary compliance.

Walker suggested a number of steps to help the IRS meet expectations for its nonfiler program. She noted, for instance, that revenue officers often are reluctant to consider offers in compromise (agreements between taxpayers and the IRS to pay less than the required amounts in full satisfaction of their liabilities) or are afraid to make decisions. To alleviate these concerns, she suggested,

* One person in each district office should be appointed as an offers-in-compromise manager accountable for the timeliness of acceptance or rejection of all offers in that district.

* When necessary, the IRS should explain in detail to taxpayers and their representatives why their offers were not accepted so that other offers with a more realistic possibility of acceptance can be presented.

* When offers are not accepted, taxpayers should be notified immediately so other offers can be made or the decisions can be appealed.

* The IRS should analyze why revenue officers are reluctant to make decisions and accept offers.

* The IRS should emphasize to revenue officers that accepting offers does not constitute a "giveaway" program for taxpayers

* Except in unusual circumstances, forced liquidation values should be used for asset valuation.

* The IRS should provide more guidance on acceptable life-styles for taxpayers in the program, including allowances for children's educational expenses and caring for other relatives.

* The IRS should develop procedures specifying that collateral agreements (in which the IRS seeks payment contingent on future income), which effectively void offers in compromise, are exceptions and should not be solicited routinely.

* Once an installment agreement is accepted, late payment penalties should stop accruing.

Walker also suggested the IRS FedState Relations Division inform the states of consistency problems and the IRS national office clarify that state tax liability is an important component in considering offers in compromise.

Walker suggested the IRS develop special guidance for return preparers, including special rules for using estimates when records are not available.

Harvey L. Coustan, chairman of the AICPA tax executive committee said. "We hope our recommendations are taken in the constructive spirit in which they were made. We certainly are willing to cooperate with the IRS and the Congress to make them a reality because we are very supportive of the nonfiler program." for seven market segments: air charters, attorneys, trucking companies, bed and breakfasts, taxi cabs, mortuaries and gas stations. The IRS is working on guidelines for 69 other market segments that range from various areas of agriculture to used car sales.

Raymond Smith, assistant commissioner, examination, recently said the IRS would rely more and more on MSSP guidelines in conducting audits. It is expected, both within and outside the IRS, that this new practice will lead to more efficient audits.

The IRS's entire approach to audits will change under MSSP, according to Smith. Under a policy currently being developed, the IRS will focus on audited taxpayers' "economic reality." This means the IRS will look beyond a taxpayer's return to his or her overall financial situation as revealed in information returns, old tax returns, state motor vehicle department data and other documentary sources.

Further, a former IRS regional commissioner of the North Atlantic region, Cornelius J. Coleman, says the MSSP approach to audits reduces the threat of uneven auditing practices. Under the old methods, certain taxpayers in an industry were audited, while similarly situated taxpayers were overlooked. Because the MSSP methods focus on entire industries, this will be less likely to happen, according to Coleman.