How should a tax practitioner complain about an IRS agent's conduct?

Most tax practitioners have experienced at least some difficulty in representing clients under audit. Complaints commonly focus on the timeliness of the audit process or the agents training and competence, many practitioners report communication problems with IRS Service Centers. What advice should be given to the practitioner who has not heard from an agent in nine months? Should a practitioner complain if a new agent is unfamiliar with basic tax concept? What form should a complaint assume, and to whom should it be addressed? Will a complaint prolong the audit process? Will the agent seek revenge and assert increased adjustments?

These and other dilemmas were the subject of a recent survey of tax practitioners and IRS employees in the IRS's Philadelphia District. The survey was a result of an IRS/Practitioner "Working Together" initiative conducted in the Philadelphia District (Working Together Program). More than half of the practitioners surveyed disagreed or strongly disagreed that "treatment by IRS employees is consistent." Sizable percentages of practitioners and IPS employees disagreed or strongly disagreed that they are familiar with Circular 230[1] (the standards of conduct governing practice before the IRS).

A separate survey of IRS employees suggests that many IRS representatives appear to distrust tax practitioners; over one-half agreed or strongly agreed that "some practitioners are likely to mislead the IRS in order to gain an advantage for their client." Approximately 45% agreed or strongly agreed that "some practitioners are impossible and disrespectful."

One of the most important results of the study concerned practitioner views on whether to complain about IRS conduct. Approximately 30% agreed or strongly agreed that "complaining will result in negative consequences for the client."

While the results of the research are limited to the Philadelphia District, they provide an excellent starting point for the development of future nationwide research and the identification of possible problem areas in other districts. The IPS National Office has been supportive of the Working Together Program and the prospects of its duplication in other districts nationwide. This article provides a brief summary of the Working Together Program and its surveys and provides basic guidance on how practitioners should assert complaints about IRS conduct.

The Working Together Program

In 1992, several tax practitioners and Philadelphia District representatives began meeting to air their grievances with one another. The first IPSI practitioner Conference was held in 1993 (1993 Conference) at Widener University in Chester, Penn., to facilitate the developing dialogue between the tax practitioner and IRS communities.

Objectives

As the result of numerous complaints that surfaced at the 1993 Conference, "Working Together" committees were established to focus on problems in three major areas: (1) timeliness of the audit process; (2) practitioner concerns regarding the consequences of complaining about an IRS agents conduct to his manager; and (3) awareness of the standards of conduct contained in Circular 230. In addition, surveys of the practitioner and IRS populations were conducted.

While the first Working Together Program was limited to the Philadelphia District, other similar initiatives are being planned by other districts. The IRS National Office has taken a keen interest in the initiative and the prospect of its duplication on a local level in other districts.

The Working Together Program has led to a number of helpful changes in die audit process, and is anticipated to lead to similar modifications on a district-by-district basis once the programs of other districts are in place. A number of measures being taken by the Philadelphia District exemplify the types of changes that can be implemented nationwide.

Increased use of opening conference: In large cases, a special "Opening Conference" is usually held by the agent and the practitioner to establish audit guidelines and set forth a tentative timetable. To enhance communication and increase efficiency, the Philadelphia District now conducts Opening Conferences in all field business examinations of corporate and partnership returns and Schedule C.

Increased manager involvement in audits: The involvement of audit managers in the audit process tends to increase the level of IRS expertise on the case. The Philadelphia District requires manager involvement on corporate examinations involving assets of $10 million or more. The names of group managers and their fax numbers appear on all correspondence dated after June 1, 1995.

IRS notice of delays: In the Philadelphia District, the IRS routinely notifies a practitioner of any delays of more than days when an auditor is on a training detail.

IRS training to coincide with tax season: Because practitioners are busy with tax returns from January to April, it is convenient and efficient to time IRS training details to coincide with tax season. Training sessions under the Philadelphia Districts control will be conducted during tax season, it is anticipated that other districts will follow this simple, eminently practical suggestion.

Formation of a practitioner complaint board: A Practitioners, IRS Conduct Complaint Board (PICCB)q has been formed by tax practitioners from a number of professional groups in the Philadelphia area[2];, the formation of similar groups is anticipated in other communities. The PICCB is designed to assist practitioners in deciding whether to pursue an IPS complaint and periodically provides feedback to the IRS and practitioner communities as to the types of complaints received. AE complaints are handled on a confidential basis.

Need for a Survey

While almost every practitioner can report having at least some problems with the IRS, it is sometimes difficult to determine whether a particular problem is endemic to the community. To help to determine the nature and scope of practitioner complaints, a random sample of 3,397 practitioners was surveyed in the Philadelphia District. Practitioners from several practitioner groups were represented, including the PSPA (Philadelphia and Bucks-Montgomery Chapters), PSEA, TSPBA and PICPA, similar surveys are under consideration for other geographical areas. A random sample of over 800 IRS employees was also taken. The overall average response rates for the practitioner and IRS surveys were 42% and 47%., respectively. The response rates are unusually high, largely because a follow-up mailing was sent to those who failed to respond to the first survey.

Survey Results

Generalizations about practitioner perceptions nationwide cannot be based on local surveys, regardless of the sample size and response rate. Nevertheless, the results are a starting point for the performance of future research in other districts.

Perceptions of competence: Over 60% of the IRS employees surveyed agreed or strongly agreed that "practitioners are knowledgeable and well-trained." While 28% of practitioners agreed or strongly agreed that "IRS representatives are knowledgeable and well-trained," 27% disagreed with that statement. Research conducted in 1995 by the AICPA found practitioners to hold fairly favorable views of the IRS.[3]

Inconsistency in tax administration: Over 50% of practitioners disagreed or strongly disagreed that treatment by IRS employees is consistent." Approximately 30% perceive the audit and collection process to be completed on a timely basis, while a similar percentage does not. The wide variance in experience regarding delays further supports the view that tax administration is inconsistent.

Lack of familiarity with Circular 230: As many as 28% of practitioners disagreed or strongly disagreed that they are "familiar with standards of conduct under Circular 230." The practitioner's lack of familiarity with Circular 230 is not surprising in light of prior research on practitioners, perceptions.

According to the survey, 86% of IRS representatives agreed or strongly agreed that they are familiar with IRS rules of conduct, only 1.6% disagreed or strongly disagreed with that statement. However, approximately one-third of IPS employees disagreed or strongly disagreed that they are familiar with Circular 230. This supports the view that the IRS has done a good job of educating its representatives with regard to IRS rules of employee conduct, but that employees may be unfamiliar with the standards of conduct applicable to practitioners under Circular 230.

IRS negative perceptions of practitioners: Approximately 45% of IRS employees agreed or strongly agreed that "some practitioners are impolite or disrespectful." Further, approximately 70% perceive that "some practitioners purposely cause unnecessary delays."

Approximately 40% of IRS representatives agreed that "practitioners believe that the IRS is out to get their clients even if proposed adjustments are legitimate." Further, over one-half agreed or strongly agreed that "practitioners are likely to mislead the IRS in order to gain an advantage for their client."

The grievance process: Approximately 30% of practitioners agreed or strongly agreed that "complaining will result in negative consequences for the client." A similar percentage of IRS employees agreed or strongly agreed that practitioner "complaining will result in negative consequences for the IRS employee." In spite of fears, almost 80% of practitioners agreed or strongly agreed that they "would complain if an audit were mismanaged."

The actual reported instances of complaints were much lower than one would expect given that nearly 80% of practitioners stated that they would be willing to complain. Out of 1,391 practitioners who responded to a direct question whether they had ever complained to the IRS, only 316 (22.1%) indicated that they had. Of those, 61% (193) agreed or strongly agreed that neither the practitioner nor the client experienced negative consequences, while 15% (47) either disagreed or strongly disagreed with that statement, thus, 47 of the practitioners surveyed had experienced negative results from a complaint regarding an IRS employee.

The IRS, as well as practitioners, fear practitioner complaints. Over 25% of IRS representatives agreed or strongly agreed that complaining about an IPS employees conduct will result in negative consequences for the employee." The results cast doubt on the effectiveness of present grievance procedures for channeling practitioner complaints.

The results also suggest that practitioners may be confused about the grievance process and may benefit from such initiatives as the PICCB, which is designed to offer assistance in evaluating complaints against the IRS.

Guidelines for Making a Complaint

Practitioners should consider a number of major issues before asserting a complaint against the IRS. In some cases a complaint may be justified, while in others, the practitioner may be improperly criticizing a routine operating procedure.

Evaluating IRS Conduct

The first step in determining whether to complain is to evaluate the agent,s conduct in terms of applicable professional standards.

The tax practitioner is accountable for his professional conduct as the result of three major factors: (1) professional standards established by die profession of accounting and/or law; (2) client (Sec. 6662) and practitioner (Sec. 6694) penalties; and (3) administrative regulations under Circular 230. While most practitioners are familiar with their own professional standards, few may be aware of the professional standards applicable to the IRS.

Rev. Proc. 64-22[4] imposes on IRS employees the duty to interpret the law, and to try to find its true meaning without using a strained construction under the guise of "protecting the revenue." The Service is charged with applying and administering the law in a reasonable, practical manner; administration is required to be both reasonable and rigorous. Further, Rev. Proc. 64-22 requires administration to be conducted with as little delay as possible and with great "courtesy and considerate."

The Taxpayer Bill of Rights (TBR) contained in the Technical and Miscellaneous Revenue Act of 1988 (TAMRA) gave taxpayers and practitioners enforcement mechanisms for violative IRS behavior.[5] If the IRS violates the taxpayer's rights, the practitioner has strong grounds for complaint. The TBR requires the IRS to (1) provide a taxpayer with a written statement of his rights (Sec. 7522), (2) follow specified procedures for taxpayer interviews (Sec. 7521) and (3) issue a Taxpayer Assistance Order (TAO) if a taxpayer is suffering (or is about to suffer) significant hardship (Sec. 7811).

The Taxpayer Bill of Rights 2 (TBR2) was enacted in July 1996 and expands taxpayers, rights and practitioners' grounds for complaint. TBR2 Section 101 establishes the "Office of the Taxpayer Advocate" to assist in the resolution of specific problems and to report to Congress on an annual basis. TBR2 Section 301 provides for the abatement of interest attributable to a managerial error or delay by an IRS officer or employee.

Targeting the Complaint

Care should be taken in targeting a complaint to the most appropriate audience. The best forum for the complaint hinges on the facts and circumstances, for example, certain problems caused by the Service Center may best be handled through the IRSS Problem Resolution Office, but difficulties in an ongoing audit may best be handled by the IRS agent's case manager. In many cases, a problem may most easily be resolved by seeking out the employee's most immediate superior.

The most effective way to proceed with a complaint is to follow the IRS's chain of command. Thus, a complaint about an agents conduct should first be brought to his Group Manager. If satisfactory results are not obtained at this level, the complaint should be raised with the Branch Chief. Thereafter, if the practitioner is still dissatisfied, the complaint may be brought to the Division Chief. If satisfaction is not obtained at the lower levels, it may be appropriate to raise the complaint with the District Director.

A continuing concern is that the agents manager will be unwilling to overrule his decision and merely "rubber stamp" his conclusions. If this occurs in an individual case, the practitioner is well-advised to pursue the complaint at successively higher levels.

Maintaining Appropriate Standards of Conduct

No matter the provocation, the practitioner with grounds for a complaint must make every effort to pursue the grievance in a professional manner. The AICPA provides standards of conduct for CPAs[6] and separate standards for tax practitioners.[7] The latter require practitioners, attitudes and habits to contain truthfulness and integrity.[8] Further, the practitioner must not engage in any conduct that could be construed as "disreputable conduct" under Circular 230 Section 10.51, the standards of conduct applicable to those who practice before the IRS. "Disreputable conduct" is broadly construed by Section 10.51(i) to encompass contemptuous conduct that includes the use of abusive language, knowingly making false accusations and statements, or circulating or publishing malicious or libelous matter.

Obtaining External Input

The practitioner may find it useful to discuss the complaint with another practitioner who is a member of the local chapter of a professional organization. The parties, identities (i.e., both the IRS employee and the client) should remain anonymous in all discussions with others. The AICPA's Code of Professional Conduct requires practitioners to uphold standards of confidentiality. Further, communicated, false, damaging statements made about others can give use to a civil suit for slander (if oral) or libel (if written).

Serious Misconduct

The steps a practitioner should take in response to IRS misconduct conduct depend in part on the severity of the agent's actions. If the client is faced with irreparable damage, the practitioner may be well-advised to seek a TAO under Sec. 7811; that provision authorizes the Office of the Ombudsman to issue a TAO if it is determined that the taxpayer is suffering (or is about to suffer) a significant hardship as a result of the manner in which the laws are being administered.

Other remedies are provided in specific situations. For instance, Sec. 7426 provides a remedy for a wrongful levy that requires property or its value (plus interest) to be returned.

If the IRS has taken a position not substantially justified, reasonable litigation costs may be recovered under Sec. 7430. Further, civil damages may be awarded in a variety of cases. for returns or return information improperly disclosed (Sec. 7431), for the Services failure to release a lien (Sec. 7432), or for authorized collection actions (Sec. 7433). Further, in certain very serious cases, criminal sanctions may be needed (e.g., when bribery has occurred).

Evaluating the Risks and Benefits

In each instance, the practitioner must assess the potential advantages and disadvantages of pursuing a complaint about IRS conduct. If unexposed issues in a return have not been raised, the practitioner may wish to maintain a "low profile" and call the least possible attention to the return under audit. On the other hand, if the practitioner feels the agent is unjustified in his position, and there are no additional risks, the practitioner can make a complaint to the manager or seek a different agent. Each case will turn on its facts and circumstances.

Conclusion

The Working Together Program appears to have resulted in concrete improvements in IRS-practitioner relations. The program highlights problem areas -- delays, retaliation and ethics -- serves as an important model for similar initiatives currently in progress in other districts. The survey questions serve as a starting point for future nationwide research. The results suggest that a sizable percentage of practitioners (28%) may be unfamiliar with Circular 230, and highlight difficulties in the grievance procedures available to them. If difficulty with the IRS is encountered, care should be taken to weigh the advantages and disadvantages of lodging a complaint. The appropriate target for the complaint should be identified, and the appropriate remedy should be selected, whether in the form of a TAO, recovery of legal fees, civil damages or criminal sanctions. However, at all times, practitioners must maintain professional standards when pursuing a complaint or seeking a remedy.

EXECUTIVE SUMMARY

* A number of measures being taken by the Philadelphia District exemplify the types of changes that can be implemented nationwide: increased use of opening conferences and of manager involvement in audits, giving notice of delays, rescheduling IRS training to coincide with tax season and forming a practitioner complaint board.

* In deciding whether to complain about an agent's conduct, the practitioner should weigh the advantages and disadvantages of lodging a complaint, identify the appropriate target for the complaint, maintain appropriate professional conduct, obtain external input, select the proper remedy, and evaluate the rise and benefits of proceeding.

State Tax Nexus Practice Guide

The AICPA Tax Division's State and Local Taxation Committee has developed a tax nexus practice guide that contains a brief summary of nexus and the issues involved and a checklist of the most frequently asked questions appearing in state's nexus questionnaires. The checklist can serve as a practice tool for practitioners in soliciting information form clients and analyzing such information. It is intended to be a broad reference tool and an aid in addressing nexus issues, and is not intended to answer the questions of whether a specific company has nexus in a particular state. It should be noted that there are different nexus standards for the different types of taxes. The laws and policies of each state should be verified for application to specific cases.

Included in the nexus practice guide is a compilation of nexus checklist questionnaires used by each of the states and a summary of specific nexus attributes unique to each of the states.

To order a copy of this guide, call the AICPA Order Department at 1-800-862-4727, Dept. #1, and request product #061057. The guide is free to Tax Section members. Volunteer members of the State and Local Taxation Committee should have received a copy of this guide through the mail in February.

(1) Treasury Department Circular 230, Sections 10.0-10.101, Regulations Governing The Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries and Appraisers before the Internal Revenue Service" (providing standards of practice before the IRS and procedures for referring practitioners to the Director of Practice for violations).

(2) Representative professional groups that have sponsored Working Together Programs include the Pennsylvania institute of Certified Public Accountants (PICPA), the Pennsylvania Society of Public Accountants (PSPA), the Pennsylvania Society of Enrolled Agents (PSEA), the Tax Section of the Philadelphia Bar Association (TSPBA), and Widener University School of Management and School of Law. Initially, it was suggested that a joint practitioner-IRS panel be formed to review complaints about IRS misconduct, but the Service was unable to participate because of the restraints imposed by its employees' union.

(3) See generally, AICPA Division of Federal Taxation -- Survey of Practitioner Attitudes Toward the IRS (AICPA, 1995).

(4) Rev. Proc. 64-22, 1964-1 CB 689.

(5) See generally, TAMRA Sections 6227-6247.

(6) See AICPA Code of Professional Conduct, Principles of Professional Conduct, ET Section 201.01 (setting forth Rule 201, General standards).

(7) See AICPA Federal Taxation Executive Committee, Statements oil Responsibilities in Tax Practice (SRTP) (1988 rev.), Introduction; No. 1, Tax Return Positions; No. 2, Answers to Questions on Returns; No. 5, Certain Procedural Aspects of Preparing Returns; No. 4, Use of Estimates; No. 5, Departure From a Position Previously Concluded in an Administrative Proceeding or Court Decision; No. 6, Knowledge of Error Return Preparation; No. 7, Knowledge of Error: Administrative Proceeding; and No. 8, Form and Content of Advice to Clients.

(8) Section .05 of the SRTP Introduction provides, "...the Institute's Code of Professional Conduct requires attitudes add habits of truthfulness and integrity in all of a CPA's practice, including tax practice."