AICPA speaks out on tax issues.
The AICPA testified on taxpayer rights issues at the Feb. 26,1997 hearing of the National Commission on Restructuring the Internal Revenue Service. In its written testimony, the Institute discussed, and proposed solutions for, over 20 current taxpayer rights issues.
The AICPA recommended that the initial notification of an IRS examination be in writing, that the taxpayer be notified of his right to have a representative appear on his behalf, and that the site of the examination be the place requested by the taxpayer (provided it is reasonable under the circumstances). Further, it recommended that, before proposing an adjustment against a taxpayer, the IRS revenue agent must have determined that the Service has a realistic possibility of success on the issue.
The AICPA also proposed that, if a tax adviser is authorized to practice before the IRS, all information the adviser has regarding tax matters of taxpayers be accorded the same protection of privacy, regardless of the adviser's specific professional classification.
With respect to interest and penalties, the AICPA recommended that proposed regulations be issued to implement comprehensive interest netting in all situations in which the Service currently has the administrative capability to do so; it recommended that in all other situations (as an interim measure), comprehensive netting be required at the request of the taxpayer, provided the taxpayer furnishes the IRS with relevant information and interest computations. The Institute also proposed automatic penalty abatement rules and recommended that detailed interest computations be included with every notice that involves interest due the Service.
In discussing proposals for administrative improvements, the AICPA once again recommended that a third party be allowed to discuss a notice and its related account with the IRS, based on the third party's submission of a personal identification number (PIN) set forth on the notice sent to the taxpayer. Among the other proposals for administrative improvements was the recommendation that the Service strive to communicate its policies more uniformly throughout the organization, and provide specific consequences when an agent or appeals officer disregards a policy set forth by the National Office.
Taxpayer Advocate's Report
At the request of the House Ways and Means Subcommittee on Oversight, the AICPA submitted written comments to the Subcommittee and to the Taxpayer Advocate on the Taxpayer Advocate's Annual Report to Congress. In its comments, the AICPA urged the Taxpayer Advocate to be a more zealous advocate for taxpayers, questioned the frankness of the report, and expressed the hope that future reports "take a more critical view of the Service from the perspective of taxpayers, thereby offering members of Congress the candor they sought."
The Institute described several problem areas for taxpayers that were not addressed in the Taxpayer Advocate's Report and suggested actions the Taxpayer Advocate should take to resolve or alleviate those problems. Problems discussed included the need for: interest netting regulations; consistency in the implementation of IRS policies; revised evaluation measures for revenue agents; expansion of the Service's test programs; restrictions on extending the statute of limitations for examination of individual returns; automatic penalty abatement provisions; revisions to the offer in compromise program; and clear rules for a worker's classification as an employee or independent contractor.
The Institute also made recommendations for future reports and activities of the Taxpayer Advocate, including the use of IRS Policy Statements to measure the Service's performance in functional areas, the development of measurement standards other than IRS Policy Statements, and the preparation of comparative reports of performance for functional areas over a period of time using these two sets of standards. The Institute requested the Taxpayer Advocate to publish Advocacy Memoranda issued by his office and to include in his annual report a section that describes studies and other projects relevant to tax administration that are being conducted by the Service or Treasury, as well as the specific activities of the Taxpayer Advocate in representing taxpayer interests in connection with the studies. Finally, the AICPA recommended that the Taxpayer Advocate formalize relationships with organizations of tax professionals, so that can be considered in the next report.
The AICPA testified at the Mar. 18, 1997 IRS budget hearing held by the House Ways and Means Subcommittee on Oversight. The Institute noted the need for adequate funding for the Service and also noted that the IRS has many serious problems that need to be resolved. It urged that, to the extent problems exist, Congress institute and monitor reforms. It also urged that budget cuts not be used to attempt to achieve those reforms, noting that the Service is in a unique position among government agencies, in that changes to the IRS budget have an inverse revenue effect.
The Institute noted that without sufficient funding, the Service could not adequately perform its job; this would result in both additional problems and frustrations for taxpayers in their dealings with the IRS and a loss of revenue for the government. The Institute also noted that a lack of congressional support for the Service, as exemplified by withholding adequate funding, could adversely affect individuals' attitudes towards participation in our voluntary compliance tax system.
The AICPA's testimony pointed out some of the recent consequences of inadequate funding and also noted some administrative changes (penalty abatements, disclosure changes using a PIN, and notification of intention to offset) that, if implemented, would likely reduce some of the IRS's costs.
Recommendations for Improving the IRS
At the Apr. 17, 1997 hearing of the National Commission on Restructuring the Internal Revenue Service, the AICPA presented its views on the major problems confronting the Service and recommended solutions to these problems. The problems addressed by the AICPA are management structure and culture, quality control, tax system modernization and tax law complexity.
With respect to management structure, the Institute stressed the need for an established structure that can provide continuity and necessary management expertise. To achieve this, it proposed a board of directors for the IRS, consisting of private sector individuals as well as Treasury officials. It also proposed use of both "professional appointees" for some of the management and tax policy positions within the Service, and an accounting and financial advisory group of CPAs/CFOs.
With respect to the Office of Commissioner, the AICPA proposed that the Commissioner be appointed for a fixed term of five to seven years and that candidates for the position be required to have both recognized business leadership/management abilities and also a thorough understanding of the tax system, including the impact of IRS technical and administrative decisions.
On the subject of quality control, the AICPA made recommendations for improving customer service; it also recommended that the Service codify and enforce professional standards for its employees and devise job performance measurement standards that further the missions of the IRS and of the Examination Division, rather than encourage overly aggressive proposed adjustments. The AICPA proposed improvements in the Service's recruitment, training and compensation of employees. To provide a broader base of qualified candidates from which to hire employees, the AICPA further recommended that the practice of hiring CPAs in the Office of IRS Chief Counsel be reinstated.
On the topic of tax system modernization, the AICPA recommended that the IRS use outside contractors and that Congress allow for flexibility in the government procurement rules, subject to proper and adequate oversight, to facilitate the modernization program. The Institute noted the need for modernization to enable the Service to provide the level of customer service expected by taxpayers; the Institute further noted the need for congressional support to accomplish that modernization. It called on Congress to provide stability in the IRS budget process, enact enabling legislation to allow procurement of major capital expenditures outside the normal budgeting process, and minimize tax law changes and complexity.
On the subject of tax law complexity, the AICPA noted that "[t]he IRS can be restructured over and over again but the basic frustration taxpayers experience with the IRS will remain until the issue of complexity has been addressed." The AICPA referred to its prior testimony before the Commission on the issue of tax law complexity and urged changes to the legislative process so that, before being voted on, the complexity of each tax proposal is evaluated and considered.
Note re obtaining documents: The documents discussed in this column can be obtained from the AICPA Fax Hotline, at (201) 938-3787.
Editor's note: This department is written by the AICPA Tax Division's professional staff. It is designed to heighten awareness of the Division's work and keep readers apprised of Tax Division activities involving tax policy, technical issues and other practice support matters.
The author's views, as expressed in this column, do not necessarily reflect the views of the AICPA. Official positions are determined through certain specific committee procedures, due process and deliberation.
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|Title Annotation:||American Institute of Certified Public Accountants|
|Author:||Trompeter, Jean E.|
|Publication:||The Tax Adviser|
|Date:||May 1, 1997|
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