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Blake Christian
Blake Christian

2011 IRS and Justice Department Agendas — Advocates and Adversaries

They're more taxpayer-friendly than you think.

February 24, 2011
by Blake Christian, CPA, MBT

While taxpayers and tax practitioners may view both the IRS and the Justice Department as less-than-cooperative organizations, the fact of the matter is that both organizations may be more taxpayer friendly than we think.

I had the pleasure of meeting IRS National Taxpayer Advocate (NTA), Nina E. Olson and Sandra Brown, the Justice Department's director of the Central District of California — Tax Division, at the University of Southern California's (USC) Annual Tax Institute last month.

Practitioners can gain valuable insights to the 2011 tax landscape with a clear understanding of what the IRS, the Taxpayer Advocate and the Justice Department are focusing on in the current year. This allows tax professionals to better serve and protect their employers and clients.

As we look at the focus of these two very influential tax professionals, it is important to note that Olson tends to view her constituency as the millions of tax filers throughout the country, and more specifically those filers who encounter legitimate complexities within the extensive IRS bureaucracy.

Brown who also represents U.S. taxpayers is more focused on ensuring that the U.S. Treasury is collecting the proper amounts from these same tax filers.

The IRS Taxpayer Advocate Service (TAS)

The Taxpayer Advocate Service (TAS) department offers free, independent and confidential tax assistance to taxpayers unable to resolve their tax problems through normal channels. TAS helps individual and business taxpayers resolve a wide variety of problems with the IRS including:

  • Assisting taxpayers who are facing hardships,
  • Resolving taxpayer problems that are not resolved through normal channels,
  • Recommending administrative and legislative changes through the NTA's Annual Report to Congress,
  • Requiring the NTA to submit Annual Reports to Congress each year identifying the most serious problems taxpayers encounter. See Sec. 7803(c)(2)(B)(ii).

Taxpayer Advocate Service (TAS) Mission

As an independent organization within the IRS, TAS helps taxpayers resolve problems with the IRS and recommend changes that will prevent the problems.

Here are seven things that TAS wants every taxpayer to know about their department:

  1. TAS is your voice within the IRS.
  2. TAS's services are free, confidential and tailored to meet taxpayers' needs.
  3. You may be eligible for TAS help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere or you believe an IRS procedure just isn't working.
  4. TAS helps taxpayers whose problems are causing financial difficulty. This includes businesses as well as individuals.
  5. TAS employees know the IRS and how to navigate it. They will help you understand what needs to be done to resolve it.
  6. TAS has at least one local taxpayer advocate in every state, the District of Columbia and Puerto Rico. You can call your local advocate, whose number is in your phone book and Publication 1546 and on the IRS website at Contact Your Advocate (lower-right corner). You can also call their toll-free line at 877-777-4778.
  7. You can learn about your rights and responsibilities at www.taxpayeradvocate.irs.gov

Congressional TAS Report

One of Olson's most effective tools is her annual report to Congress. The major points addressed in 2010, which TAS will continue to focus on in 2011, included:

  • The Internal Revenue Code continues to be exceedingly complex for the vast majority of taxpayers. Olson is very focused on proactively getting TAS involved early with broad-impact issues such as:

    • The potential IRS abuse with respect to the recent codification of the "Economic Substance" provisions in IRC Section 7701(o).
    • The 2009 Healthcare Act and IRS involvement/enforcement (including the first wave of over 1,000 new IRS employees) to minimize unforeseen problems.
    • National consistency with respect to state-law issues concerning civil unions.
  • Taxpayers spend 6.1 billion hours dealing with tax compliance, 60 percent of individuals pay for tax preparation and 29 percent use tax software, leaving only 11 percent of taxpayers preparing returns the old fashioned (and painful) way.

  • IRS policy implementation through systems programming lacks transparency and precludes adequate review.

    • Automated systems may be programmed with incorrect, incomplete or outdated guidance that harms taxpayers.

  • IRS collection policies and procedures fail to adequately protect economically challenged taxpayers.
  • Third-party reporting of Cancellation-of-Debt (COD) events is not always accurate and the IRS's reliance on such reporting may burden taxpayers.
  • Persistent breakdowns in power-of-attorney processes undermine fundamental taxpayer rights

    • Long delays in processing power-of-attorney forms.

  • The IRS continues to mail documents to erroneous addresses resulting in massive amounts of undelivered mail.
  • The IRS does not process Vital Taxpayer Responses in a timely manner:

    • Study found that 75 percent addressed to two campus sites took longer to process than the IRS's 14-day goal.
    • Nearly 40 percent of the correspondence took more than 30 days to process.

  • IRS has been slow to address the adverse impact of its lien filing policies on taxpayers
    • Many liens are filed automatically, without substantive human review.

    • Since 1999 annual lien filings increased 550 percent.

NTA's Legislative Recommendations

Recommendations for legislation made by the Taxpayer Advocate included:

  • Allow taxpayers to request equitable relief under IRC Sec. 6015(f) or 66(c) at any time before the expiration of the period of limitations on collection and to raise innocent spouse relief as a defense in collection actions.

  • Extend the initial due date for S Corporation Elections to reduce the high rate of untimely elections.

2010 Most Litigated Issues

The most litigated tax issues identified in the report include:

  • Summons Enforcement

  • Accuracy Related Penalties under IRC Sec. 6662

Tax Division of the U.S. Justice Department

The Tax Division employs more than 350 attorneys in 14 civil, criminal and appellate sections.

Mission

According to the U.S. Attorney General's website, the Tax Division's mission is to enforce the nation's tax laws fully, fairly and consistently, through both criminal and civil litigation, in order to promote voluntary compliance with the tax laws, maintain public confidence in the integrity of the tax system and promote the sound development of the law.

The vast majority of civil and criminal crimes also involve tax issues such as unreported income from theft, illegal activities such as drug trafficking or other transactions. Therefore, the Tax Division is constantly prosecuting such cases and will often see local, regional and national patterns of abuse and then develop programs to proactively shut down these abuses. Readers will get a good sense of the types of cases the Justice Department regularly prosecutes by checking their website.

Obviously technology has resulted in more sophisticated taxpayer transactions and frauds. Likewise, the IRS and Justice Department are also utilizing technology to uncover fraudulent transactions. One area of focus in California for 2011 involves somewhat common real estate transfers between family members (e.g. a partial or complete transfer of a personal residence or rental property to a child or parent), which are often exempted for property tax purposes with proper filing of documents with the county property tax assessors. Brown pointed out that her department will be cross-checking such property-tax records to ensure that the proper gift tax returns were filed.

Conclusion

By understanding the focus of both the Justice Department and the IRS, including the TAS, tax advisors and taxpayers are better positioned to anticipate potential tax problem areas, as well as understand the resources for resolution.

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Blake Christian, CPA, MBT is a tax partner in the Long Beach office of Holthouse Carlin & Van Trigt LLP and is co-founder of National Tax Credit Group, LLC. He can be reached at (562) 216-1800.