Internal Revenue Service collection employees are mostly respecting the rules when it comes to directly contacting taxpayers who are represented by tax professionals, but when asked about hypothetical situations involving their CPA, they didn’t always give the right answer.
The IRS has various policies and procedures to allow taxpayers to designate an authorized representative to act on their behalf in different tax matters. It also has a process for dealing with allegations of direct contact violations, according to an annual review of restrictions on directly contacting represented taxpayers released Monday by the Treasury Inspector General for Tax Administration. TIGTA found that the majority of field collection employees in the IRS’s Small Business/Self-Employed division appeared to be familiar with the direct contact provisions and fair tax collection practices, but not all revenue officers are familiar with the requirements of the provisions. TIGTA interviewed a sample of 20 revenue officers drawn from the 2,505 field collection employees as of Sept. 30, 2021.
When they were presented with a hypothetical situation involving a revenue officer’s response to a taxpayer asking to speak to a CPA for an opinion on the issue at hand, four of the 20 revenue officers didn’t say they would suspend or reschedule the interview, as they should have done. The other 16 of the 20 who said they would end the interview indicated they would allow consultation times that ranged from two to 30 calendar days. However, revenue officers are supposed to allow a minimum of 10 business days for the consultation with an authorized representative after a suspended interview, according to the report.
TIGTA then presented them with hypothetical situations involving taxpayers asking for or already having a power of attorney. The majority of revenue officers said they would require the appropriate form to designate a power of attorney but didn’t know they should request an updated form when all the open tax periods aren’t covered.
TIGTA recommended the IRS should issue a reminder memorandum to all its field collection revenue officers and group managers reemphasizing the importance of revenue officers following established guidelines and procedures on the taxpayer’s right to representation and direct contact. The IRS agreed with TIGTA’s recommendation and plans to issue a formal reminder to all revenue officers and group managers.
“We are extremely proud of our commitment to taxpayer rights,” wrote Lia Colbert, commissioner of the IRS’s Small Business/Self-Employed division, in response to the report. “Nonetheless, we agree with your recommendation to issue a formal reminder to all field collection revenue offices and group managers on the importance of following established guidelines and procedures to protect taxpayer rights.”
The report comes as the IRS has come under fire in recent weeks amid the passage of the Inflation Reduction Act, which includes $80 billion in funding for the IRS over the next 10 years. The funds are supposed to go toward improving taxpayer service, modernizing the IRS’s outdated technology, increasing enforcement and hiring more IRS employees, many of whom will be replacing retiring employees. Treasury Secretary Janet Yellen has directed the IRS not to use the funds to audit taxpayers who earn less than $400,000 a year. Instead the funding is supposed to go toward auditing higher-income individual taxpayers and corporations.
“These resources are not about increasing audit scrutiny on small businesses or middle- or lower-income Americans,” said IRS Commissioner Chuck Rettig earlier this month. “As we’ve been planning, our investment of these enforcement resources is designed around the Treasury Department’s directive that audit rates will not rise relative to recent years for households making under $400,000.”
However, claims that the IRS will use the funds to hire another 87,000 IRS agents to pursue middle-class taxpayers has led to threats against the IRS and prompted the agency to increase security at its offices (see story).
“They have been upfront about saying this is not going to target lower incomes, especially those earning under $400,000,” said JK Aier, a professor of accounting at the George Mason University School of Business in Fairfax, Virginia. “They are indicating this is going to be targeted at higher levels of income, both individuals and corporations. Previously the IRS has been weakened by the lack of funding. In my opinion, it has affected behavior. People thought they could get away with avoiding taxes because the IRS was not strong enough or capable enough to be able to go after them. This sends a strong signal that will make people think twice about whether the IRS has teeth before they take aggressive positions. That’s the way I see it.”