Minding Ag's Business

Tea Party Isn't Only IRS Victim

Mild-mannered CPA Andy Biebl has complained in past DTN columns about the increasing mischief he's observed in IRS audits, leaving some small business owners with six-figure tax bills when they have 100% of the law on their side. No rabble-rouser, Biebl is a past president of the Minnesota Society of CPAs and a tax partner at CliftonLarsonAllen LLP in Minneapolis. In this guest editorial, he urges Congress to look at issues beyond Tea Party campaign bias when it puts IRS under the microscope:

About a week before the current blow up over the IRS's treatment of political conservatives, we did an internal tax broadcast within our accounting firm. One of the topics was sounding the alarm on the conduct we have seen over the last several years with IRS audits.

But before that story, here’s the context of that message. CliftonLarsonAllen LLP is a national accounting and tax practice, roughly number 10 in terms of size among CPA practices. We have about 3,600 professionals, and annually file over 100,000 individual and small business tax returns. I am a partner in our Federal Tax Resource Group, and our duties include assisting our tax professionals in IRS controversy matters. We also handle many IRS exams referred in by smaller CPA firms.

As further background, the IRS basically has two levels: The examination division and a separate Appeals group. Exam conducts the audits, and if agreement is not reached with the taxpayer, there is the right to appeal. Finally, if not resolved within the IRS, there is recourse to the courts.

Part of the message to my colleagues in that tax broadcast was the degradation we are seeing at the Appeals level. In my 40 years of taxpayer representation, there have always been issues that don’t get resolved at the exam level. The Appeals Officer’s job is to give a cold, hard look at the issues, and resolve the matter in a way that is fair to the government and to the taxpayer. They have broad settlement authority, and can split an issue in any fashion if it provides proper resolution. Historically, the Appeals process has worked well.

But not so in recent years. We are increasingly encountering Appeals representatives who simply extend the exam process by reaching far and wide for new arguments in attempts to bolster the tax assessment, regardless of the merits. A good Appeals officer moves quickly to the strengths and weaknesses of both the government and taxpayer positions. Increasingly, we are seeing Appeals officers whose sole goal seems to be advancing the government side, while avoiding the analysis that will lead to resolution.

Here are a few anecdotes:

Case 1: An Appeals officer begins the process by sending a 10-page analysis raising new cases and arguments. It is 100% advocacy. But worse, key portions of a regulation or court case that favor the taxpayer are omitted and arguments are built around “foundation” that is non-existent if the full citation was honestly disclosed.

Case 2: An Appeals officer asks for a formal extension of time (routine), but then closes the case and moves it to Tax Court when the taxpayer’s signed consent arrives on the 11th day after a request to have it back within 10 days. The 10 days is merely a request; there is no limit in the tax law. And this occurs after we state the consent will be signed and about 6 months ahead of the actual expiration of the statute of limitations.

Case 3: An Appeals officer begins the phone conference meeting by stating “we are supporting the exam.” When asked for the foundation behind that conclusion, all we could get was the mantra “we are supporting exam.” Nary on word on the rationale for that position.

These and similar cases of conduct at the Appeals level effectively deny taxpayers their appeal rights. And to those unlucky victims, it is costly in terms of time and representation to continue their defense.

We need to recognize that this change we are seeing within the IRS is anecdotal, although based on a number of cases. We still find many IRS employees, both at exam and Appeals, who approach their job professionally and with minimal bias. And the newer mediation alternatives available at Appeals work well when you can gain access to them. But overall, the wind clearly has been blowing in a different direction in recent years. There will always be problems at the exam level with either competence or bias, just as there will always be problems with tax preparers who are not as knowledgeable or disciplined as they should be. But if Appeals becomes just another level within the IRS to gouge more money out of taxpayers, the system isn’t working. We are supposed to be a nation that operates under the rule of law.

So what has caused this change? I don’t personally think this is any single directive from on top, nor even a single cause. But the constant messaging from the top about the need for bigger government and more funding has no doubt trickled down. In an unguarded moment, a young IRS examiner blurted out recently to one of our tax partners that “we’ve been told to raise more revenue.” Another cause is that the Appeals level is populated with former IRS examiners. The job description changes significantly when moving up, but for some the mindset has not. And finally, add the general lack of accountability that goes with most government positions, and here we are. If Congress is going to put the IRS under the microscope over this exempt-entity issue, it needs to take a broader look. --Andy Biebl

Editor's Note: The opinions in this post are those of the author and not necessarily those of his firm or partners. Post comments here or email AskAndy@dtn.com

Follow Marcia Zarley Taylor on Twitter@MarciaZTaylor

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Jarrod Bennett
5/20/2013 | 8:09 AM CDT
Favorite quote: "And finally, add the general lack of accountability that goes with most government positions, and here we are."
Bonnie Dukowitz
5/18/2013 | 12:06 PM CDT
The IRS (not to defend) was only doing what 7 U.S. Senators requested they do. Investigate the TEA Party. Guess which political party they belong to.