IRS to Step Up Audits and Collections
For more than two years, Congress has been asking the Internal Revenue Service to take off the gloves. “Go get the money,” is the clarion call from Washington. There can be little doubt Mark Everson got the nod as the country's new IRS commissioner because he can and is willing to lead this charge. And if Bush has his way, Everson will get the tools he needs to do it.
Everson is the 46th person to hold that post since the agency was created in 1862. He was appointed in early 2003 by President George W. Bush to assume the position vacated by Charles Rossotti, who stepped down in November 2002. The U.S. Senate confirmed Everson in May.
Everson previously served in the Bush administration at the Office of Management and Budget. He also headed the President’s Management Council, a team charged with implementing Bush’s management initiatives. Everson has private-sector experience in upper management positions in both service and manufacturing companies. From a management standpoint, he seems well-suited for his new job.
The new commissioner has pledged more audits and collection actions. If things go as the President wishes (and it seems they will), Congress will hand the IRS even more money for fiscal 2004 to carry out those tasks. The administration’s budget proposal for the IRS calls for total spending of $10.437 billion, up nearly 6 percent from last year, with an accompanying increase of 888 full-time staff positions, an increase of 1 percent over last year.
Everson has said, “The IRS must deter those who might be inclined to evade their legal tax obligations, and appropriately pursue those who actually do so.” Every commissioner since the beginning of time has mouthed these sentiments, especially to Congress during his confirmation hearing. But the comment has much more significance today, when the United States is staring huge deficits in the face and against the backdrop of reports that millions of people have delinquent tax debts they won’t (or more likely, can’t) pay.
Of the proposed IRS budget of $10 billion, specific funding initiatives include:
- $4 billion for “tax law enforcement”
- $1.7 billion for computer upgrades
- $500 million for business systems modernization
- $2 million to use private-sector debt collectors in delinquency cases.
The administration’s request for $4 billion for “tax law enforcement” includes money to increase audits (upwards of 72 percent in some cases), expand the document matching programs, collect delinquent tax debts, and conduct criminal investigations and prosecutions.
Under this large umbrella of spending will be a $133 million initiative to fund new programs to target both individuals and businesses. Among other things, the IRS will focus on:
- abusive tax schemes such as shelters, trusts, and offshore accounts,
- underreporting of income and tax return non-filing,
- failure of employers to report wage income or pay employment taxes, and
- stiffer enforcement of the Earned Income Tax Credit program.
Everson’s remarks also indicate that under his direction, the IRS may point its enforcement guns at tax professionals. “There are clear indications that professional standards have eroded in some corners of the practitioner community,” Everson noted. “Attorneys and accountants should be pillars of our system of taxation, not the architects of its circumvention.”
This may be troublesome, since the first responsibility that attorneys and accountants have is to their clients. Now, that’s certainly not to say tax professionals should suborn evasion, perjury, or any other unlawful act. They should not, and, in fact, there are already laws against that. But it is also not true that they should hold an unthinking allegiance to the system such that the client’s best legal interests are subjugated.
This is essentially what the IRS did with the tax preparation community nearly two decades ago. By adding a wide assortment of so-called “preparer penalties” to the tax code, the IRS cleaved the interests of the return preparer from those of the client. As a result, when a tax return comes under audit, the preparer thinks of covering his own hide first and often forgets about the client. The preparer penalties have effectively made too many tax preparers into tax collectors, paid by the private sector.
If the IRS does point its enforcement guns at tax pros, beginning a program of systematic harassment--audits, intimidation, investigations, prosecutions--against tax attorneys and CPAs, this will have a tremendously chilling effect on the independence of the profession. With enough muscle, the IRS can bring under its thumb an entire service industry that heretofore has functioned solely to assist honest citizens in navigating the labyrinth of laws we call the tax code.
Dan Pilla is a tax litigation consultant and author of 11 books on taxpayers’ rights and IRS defense strategies. Harper Collins will release his latest book, titled The IRS Problem Solver: From Assessments to Audits--How to Solve Your Tax Problems and Keep the IRS Off Your Back–in December 2003. His newsletter, Dan Pilla’s Confidential Tax Bulletin, is available by calling 800/346-6829, or online at http://www.taxhelponline.com.