Addressing Systemic Issues in Tax Practice A Guide for Practitioners on Providing Input to the Internal Revenue Service

Transcription

1 June July 2012 Addressing Systemic Issues in Tax Practice A Guide for Practitioners on Providing Input to the Internal Revenue Service By Ronald M. Wiener Ronald M. Wiener looks at avenues the IRS makes available for practitioner input that is intended to improve operations. Background Tax practitioners representing clients before the IRS regularly encounter situations in which they feel there must be a better way for the tax system to handle this kind of process. The process in question might be routine and mundane, such as enduring long telephone wait times during tax season. It might be a failure of communications, such as to the issuance of a 90-Day 0D Letter by a Campus despite the timely submission ssion of proper per substantiation in response to a CP notice. Or the process might be more complex, such as navigating g the TEFRA audit rules for partnership items and daffected fec ed items in na multi-tiered t e partnership structure. If the practitioner believes there is a way to improve a troublesome process either by making a change that the practitioner believes would result in a more efficient or effective way of handling the situation, or by bringing the situation to the attention of the right people at the IRS in the hope that they can figure out a better way how should he or she proceed? As many experienced practitioners have learned, there are a number of alternatives for providing information about a problematic issue to the IRS. The Ronald M. Wiener is a Special Consultant to Drucker & Scaccetti, P.C., Philadelphia, PA, and is also Of Counsel to Drucker Beckman Sobel, LLP, Philadelphia, PA. Prior to joining his present firms in 2009, he was a tax lawyer at Wolf, Block, Schorr and Solis-Cohen, LLP in Philadelphia. He has participated in IRS-practitioner liaison activities for many years. He may be reached by at rwiener@dscpas.com. best choice will largely depend on the IRS function that is most closely associated with the affected processes and on the practitioner s experience in navigating through the IRS s organizational structure. Although the IRS website has information on many of the ways to submit questions and suggestions, the author is not aware of any readily accessible, comprehensive guide on this subject. This article is intended to serve as a first step in collecting in one place information for practitioners about how they can provide information to the IRS about potential systemic issues encountered in tax practice situations t s( (other than those arising from the tax return preparation and filing process). Most practitioners who represent clients before the IRS are likely to face situations of this kind in proceedings involving the examination and collection functions of the Small Business/Self-Employed Division (SB/SE), including its Campus Compliance operations. Therefore, this article focuses on intake points that the IRS makes available for practitioner input that is intended to improve those operations. However, most of the options discussed below may also be used to provide input about other IRS operations. 1 This article should be viewed as a work in progress. The information that follows is based on the author s personal experiences and on sources believed to be reliable. There are sure to be errors and omissions, but a practitioner should be able to utilize one or more of the approaches described in this article to submit information about a potential 2012 R.M. Wiener JOURNAL OF TAX PRACTICE & PROCEDURE 49

2 Addressing Systemic Issues in Tax Practice systemic issue to the IRS in a way that will bring the issue to the attention of someone in the IRS organization who is in a position to respond and perhaps even to resolve the issue. Defining Systemic Issues As used in this article, the term systemic issues refers to issues that have all or most of the characteristics listed below. The list has been taken almost verbatim from the web page for the Taxpayer Advocate Service s Systemic Advocacy Management System (SAMS), which is described later in this article. They always affect multiple taxpayers. They impact segments of the taxpayer population, locally, regionally or nationally. They relate to IRS systems, policies and procedures. They require study, analysis, administrative changes or legislative remedies. They involve protecting taxpayer rights, reducing or preventing taxpayer burden (including burden imposed on taxpayers representatives), ensuring equitable treatment of taxpayers or providing essential services to taxpayers. They are not questions of substantive tax law. IRS Intake Points for Information about Potential Systemic Issues There are many ways for taxpayers, tax practitioners, rs practitioner organizations, ions industry groups and other interested persons to provide information to the IRS about possible systemic issues. Most national, state and local tax practitioner organizations have established good working relationships with at least one and usually multiple levels of the IRS and thus are able to communicate effectively to the IRS about issues of this kind. Some of these organizations also may have members who serve on the Internal Revenue Service Advisory Committee (IRSAC), other federal advisory committees or other groups that maintain regular liaison relationships with the IRS. The continuity of these relationships permits issues to be considered in depth and over extended time frames, often leading to viable proposals for tax system improvements. Members of practitioner organizations should take advantage of the added credibility associated with issues that are submitted to the IRS by representatives of 50 those organizations. For those instances where organization involvement is not warranted or cannot readily be obtained, there are several ways for individual practitioners to provide information directly to the IRS about potential systemic issues, without the need to go through any intermediaries. The paragraphs that follow describe some of the IRS s intake points for such information. The commentary is largely based on the author s experiences, which may differ from the experiences of others. The quoted passages are taken from the cited pages on and include (where available) links to relevant web pages. It is important to note that in recent years the IRS has developed internal practices and procedures designed to facilitate improvements to its operations based on information received from outside the IRS organization. The IRS s goal is to funnel all relevant information submitted by practitioners and others about a potential systemic issue directly to the decision-maker for the affected operation sometimes referred to as the business owner. In practice, however, the method used to provide the information can impact the effectiveness of the input in important ways. The Taxpayer Advocate Service s Systemic Advocacy Management System (SAMS) [T]he National Taxpayer Advocate invites taxpayers, practitioners, professional organizations, and all interested Americans to help identify and recommend solutions to problems with the Internal Revenue Service and the tax code. You can do this by submitting advocacy issues to the Taxpayer Advocate Service through SAMS: our new, webbased method of receiving issues, suggestions and ideas, and using them to help reduce or eliminate the burdens facing taxpayers. There are links on the SAMS web page on irs.gov ( advocate/article/0,,id=117703,00.html ) to FAQs and definitions, and to a short online submission form that provides an easy way to submit an issue. Form 14411, a fillable PDF form on can also be used. SAMS receives a large number of submissions. In addition, the Taxpayer Advocate System generates additional input based on systemic issues identified by TAS personnel as part of their work on taxpayer-specific cases.

3 SAMS makes it very easy for taxpayers and practitioners to submit information about potential systemic issues. Moreover, if the National Taxpayer Advocate determines that an issue has a significant impact on tax administration, the issue is likely to receive in depth consideration by the IRS. Because the National Taxpayer Advocate submits an annual report to Congress identifying serious problems facing taxpayers, an issue submitted through SAMS has the potential to be thoroughly studied. For these reasons, SAMS should be treated as a viable option for bringing a potential systemic issue to the attention of the IRS. However, TAS has only limited staffing available to deal with the large number of issues that are submitted to SAMS. Because the majority of issues encountered in tax practice will not have such widespread impact as to warrant attention by SAMS, practitioners who submit systemic issues through the SAMS web pages should also consider using an additional method to provide input on the issue to the IRS. Tax practitioners representing clients before the IRS regularly encounter situations in which they feel there must be a better way for the tax system to handle this kind of process. Stakeholder Liaison Local Contacts June July 2012 SB/SE s Issue Management Resolution System (IMRS) and Stakeholder Liaison Office (SL) This is the author s preferred method of providing input to the IRS about perceived systemic issues. According to the IMRS website ( small/article/0,,id=158507,00.html ), The IRS Communications and Stakeholder Outreach function [within SB/SE] has established the Issue Management Resolution System, a streamlined and structured process that facilitates stakeholder issue identification, resolution and feedback. IMRS captures, develops and responds to significant national and local stakeholder issues. When stakeholder organizations notify the IRS of concerns about IRS policies, practices and procedures, analysts research and respond to the issues. IMRS also identifies nationwide trends in the reporting, filing and paying requirements that may necessitate changes to IRS processes and procedures. Progress on stakeholder issues is closely monitored to assure Stakeholder Liaison Areas Phone Mid-Atlantic - PA, NJ, DE, WV, CT, ME, VT, RI (412) New York - NY, MA, NH (212) Great Lakes - IN, MI, OH (216) Midwest - MN, MT, WI, ND, SD, IA (651) Southwest - AZ, TX, NM (214) Central - IL, MO, KS, NE, OK (913) Mid-South - KY, TN, AL, MS, AR, LA (405) Southeast - FL, GA (954) South Atlantic - MD, VA, NC, SC (336) Northwest - AK, CO, WA, OR, UT, ID, WY (206) Western - CA, HI, NV (510) JOURNAL OF TAX PRACTICE & PROCEDURE 51

4 Addressing Systemic Issues in Tax Practice proper response and communication to the initiating stakeholder and all impacted stakeholders. Tax professionals should forward significant issues regarding IRS policies, practices and issues to their Stakeholder Liaison (SL) Local Contacts. The link on irs.gov takes you to a page that provides telephone numbers for each of the 11 Stakeholder Liaison Areas, which cover from two to eight states each. See businesses/small/article/0,,id=153991,00.html and the chart on page 41. IMRS publishes three reports on its website to inform practitioners and industry groups about issues across the country. Hot Issues reports on recent IMRS issues and other current items of interest. The IMRS Industry Issues Quarterly Report provides a quarterly summary of IMRS issues of particular interest to small businesses. And the IMRS Monthly Overview contains an update of issues opened and closed each month. The IMRS home page includes links to these reports, and also to lists of closed IMRS issues for the past several years. IMRS national issues sue are identified by a number indicating the year the issue was accepted into the system ste and the cumulative number of IMRS national al issues. IMRS maintains an internal discussion board, which facilitates determining whether er there is widespread interest est in issues su brought to it by SL representatives, SAMS and others. This facilitates the identification of potential emerging issues. A recent issue of the IMRS Monthly Overview indicated that IMRS has publicly addressed over 1,500 issues since 2005, in addition to the numerous issues not accepted into the system but addressed and often resolved informally through SL representatives. SB/SE s Stakeholder Liaison Office (SL) has representatives covering all 50 states. SL has established relationships with numerous state and local tax practitioner and small business organizations. If your practitioner organization has not established such a relationship, you should consider contacting the organization s leaders and finding out if they would be willing to do so. It is important to note that, even though SL and IMRS are part of the SB/SE organization, SL and IMRS accept issues affecting virtually all IRS operations. For more information about SL, including links to practitioner activities by state, see 52 There are many ways for taxpayers, tax practitioners, practitioner organizations, industry groups and other interested persons to provide information to the IRS about possible systemic issues. 3b3ce4?reqfrom=share and subscribe to e-news for Tax Professionals from the Communications Tools for Tax Professionals link on the home page for Tax Professionals at ( gov/taxpros/index.html). This page provides access to a great deal of additional information useful to tax practitioners. Many of these SL events provide practitioners with excellent opportunities to meet local SL personnel face-to-face and learn how they can be helpful in addressing systemic issues. It has been the author s experience that most SL representatives are very well trained in dealing with practitioners about potential systemic issues. SL has shown itself to be very effective in identifying, tracking and providing feedback to practitioners who submit information on issues that are or might be systemic in nature. The result usually has been a high quality of communications between the practitioner and SL about the problem perceived by the practitioner and an accurate transmission of the relevant information to the IRS business owner. Of course, not every issue can be resolved. And some resolutions will differ from what the practitioner and his/her client were seeking. In many if not most instances, nces, however, the practitioner will at least receive an explanation atio of what caused the problem, even if the issue is determined not to be a systemic one that qualifies for acceptance into the IMRS process. SB/SE s Taxpayer Burden Reduction Initiative In 2002, SB/SE established the Office of Taxpayer Burden Reduction, which solicited recommendations from members of the public, tax professionals, business taxpayers and others on ways to reduce taxpayer burden. Taxpayer burden was defined as the time and money taxpayers spend to comply with their federal tax obligations. An example could be the average time and expense required to complete and file a tax form. The current web page ( article/0,,id=146222,00.html ) has a link to Form 13285A, Reducing Tax Burden on America s Taxpayers (Referral Form for Use by the Public see irs-pdf/f13285a.pdf). This is a one-page form that can be

5 June July 2012 filled in online and ed to the office, or can be printed out and mailed in. The form requests a specific description of the problem as well as a description of the proposed solution and the type of taxpayers or businesses that are affected. The web page states that burden reduction initiatives will be evaluated and prioritized based on the following factors: Determining the number of taxpayers impacted; Quantifying the total time and out-of-pocket savings for taxpayers; Evaluating any adverse effect on IRS voluntary compliance efforts; Assessing the feasibility of the initiative, given IRS resource limitations; and Tying the initiative into IRS objectives. These certainly are pertinent and appropriate screening factors. However, it is the author s impression that the Taxpayer Burden Reduction initiative is not currently an active source of input from practitioners or others regarding potential systemic issues. Taxpayer Advocacy Panel The Taxpayer Advocacy Panel (TAP) is a formal Federal Advisory Committee with about volunteer members mbe ers selected from across the United States. The TAP is overseen en by the National Taxpayer Advocate. According to the TAP website ( As part of its mission to improve the IRS, the Taxpayer Advocacy Panel (TAP) acts as a twoway channel between the IRS and the general public that: Identifies taxpayer issues based on feedback submitted to TAP by the general public and raises these issues directly to the IRS. Submits recommendations to the IRS to improve efficiency, adjust problematic systems or procedures, and improve taxpayer service. Works closely with IRS employees to resolve problems, monitoring IRS progress in implementing and maintaining solutions. Listens to taxpayers through events that are open to the public and designed to gather information on IRS issues. The website states that the TAP panels have submitted 681 recommendations to IRS since These undoubtedly were selected from a much larger number of proposals submitted to the TAP. This indicates that the TAP receives a significant amount of input. TAP certainly provides a valuable source of input from the public about possible ways to improve the tax system. However, for most tax practitioners, there are more effective and efficient ways to address potential systemic issues arising in tax practice. Office of National Public Liaison (NPL) The Office of National Public Liaison [which is part of the National Office s Communications and Liaison organization] manages relationships with national stakeholder organizations, business and professional associations, the Internal Revenue Service Advisory Council (IRSAC), the Information Reporting Program Advisory Committee (IRPAC) and federal agencies with an interest in tax administration, IRS activities and programs. The Office also manages the Nationwide Tax Forum program, with an annual attendance of more than 18,000 tax practitioners. See the NPL section of Communications and Liaison s web page at html. NPL accepts a broad range of issues, which it follows through an issue tracking system. Unless a practitioner has a line of communications into NPL for example, through contacts with a participating practitioner organization NPL is not likely to be helpful in addressing issues encountered in his or her tax practice. Other Points of Intake The issue intake points described above are certainly not the only portals through which the IRS obtains practitioner input about systemic issues. Besides input from practitioner and business organizations through formal and informal liaison channels, there are many other ways for the IRS to obtain input from practitioners and others about ways in which tax administration could be improved, including: Comments on Tax Forms and Publications The Comments on Tax Forms and Publications page on irs.gov, which solicits feedback regarding the content or design of tax forms, instructions for forms, or IRS tax publications. See ( gov/formspubs/page/0,,id=10178,00.html ). JOURNAL OF TAX PRACTICE & PROCEDURE 53

6 Addressing Systemic Issues in Tax Practice Industry Issue Resolution The Industry Issue Resolution (IIR) program, described at article/0,,id=210773,00.html. The Industry Issue Resolution (IIR) program s goal is to resolve frequently disputed or burdensome business tax issues that affect significant number of taxpayers. This goal is accomplished by providing clear guidance that business taxpayers can use, thus reducing the time and expense associated with resolving issues on a case-by-case basis during tax examinations. The web page defines eligible issues as follows: The IIR program is available to all business taxpayers served by the Small Business and Self- Employed Division (SB/SE) and Large Business and International Division (LB&I). Business tax issues appropriate for the program will have at least two of these characteristics: The proper tax treatment of a common factual situation is uncertain. The uncertainty results in frequent, and often repetitive, et examinations of the same issue. The uncertainty nty results in taxpayer burden. The issue is significant and impacts a large number of taxpayers, either within an industry or across industry lines. The issue requires es extensive factual development, and an understanding of industry practices and views concerning the issue would assist the Service in determining the proper tax treatment. Because the IIR program accepts only a small number of complex issues, it is not an effective intake point for most systemic issues arising in normal tax practice. Priority Guidance Plan Treasury s Priority Guidance Plan, which is described at html, addresses tax issues that are appropriate for formal published guidance. The Treasury Department s Office of Tax Policy and IRS use the Guidance Priority List each year to identify and prioritize the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, 54 All available avenues for providing input should be considered, and it may be beneficial to use more than one. and other published administrative guidance. The Guidance Priority List focuses resources on guidance items that are most important to taxpayers and tax administration. Published guidance plays an important role in increasing voluntary compliance by helping to clarify ambiguous areas of the tax law. This is an important intake point for resolving those issues, but as can be seen from the types of issues placed on the Guidance Priority List, this is not ordinarily a useful tool for a practitioner who wants to have the IRS address a systemic issue arising in tax practice. Stakeholder Partnerships, Education and Communication Stakeholder Partnerships, Education and Communication (SPEC part of W & I): SPEC plays a major role in overseeing the Volunteer Income Tax assistance (VITA) program. Although there does not appear to be an easily accessible intake point for practitioners to submit information about potential systemic issues, the author has been told that SPEC maintains a program for obtaining and tracking issue input, especially on electronic filing issues. The following excerpts from IRM help describe SPEC s role in identifying and resolving systemic issues: What are Stakeholder Partnerships, Education and Communication 1. SPEC is the outreach and education function of Internal Revenue Service s (IRS) Wage and Investment (W&I) Division. SPEC s mission is to assist taxpayers in satisfying their tax responsibilities by building and maintaining partnerships with key stakeholders who also seek to create and share value by informing, educating, and communicating with our shared customers. 2. SPEC achieves its mission by combining resources and goals with other organizations for better access to lower income populations in local communities. This approach is known as a leveraged approach. That is, it places an emphasis on partner involvement and introduces relationship management as a key element in its operations.

7 June July SPEC s partners are organizations of all types corporate, faith-based, non-profit, educational, financial, and government that share the same customer base as SPEC. SPEC s customers are people who file individual income tax returns (Form 1040). Among SPEC s guiding principles are the following: Incorporate taxpayer perspectives to improve all service interactions Expedite and improve issue resolution across all interactions with taxpayers, making it easier to navigate the IRS Provide taxpayers with targeted, timely guidance and outreach Strengthen partnerships with tax practitioners, tax preparers, and other third parties in order to ensure effective tax administration Although some of this language indicates that SPEC might be an organization that would accept practitioner input on potential systemic issues, it is the author s belief that this is not an important part of SPEC s mission. Consequently, SPEC probably will not prove to be an effective venue for addressing practitioners systemic issues. The Bottom Line There are several effective ways for tax practitioners individually ioner ividually or through their local, state or national practitioner organizations to provide information to the IRS about potential systemic issues encountered in tax practice. All available avenues for providing input should be considered, and it may be beneficial to use more than one. If the issue is thought to affect large numbers of taxpayers or to affect one or more groups of taxpayers in significant ways, input through one or more practitioner organizations may be effective in bringing the matter to the attention of the IRS. Even if other avenues are also pursued, a practitioner who contacts the nearest Stakeholder Liaison (SL) Office is likely to get helpful information about how to bring the issue to closure. If the issue is accepted by SB/SE s Issue Management Resolution System (IMRS), the publicity about this issue and its resolution may also benefi t other practitioners and taxpayers. By using one or more of the intake points made available by the IRS to address a systemic issue, a practitioner may get the satisfaction of knowing that he or she had a positive impact on the tax system. ENDNOTES 1 Among the practice areas that this article does not focus on are tax return preparation; tax law interpretation; or operations of the Wage and Investment Division (W&I), Large Business and International Division (LB&I), Tax Exempt and Government Entities Division (TE/GE), Criminal Investigation (CI), Appeals, Counsel, or other IRS functions that practitioners sometimes encounter. Perhaps this article will act as a catalyst for others to collect and disseminate comparable information for practitioners who regularly practice in one or more of those areas. This article is reprinted with the publisher s permission from the JOURNAL OF TAX PRACTICE & PROCEDURE, a bimonthly journal published by CCH, a Wolters Kluwer business. Copying or distribution without the publisher s permission is prohibited. To subscribe to the JOURNAL OF TAX PRACTICE & PROCEDURE or other CCH Journals please call or visit All views expressed in the articles and columns are those of the author and not necessarily those of CCH. JOURNAL OF TAX PRACTICE & PROCEDURE 55