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Here’s How Congress Can Make Audits Less Painful
While tax reform is top-of-mind in Washington, let’s take a moment to look at how the IRS under the previous administration enforced tax law.
A few years ago, the Senate Finance Committee discovered, that for the first time that anyone could remember, the IRS farmed out the audit of a private company to a law firm for $2.2 million. The agency also gave the firm the ability to “take compulsory, sworn testimony” as if it were a federal agency.
In an investigation Senator Orrin Hatch (R-Utah), chairman of the committee, pointed out that the agency’s actions defied the will of Congress, didn’t protect the rights of taxpayers, and were unnecessary given that at the time the IRS had 40,000 employees and an $11 billion budget.
Congress is on the case to fix this with the “Preserving Taxpayers’ Rights Act,” (H.R. 3220). It’s a bipartisan bill that would improve the IRS audit process.
The bill contains much-needed reforms, as noted by the Coalition for Effective & Efficient Tax Administration:
First, it would give taxpayers a legal right to have their case heard by the independent and impartial IRS Office of Appeals to ensure the timely, efficient, and cost-effective resolution of any tax disputes that may arise between a taxpayer and the IRS.
Second, the bill would ensure that cases the IRS “designates for litigation,” which is a procedure that removes a case from the process that otherwise would lead to Appeals, can only be used where the matter involves a tax abuse that is a recurring, significant legal issue affecting a large number of taxpayers.
Third, the bill would further ensure that the extraordinary use of designated summonses that extend the time period for the IRS to assess a tax liability are properly authorized and only used when taxpayers are uncooperative and refuse to provide information requested by the IRS.
And fourth, the bill would prevent the IRS from outsourcing federal tax audits of private taxpayers to outside law firms. The bill thus prevents a recent development, and a practice unprecedented in the history of the IRS, from becoming routine.
Once it becomes law, the Preserving Taxpayers’ Rights Act will make audits a less-confrontational and more-collaborative process. In addition, it will help resolve unnecessary tax disputes, which are costly and inefficient for taxpayers and the IRS.