U.S. GOVERNMENT PUBLISHING OFFICE

33–617 WASHINGTON : 2019

REFORMING HOW THE IRS RESOLVES 

TAXPAYER DISPUTES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 13, 2017 

Serial No. 115–OS07 

Printed for the use of the Committee on Ways and Means 

( 

ii 

COMMITTEE ON WAYS AND MEANS 

KEVIN BRADY, Texas, Chairman 

SAM JOHNSON, Texas 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

PETER J. ROSKAM, Illinois 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

MIKE KELLY, Pennsylvania 

JIM RENACCI, Ohio 

PAT MEEHAN, Pennsylvania 

KRISTI NOEM, South Dakota 

GEORGE HOLDING, North Carolina 

JASON SMITH, Missouri 

TOM RICE, South Carolina 

DAVID SCHWEIKERT, Arizona 

JACKIE WALORSKI, Indiana 

CARLOS CURBELO, Florida 

MIKE BISHOP, Michigan 

RICHARD E. NEAL, Massachusetts 

SANDER M. LEVIN, Michigan 

JOHN LEWIS, Georgia 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

BRIAN HIGGINS, New York 

TERRI SEWELL, Alabama 

SUZAN DELBENE, Washington 

JUDY CHU, California 

DAVID STEWART, Staff Director 

BRANDON CASEY, Minority Chief Counsel 

SUBCOMMITTEE ON OVERSIGHT 

VERN BUCHANAN, Florida, Chairman 

DAVID SCHWEIKERT, Arizona 

JACKIE WALORSKI, Indiana 

CARLOS CURBELO, Florida 

MIKE BISHOP, Michigan 

PAT MEEHAN, Pennsylvania 

GEORGE HOLDING, North Carolina 

JOHN LEWIS, Georgia 

JOSEPH CROWLEY, New York 

SUZAN DELBENE, Washington 

EARL BLUMENAUER, Oregon 

iii 

C O N T E N T S 

Page 

Advisory of September 13, 2017 announcing the hearing .................................... 2 

WITNESSES 

Ms. Kathy Petronchak, Director of IRS Practice & Procedures, alliantgroup, 

LP .......................................................................................................................... 6 

Mr. Pete Sepp, President, National Taxpayers Union & NTU Foundation ........ 19 

Mr. Byron Shinn, Founder and Managing Partner, Shinn & Co ........................ 41 

Ms. Chastity Wilson, Principal, National Tax Office, CliftonLarsonAllen LLP . 48 

PUBLIC SUBMISSIONS FOR THE RECORD 

Coalition for Effective and Efficient Tax Administration (CEETA) .................... 74 

Fitzgerald Kit Trucks & Sales LLC ....................................................................... 79 

Taxpayer Confidentiality Disclosure Waiver ..................................................... 82 

John Klotsche ........................................................................................................... 83 

National Association of Enrolled Agents ............................................................... 85 

Software Finance & Tax Executives Council (SOFTEC) ...................................... 90 

Chief Judge L. Paige Marvel, United States Tax Court ....................................... 94 

(1) 

IRS REFORM: RESOLVING TAXPAYER 

DISPUTES 

WEDNESDAY, SEPTEMBER 13, 2017 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON OVERSIGHT, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 2:10 p.m., in Room 

1100, Longworth House Office Building, Hon. Vern Buchanan 

[Chairman of the Subcommittee] presiding. 

[The advisory announcing the hearing follows:] 

2 


Insert 33617A.001

<i) 

WAYS AND MEANS 

CHAIRMAN KEVIN BRADY 

Chairman Buchanan Announces Hearing on Reforming How 

the ms Resolves Taxpayer Disputes 

House Ways and Means Oversight Subcommittee Chairman Vern Buchanan (R-FL) 

announced today that the Subcommittee will hold a hearing on making reforms to the 

Internal Revenue Service (IRS). The hearing is entitled "IRS Refonn: Resolving 

Taxpayer Disputes." The hearing wi!J focus on the taxpayer perspective and consider 

ways the agency can resolve taxpayer disputes in a timely, efficient, and cost-effective 

manner. The hearing will take place on Wednesday, September 13, 2017 in 1100 

Longworth House Office Building, beginning at 2:00PM. 

In view of the limited time to hear witnesses, oral testimony at this hearing will be from 

invited witnesses only. However, any individual or organization may submit a written 

statement for consideration by the Committee and for inclusion in the printed record of 

the hearing. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit written comments 

for the hearing record must follow the appropriate link on the hearing page of the 

Committee website and complete the informational forn1s. From the Committee 

homepage, http://waysandmeans.house.gov, select "Hearings." Select the hearing for 

which you would like to make a submission, and click on the link entitled, "CI.ick here to 

provide a submission for the record." Once you have followed the online instructions, 

submit all requested information. ATTACH your submission as a Word document, in 

compliance with the formatting requirements listed below, by the close of business on 

September 27, 2017. For questions, or if you encounter technical problems, please call 

(202) 225-3625. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. 

As always, submissions will be included in the record according to the discretion of the 

Committee. The Committee will not alter the content of your submission, but we reserve 

the right to format it according to our guidelines. Any submission provided to the 

Committee by a witness, any materials submitted for the printed record, and any written 
3 

f 

Chairman BUCHANAN. The Subcommittee will come to order. 

Welcome to the Ways and Means Oversight Subcommittee hearing on ‘‘IRS Reform: Resolving Taxpayer Disputes.’’ 

Before I begin my official statement, I would like to recognize the 

extraordinary effort of two of our witnesses today who made it up 

here from Florida. 

I think you drove from Orlando. So that is pretty impressive. 

Both Mr. Shinn and Ms. Wilson came from the great state of 

Florida. Thank you very much for your determination to be here. 

I know it wasn’t easy. 

And let me pause for a moment to thank all our first responders, 

local government officials, and community members who stepped 

up and responded to Hurricane Irma in my home state of Florida. 

It is impressive to see everyone working together. I am confident 

that we will continue to work together in the aftermath of the 

storm as well. 

Today’s hearing is another important step in the process of considering reforms to the IRS. I have stated previously I do not view 

this effort as an opportunity to degrade or discredit the good work 

being done by IRS employees. 

However, I am a big believer in continuous improvement. That 

has been my philosophy in business. We can always be better. In 


Insert 33617A.002
4 

government, like business, we should always be looking for ways 

to improve. 

In a system of voluntary tax compliance, even with the simplest 

of tax codes—and ours is currently not one of those—there are 

bound to be disputes between taxpayers and the IRS. What we 

hope to learn today is about the experience of those taxpayers. 

These are folks that have been in the trenches working with a 

lot of those taxpayers involved in resolving disputes with the IRS. 

And whether there are ways to improve the current process, I believe there will be. 

Nearly 20 years ago, the last time significant reforms were made 

to the IRS, one of the key legislative priorities for Congress was the 

creation of an independent appeals function. As recently as two 

years ago, Congress reaffirmed the importance of an independent 

forum when the right to appeal to such a forum was included in 

the Taxpayer Bill of Rights and codified as a responsibility of the 

Commissioner. Ensuring the independence and the availability of 

administrative review process for taxpayer disputes remains a top 

priority of this Subcommittee. 

In addition to being independent, dispute resolution options need 

to be accessible and efficient. The process is failing if only large 

businesses with deep pockets feel equipped to dispute a determination made by the IRS. Individuals and small businesses should not 

have to weigh the cost of hiring outside help against paying the assessment. 

For most taxpayers, their only interaction with the IRS is when 

they file their taxes once a year. But when the taxpayers find 

themselves in a dispute with the agency, they deserve a fair and 

prompt process. 

I look forward to working with the Ranking Member on these 

issues and to hearing from our witnesses as we continue our efforts 

to examine reforms to the IRS. 

I now yield to the distinguished Ranking Member from Georgia, 

Mr. Lewis, for the purposes of an opening statement. 

Mr. LEWIS. Well, thank you, Mr. Chairman, for holding this 

hearing on resolving taxpayers’ disputes with the Internal Revenue 

Service. 

I welcome you back to Washington, Mr. Chairman. And on behalf 

of the citizens of Georgia, and especially the citizens of the Fifth 

District, we were able to welcome hundreds and thousands of people from Florida. 

I went into a parking lot in downtown Atlanta on Saturday, and 

there were so many cars from Florida. And people had their dogs, 

walking their dogs through the parks, from Florida. We are neighbors. 

And I want to, in particular, welcome Ms. Wilson and Mr. Shinn. 

I have relatives that live in Fort Lauderdale, and the only thing 

we had happen in my district was some, for the most part, pine 

trees coming down. I want to thank you for being here today. 

Before we begin, Mr. Chairman, I would like to take a moment 

to extend my condolences to you and the millions of Americans who 

were impacted by the recent hurricanes in the Caribbean and the 

Southern States. 

5 

As you know, the hurricane damaged homes, downed trees, 

closed roads, and left about 1 million residents without power in 

my home State of Georgia. Now our citizens, our people, begin the 

difficult process of rebuilding their homes, their communities, and 

their lives. And I hope this committee will work together to do all 

we can to assist the recovery efforts. 

Mr. Chairman, I have said it before and I will say it again: We 

must approach this effort to reform and improve the IRS with a 

great deal of care and thoughtfulness. I hope we will take our time 

to develop bipartisan solutions that serve the best interests of both 

taxpayers and the agency. 

For many years, I have cautioned that we cannot get blood from a turnip. As you know, Congress cut the IRS budget by almost $1 

billion since 2010. Over the last 3 years, the budget for the IRS Appeals Office dropped 11 percent, and there are about 24 percent 

fewer hearing officers. 

Today, we will learn more about how these deep budget cuts 

have affected the ability of the agency to resolve disputes with taxpayers. Our citizens expect and deserve timely and efficient services. Simply said, Mr. Chairman, taxpayers will not get the level 

of service that they expect and deserve until we provide adequate 

funding to this agency. 

As you know, this is the Subcommittee’s fourth hearing to explore how we can improve the IRS. We have remained bipartisan 

and explored a good governance path to examine how the IRS operates and to identify possible improvement. 

I hope and pray that our work product will be a model for our 

colleagues. This afternoon, we will also explore how to improve 

what can be a long and complicated appeals process. Together, we 

will listen and learn about possible remedies. 

Some may suggest expanding the number of States that have 

permanent hearing officers, ensuring the independence of taxpayer 

conferences, and allowing taxpayers to request face-to-face conferences throughout the appeals process. Above all, Mr. Chairman, 

I hope we will continue to work together, as we have all year, to 

explore and address these issues. 

In closing, Mr. Chairman, I look forward to hearing from our witnesses and learning more about their experiences with the agency. 

Again, Mr. Chairman, I want to thank you, my friend, for holding 

this hearing. 

Chairman BUCHANAN. Thank you, Mr. Lewis. And I want to 

thank you for your thoughts and prayers. We do have a lot of our 

family and people who went to Georgia and other states, and I appreciate your thoughts on that. 

And you know you have my commitment to work together on a 

bipartisan basis. We want to improve this together. There is a lot 

of work to be done. So I look forward to working with you. 

Without objection, other Members’ opening statements will be 

made part of the record. 

Today’s witness panel includes four experts: Kathy Petronchak, 

director of the IRS Practice & Procedures at the alliantgroup; Pete 

Sepp, president of the National Taxpayers Union; Byron Shinn, in 

our district—we are excited to have him and his lovely wife here 

today—he is the founder and managing partner of Shinn & Co., 

6 

and I think he probably has 35 years of experience dealing with 

dispute resolution with the IRS; Chastity Wilson, principal of the 

National Tax Office of CliftonLarsonAllen, from Orlando, and a 

member of the AICPA. 

The Subcommittee will receive your written statements, and they 

will be made part of the formal record. Each of you has 5 minutes 

to deliver your oral remarks. We will begin with Ms. Petronchak. 

You may begin when you are ready. 

STATEMENT OF KATHY PETRONCHAK, DIRECTOR OF IRS 

PRACTICE & PROCEDURES, ALLIANTGROUP, LP 

Ms. PETRONCHAK. Chairman Buchanan, Ranking Member 

Lewis, and Members of the Subcommittee, thank you for inviting 

me to testify. It is an honor to provide comments today. 

I interact with small and medium-sized businesses in my work 

with alliantgroup. I also spent 29 years at the IRS and feel this 

gives me a unique perspective into the Examination and appeals 

process. My testimony focuses on challenges that taxpayers face 

when dealing with the IRS and what IRS can do to improve the 

examination and appeals process. 

I raise six issues in my written testimony, and I would like to 

highlight two of those issues. The first issue is the appeals process. 

Before heading to court, the final administrative step a taxpayer 

can take to contest an adverse determination by a revenue agent 

is through appeals. 

Appeals is important for so many businesses seeking a fair review of their tax issues without having to incur additional costs to 

go to court. Taxpayers are appreciative of the opportunity to attend 

the Appeals conference in person. 

They are not thrilled about the recent change by Appeals, indicating that they may not be granted an in-person meeting. Appeals 

has made telephone and virtual conferences first options for an appeal, only granting in-person conferences in limited circumstances. 

We believe that not granting taxpayers an opportunity to have 

an in-person meeting would be highly prejudicial to taxpayers, restrict the ability of Appeals officers to adequately judge the credibility of witnesses, and make the conference more difficult in situations where the appeal is of highly technical and highly evidentiary-focused cases. 

While we have seen Appeals officers flexible in granting in-person conferences, we believe that taxpayers should have a fundamental right to meet Appeals face to face. This in-person conference may be the only way a taxpayer believes there is an impartial resolution with a full understanding of the facts involved. 

Another issue emerging in Appeals is the increased involvement 

of IRS Compliance employees in Appeals meetings. This change 

has created a perception for taxpayers that they may not get an 

independent hearing and decision as afforded by the Taxpayer Bill 

of Rights. 

We believe the only involvement Exams should have at Appeals 

is in a preconference meeting. At a preconference, the originating 

function can attend an Appeals conference to present their views 

on the issues, the taxpayer’s protest and assessment of litigating 

hazards in accordance with ex parte communication rules. 

7 

In a preconference setting, Exam would leave after their presentation. But as of late, rather than leaving at this point, Exam has 

been invited by Appeals to stay for the taxpayer’s presentation. 

When this happens, the entire appeals atmosphere is altered, and 

there are opportunities for this to turn into an extension of the examination process for a taxpayer. 

The independence of Appeals is hindered when Exam plays too 

great of a role in the appeals process. A representative recently described a situation where, in a preconference, it became clear that 

Exam had not fully addressed the position the taxpayer had 

brought forward in its response to the Exam team. After hearing 

the taxpayer orally present their position at the Appeals meeting, 

the Exam team made another 24-page submission to Appeals to attempt further support for their position on the issue, taking an alternative approach. It seems patently unfair that Exam can attempt to continue their process when the case is assigned to an 

independent forum to make a decision. 

We disagree with Appeals having unilateral decisionmaking over 

Exam participation in a conference. Taxpayers who feel as if they 

have already been through a grueling process with Exam should be 

able to have the peace of mind that their case is being given a fresh 

look by Appeals and that the examination is over. 

Today’s comments on the issue of alternative dispute resolution 

focus on the IRS Fast Track Settlement program. This program 

was created to provide an expedited dispute resolution option for 

taxpayers to mediate their disputes during an examination with an 

Appeals official acting as a mediator. The use of Fast Track has the 

potential to be a highly effective tool when both parties come to the 

table willing to reach an agreement. Taxpayers and their representatives welcome the opportunity to resolve as many issues as 

possible at the lowest level in a cooperative manner. This same 

sense of urgency should be felt by the IRS. 

In closing, I commend the committee for its work and oversight 

in ensuring that taxpayers receive fair treatment and good service 

from the IRS. Alliantgroup looks forward to working with the committee to further improve tax administration, and I would be glad 

to take your questions. 

[The prepared statement of Ms. Petronchak follows:] 

8 


Insert 33617A.003

Statement of Kathy Petronchak 

Director -IRS Practice and Procedure 

alliantgroup, LP 

Before United States House of Representatives 

Committee on Ways and Means 

Subcommittee on Oversight 

Hearing on 

"IRS Reform: Resolving Taxpayer Disputes" 

September 13, 2017 

Chairman Buchanan, Ranking Member Lewis, and Members of the Subcommittee: 

Thank you for inviting me to testify today regarding the operations of the Internal Revenue 

Service. It is an honor to provide comments today for your hearing on IRS Reform: Resolving Taxpayer 

Disputes. 

My name is Kathy Petronchak, and I am Director of IRS Practice and Procedure at alliantgroup, LP. 

I am a Certified Public Accountant and have been with the firm for almost four years. My experience 

prior to this, includes five years of work in a big 4 accounting firm in the tax controversy area and, I worked 

at the IRS for almost 29 years. My last position with the IRS was that of Commissioner, Small Business/Self 

Employed Division but during my public service career I also served in the Large & Mid·Size Business 

Division (now Large Business & International Division). I believe this experience gives me a unique 

perspective into how the examination process is currently being conducted for both small and mid-size 

businesses and allows me to be well positioned to speak to the issues you wish to discuss today. 

The firm of which I am a part, all iantgroup, is a leading tax service consultant for small and medium 

sized businesses across the country. alliantgroup has over 700 professionals located nationwide, focused 

on assisting small and medium sized businesses to avail themselves of proper and available tax incentives, 

including tax credits, designed to create U.S. jobs, promote research and innovation, and otherwise help 

the United States remain the leader in the global economy. We also assist these businesses in tax 

controversy, and we represent them before the IRS and state tax regulators. In providing these services, 

we partner with the CPA firms of these businesses. We work with over three thousand CPA firms and 

thousands of businesses from all over the country in a remarkably diverse set of industries. Our work and 

daily interactions reveal that our CPA partners and clients share a common experience relating to their 

dealings with the IRS. 

I speak today from the context of someone who was working at the IRS during the 1998 reforms 

and then In private practice with regards to ideas for rebuilding the IRS as stated in The Blueprint' From 

1 A Setter Way: Our Vision for a Confident America (June 24, 2016}, available at 

https://abetterway.speaker.gov/ _assets/pdf/ABetterWay·Tax·PolicyPaper.pdf. 
9 


Insert 33617A.004

my perspective the organizational changes that were implemented as part of the IRS Restructuring and 

Reform Act of 1998 were sound and are not in need of significant reorganization at this time. The premise 

then that operating units focused on particular taxpayer segments would provide better customer service 

and be competent in handling matters relevant to those taxpayers still rings true today. However, I believe 

there are issues that can and should be addressed to make the IRS more efficient and interactions with 

taxpayers much better without the disruptive effect of major changes to business units or the appeals 

function. I hope to address a couple of those issues in my t estimony today. I also believe that some of 

the problems that exist today at the IRS stem or are exacerbated by the lack of adequate funding in recent 

years. 

My testimony today focuses on the challenges taxpayers face when dealing with the IRS, and more 

specifically what the IRS can do to make the examination and Appeals process more fair, efficient, and 

transparent. The practices and procedures utilized by the IRS during examination and Appeals of small 

and mid·sized businesses would benefit from reform. We view the solutions to these issues as a benefit 

to taxpayers and the IRS. There are steps that can be taken by the IRS that will improve the examination 

and Appeals process for taxpayers while showing respect for taxpayer rights and improving the customer 

service provided. 

We believe there is some inconsistent treatment of small versus large businesses by the IRS, as 

well as differing procedures being used in audits of these businesses. It is vitally Important to remember 

that America's small businesses do Indeed have needs, interests, and resources that may differ 

significantly from those of larger businesses. However, some of the procedures utilized in large business 

audits provide added transparency that would bring greater fairness to the small business examination. If 

these procedures w ere adopted for all taxpayers, the IRS can improve transparency in its examination of 

small businesses and better ensure they are t reated fairly. 

We strongly agree with The Blueprint basics that IRS employees should be held 

accountable to the Taxpayer Bill of Rights (TBOR). To that end we hope to address several specific 

provisions of the Taxpayer Bill of Rights including the right of all taxpayers to: 

Quality Service; 

Be Informed; 

Challenge the Positon of the IRS and Be Heard; 

Appeal a Decision of the IRS in an Independent Forum; 

Privacy; 

Confidentiality; and 

A Fair and Just Tax System. 

As indicated, a number of issues that we will discuss today may be Impacted by the funding 

problem that has plagued the IRS for a number of years now. We urge you to support adequate funding 

for the IRS including allowing the IRS to upgrade its IT systems, train its employees to ensure competence 

in handling tax issues, provide timely guidance to taxpayers, and ensure better service for American 

taxpayers as well as a fair administration of the Tax Code. 

Today we would like to focus on the following issues: 1) decreased use of alternative dispute 

resolution processes; 2) emerging is.sues in an independent Appeals process; 3) lack of transparency; 4) 

third party contacts; S) IRS education and outreach efforts; and 6) Taxpayer Bill of Rights. 
10 


Insert 33617A.005

1. The IRS is Decreasing its Use of Alternative Dispute Resolution 

The IRS has a number of alternative dispute resolution tools at its disposal. Several of these such 

as Arbitration, Post Appeals Mediation and Early Referral seem more appropriate for large business 

taxpayers who have the experts and other resources to pursue these options. 

Our focus for today is on the IRS Fast Track Sett lement (FTS) program t hat was officially 

established in 2003.2 1t was created as an expedited dispute resolution option available fortaxpayers who 

want to mediate their disputes during an examination with an Appeals Official acting as a neutral party or 

mediator. The purpose is to bri ng the examination team together with the taxpayer, so the two parties 

can discuss their positions and come to an agreement to settle an issue or the entire case at the earliest 

possible stage in an examination, without having to go through the formal administrative Appeals process 

or to court. Although the original adoption of t he program in 2003 covered only large and mid-size 

businesses, it was expanded with Announcement 2011·5 to enable small businesses under examination 

t o more quickly settle their differences with the IRS. With Revenue Procedure 2017-25, the FTS program 

was formally established for Small Business/Self Employed (SB/SE) Division taxpayers and made 

permanent . 

1 For years FTS has been accepted as a powerful tool for taxpayers, allowing them to iron out 

their differences with the exam t eam on one or more contentious issues and reach a mutual agreement 

to close the case, allowing both parties to move on with their lives particularly since t he goal is to resolve 

SB/SE cases within 60 days.' 

However, in recent years, our experience has been that small and mid-sized businesses are less 

likely to be accepted into the FTS process. FTS must be agreed to by both the taxpayer and the revenue 

agent and in recent experience, revenue agents and managers seem more reluctant to utilize this dispute 

resolution tool.5 This statement is based on two observations. First, statistics that were shared by IRS 

Appeals in a March 2016 presentation at a Federal Bar Association Tax Law Conference stated the number 

of fast track settlement cases for small businesses decreased from 230 in fiscal year 2014 to 177 in fiscal 

year 201S. Second, in our own anecdotal experience at alliantgroup, we have seen the number of fast 

track settlement cases drop from a peak of several per month to the current rate of roughly two per year. 

Causes for t his could be reduced resource levels in examination and appeals that may be driving t he 

reluctance to use the process or that the requirements from the IRS regarding those eligible to participate 

in FTS have become too stringent. We tend to think it is the latter cause that has led to this decrease.• 

The use of FTS has the potential to be a highly effective tool in alternative dispute resolution when 

both parties come to the table willing to reach an agreement . Taxpayers and their representatives 

welcome the opport unity to resolve as many issues as possible at the lowest possible level in a cooperative 

'Rev. Proc. 2003-40, LMSB/Appeals Fast Track Settlement Procedure. 

• Rev. Proc. 2017·25, Formal Establishment of Small Business/Self Employed Fast Track Settlement Program. 

' Collections cases are handled in a process called Fast Track Mediation. Rev. Proc. 2003·41 SB/SE-Appeals Fast 

Track Mediation Procedure. 

s See the discussion at the Federal Bar Association Tax Law Conference, Practice and Procedure Symposium, 

Recent Developments at Appeals Panel (March 4, 2016). 6 tRS internal procedures regarding SB/SE FTS can be found in IRM 4.10.7.5.5 (March 3, 2015). 

3 
11 


Insert 33617A.006

manner. This same sense of urgency should be felt by the IRS. Small and mid-sized businesses need to 

focus on their business at hand and having a disagreement with the tax authorities weighing on them for 

a long period of time distracts from their business needs and operation. Obtaining resolution earlier 

increases compliance of those taxpayers and allows the IRS to focus resources on other taxpayers and 

issues. 

The fast track settlement process is authorized for all taxpayers and we strongly encourage its 

increased use by the Service. While we do not support a mandate to require the use of fast track on issues 

not otherwise excluded by the Revenue Procedures we do believe that IRS leadership can be more 

supportive and proactive in ensuring that this tool is used for efficient tax administration. 

Experience has taught us that when unwilling players come to the table for a mediation type event 

there is a high likelihood there will not be a successful outcome. In considering changes to make theFTS 

program more effective we believe the establishment of any type mandate would need careful 

consideration based on the concern just noted. We do believe there is an opportunity for improvement 

to the process by authorizing the use of an outside mediator alongside the Appeals mediator. Just as the 

use of an outside mediator is an option for taxpayers in Post Appeals Mediation we support the idea of 

allowing taxpayers to make this election for the fast track process with the hope that it may lead to more 

agreements in this process. These changes would support the taxpayer's Right to Challenge the Positon 

of the IRS and Be Heard and the Right to a Fair and Just Tax System. 

2. Emerging Turbulence in the Appeals Process 

Before heading to court, the final administrative step a taxpayer can take to contest an adverse 

determ ination by a revenue agent is through IRS Appeals. The IRS Office of Appeals is "separate from and 

independent of the IRS office that proposed the adjustment. Issues should be fully developed by 

compliance functions before an administrative appeal."' Taxpayers can present their arguments and 

negotiate an administrative settlement with an IRS Appeals Officer. We appreciate the vital and important 

work of Appeals and want to state how important IRS Appeals is for so many businesses seeking a fair 

review of their tax issues without having to incur additional costs and go to court. 

While the role of IRS Appeals is greatly appreciated by those seeking an administrative resolution 

there are improvements that taxpayers would like to see. First, the length of time it takes Appeals to 

resolve a case has steadily increased over the past few years. Again, due to budget cuts, Appeals Officers 

have incredibly large caseloads, may not be located in the geographic area of the taxpayer, and may be 

unable to hear cases for months or even up to a year. Even after a case is heard, it may take months 

thereafter for a settlement offer to be made. This means that the taxpayer's tax returns and status with 

the IRS is in a sort of purgatory, as it has to wait on the Appeals Officer to hear and then decide its case. 

While our small and mid-sized business owners are most appreciative of the opportunity to attend the 

conference and have a frank discussion with Appeals they are not as thrilled about the time it takes to 

reach a final resolution nor the recent change made to the Internal Revenue Manual (IRM) indicating that 

they may not be granted an in-person meeting. 

One solution the IRS appears to have implemented to address the problem of too few appeals 

officers is to make telephone and virtual conferences first options for an appeal, only granting in-person 

' IRM 1.2.17.2 (Nov. 4, 1998): Policy Statement 8-1. 

4 
12 


Insert 33617A.007

conferences in limited circumstances. We whole-heartedly believe that not granting business owners an 

opportunity to have an in-person meeting would be highly prej udicial to taxpayers, restrict the ability of 

Appeals Officers to adequately judge the credibility of witnesses, and make the conference more difficult 

in situations where the appeal is of highly technical and highly evidentiary focused cases. The National 

Taxpayer Advocate Nina Olson, made this same argument to the Senate Committee on Appropriations in 

her July 26, 2017 testimony, in which she stated "it would be impossible for an Appeals Officer to judge 

the credibility of a witness without an in-person conference, and ' circuit riding' does not happen often, 

requiring taxpayers to wait months, or even a year or more, to obtain a face-to-face hearing."8 

While in our practice we have seen Appeals Officers flexible in granting in-person conferences, 

we believe that requesting in-person conferences and the back and forth with the Appeals Officer 

immediately on a purely procedural matter starts the process off on the wrong foot and potentially 

undermines the taxpayer' s relationship with the Appeals Officer. We believe that taxpayers, if willing to 

incur the time and cost, should have a fundamental right to meet Appeals face to face. Conducting inperson conferences should not have a material effect on the time it takes Appeals to hear a case- our 

experience in a case where an in-person conference was denied was that the conference still took hours 

to complete. Moving to virtual conferences as a default is not the answer to ensuring that a taxpayer's 

Right to Challenge the Position of the IRS and Be Heard is not violated9 Policy Statement 8-110 states that 

IRS is committed to the Appeals administrative dispute resolution process and follows certain principles 

including that Taxpayers are generally entitled to appeal disputes and to have a timely conference and 

resolution of their dispute. From a taxpayer perspective this in person conference may be the only way 

to believe there is an impartial resolution with a full understanding of the facts involved. 

A second issue emerging in Appeals is the increased involvement of IRS Compliance (also referred 

to as Exam) and/or Counsel Employees at appeals meetings. The recent focus by Appeals to make it known 

that they have the discretion to invite Counsel and Compliance to the conference has created a perception 

for some taxpayers that they are not getting an independent hearing and decision. 

As stated above, Appeals is an independent function of the IRS and should remain autonomous 

and separate from Exam. This concept is clear in IRM 8.10.1.3 where it states "Appeals is charged with 

providing an independent dispute resolution fu nction with IRS. Appeals employees must make fully 

informed, independent judgments regarding: 

-Strengths and weaknesses of respective positions of both the taxpayer and the government 

-Application of law, regulations, and IRS policies and procedures based on the facts and 

circumstances of the case 

-Evaluation of hazards of litigation." 

During an examination, the Exam team has an opportunity to build its case fully, make a 

determination on the facts and applicable law, and to seek agreement from a taxpayer. It is w ell 

'Written Statement of Nina E. Olson National Taxpayer Advocate, Hearing on Internal Revenue Service FY 2018 

Budget Request Sefote the Subcommittee on Financial Setvices and Genetal Govetnment, July 26, 2017, avoiloble 

at https://www.irs.gov/pub/foia/ig/tas/nta _written_ testimony _hearing_irs _ fy2018 _ budgetreq_7 _26 _2017 .pdf. 9 See IRM 8.6.1.4.1 (Oct. 01, 2016). 10 IRM 1.2.17.2 (Nov. 4 , 1998): Policy Statement 8-1. 

5 
13 


Insert 33617A.008

understood that issues should be fully developed by compliance functions before an administrative appeal 

is offered to the taxpayer when a case is not agreed. Appeals has procedures for returning a case to Exam 

if it is considered a premature referral, not sufficiently developed for their consideration by Exam, or the 

taxpayer provides new information that was not considered by the Exam team. In any event it seems 

clear that Appeals expects that all fact finding and submission of relevant information took place before 

they are asked to consider the case. 

Since it is solely Appeals decision as to whether Exam and Counsel are invited to a conference we 

believe the only involvement Exam should have at Appeals, is in a preconference meeting. In this situation 

the originating function, Exam for instance, can attend an Appeals Conference to present their views on 

the issues, the taxpayer's protest and assessment of litigating hazards in accordance with ex parte 

communication rules. While in the preconference setting Exam may have left after their presentation, 11 

as of late, rather than leaving the conference after it presents its case, Exam has been invited to stay at 

the Appeals Officer's discretion for the taxpayer's presentation-" While we agree that a presentation to 

the Appeals Officer of key points from each party provides an opportunity for them to ask relevant 

questions in making an informed decision, this occurs with a preconference meeting. When exam stays, 

the entire Appeals atmosphere is altered and there are opportunities for this to turn into an extension of 

the examination process for a taxpayer. 

Specifically, it is troubling when Exam has a second chance to build its case by directly engaging 

with the taxpayer by asking both factual and legal questions that may have been overlooked in the exam 

process. We believe that the mission of Appeals, specifically its independent function, is hindered when 

Exam plays too great of a role in the Appeals process and the Appeals Officer does not stop the exchange. 

There is also a concern that Exam may take this as an opportunity to add more information to the file 

when they realize potential weaknesses in their position. A representative recently described a situation 

where in a recent preconference it became clear that Exam had not addressed a position that the taxpayer 

had presented in its document request responses and in its protest. After hearing the taxpayer orally 

present their position at the Appeals meeting and seeming to get agreement from the Appeals Officer, 

the Exam team followed up with another submission to Appeals to attempt further support for their 

position on the issue taking another approach. It seems patently unfair to this taxpayer that the Exam 

team attempts to continue their process when the case is assigned to an independent forum to make a 

decision on what was obviously a contentious exam. 

As a matter of process, if the taxpayer is not given a say in any decision regarding IRS employees' 

participation in appeals conferences, then a solution to this dilemma may be clear guidance in the Internal 

Revenue Manual on acceptable procedures/protocol for Exam during an Appeals conference. We do not 

agree with the Appeals policy of having unilateral decision making over Exam's participation in an Appeals 

conference as it changes the nature of the appeals process. If Appeals continues to take t his approach, 

procedures and actions are necessary to ensure that the conversation is limited to original positions taken 

by Exam and not asking further questions of a taxpayer to develop new facts and positions in what should 

be an independent process. 

11 See Rev. Proc 2012·18: Ex Parte Communications between Appeals and Other Internal Revenue Service 

Employees 

u IRM 8.6.1.4.4 (Oct. 01, 2016). 

6 
14 


Insert 33617A.009

The goal for these new procedures should be to limit the role of Exam during Appeals. Taxpayers 

who feel as if they have already been through a grueling process with Exam, should be able to have the 

peace of mind that their case is being given a fresh look by Appeals, and that Appeals is not more of the 

same. 

In conclusion on this issue, we do not believe it is necessary to create a new dispute resolution 

function for taxpayers. By staying true to the original vison that Appeals offices are separate from and 

independent of the IRS office that proposed the adjustment, resolution should continue to be reached in 

a majority of cases. Changes may be needed to strengthen the independence of Appeals and to improve 

its accessibility for all taxpayers but a new small claims court function as outlined in The Blueprint is not 

needed in our opinion. These changes would further the taxpayer's Right to Challenge the Positon of the 

IRS and Be Heard and the Right to Appeal a Decision of the IRS in an Independent Forum. 

3. lack of Transparency during the Exam Process 

An important aspect of an IRS examination is the information document request process. The IRS 

issues to taxpayers information document requests, or "IDRs." requesting books and records and email 

communications, as well as requesting supporting documentation and explanations of various items on 

their tax returns. The documents taxpayers provide in response to the IDRs give the revenue agent the 

information needed to determine whether a taxpayer has taken a correct or reasonable position on its 

tax return. The process is often lengthy and can take a taxpayer hours upon hours to gather, organize, and 

explain documents. And while it is important for the IRS to conduct fact finding in an examination, it is 

also vital for the IRS to understand that a small business does not have the resources that the Fortune 

1000 have to deal with voluminous document requests. Additionally, the taxpayer can find an audit by 

the IRS intimidating since they do not have frequent interactions with the IRS. 

The IRS' large Business & International Division (lB&I) has refined the examination process with 

a goal to make it more transparent and efficient-worthy goals for any examination of a taxpayer, whether 

large or small, from the perspective of both the IRS and the taxpayer. lB&I agents are now required to 

ensure that IORs are issue focused, have been discussed with the taxpayer before being issued in final 

form, and contain a response date that has been discussed with the taxpayer. Publication 5125, issued in 

February 2016, has required agents examining the tax returns of large and mid·size companies to open 

up communications with companies and to work closely with them. While neither perfect in design nor 

implementation, this process is intended to lead to increased transparency in the examination process 

with issues being clearly identified by the IRS and taxpayers receiving timely feedback on the responses 

that have been provided. We believe the lOR process in lB&I has improved as a result of this focus. 

Small business examinations do not have similar procedures in place. Rather, there are only loose 

guidelines on issuing IDRs. The Internal Revenue Manual provides guidance on the use of "lead sheets" 

and work paper organization but provides little focus on how to work transparently and collaboratively, 

where possible, with taxpayers. It is our experience that these procedures can lead to I DRs that cover a 

number of issues within one request and with what seems short response times for a voluminous amount 

of documents. 

The two processes described here have created a difference in treatment of large and small 

businesses in IRS examinations. While lB&I appears to be pushing for clarity and efficiency during the 

audit process, small businesses are generally left to the decisions of the individual revenue agents. 

However, there are no real procedures in place in SB/SE to encourage more discussion concerning the 
15 


Insert 33617A.010

course of an examination. This has only worsened as budgets have declined. We also would mention that 

one of the byproducts of this issue that we are experiencing is that in some examinations, the first clear 

indication of the primary issue of an examination is when a 30 day letter is received by the taxpayer. At 

this point the taxpayer needs to agree with the IRS or decide to file a protest with Appeals to have an 

impartial hearing on the issue. This is remarkably too late in the process to be having this discussion. 

In our view, having a straightforward upfront meeting between the taxpayer and the IRS that lays 

out what the issues are, what the roadmap is going forward for documents and interviews, as well as 

expected timelines, is to everyone's benefit. The taxpayer understands the concerns of the IRS and can 

be better responsive to IRS questions and requests for documents. Thus, we believe that SB/SE should 

adopt many of the LB&I transparency measures. 

In an IRS audit, the revenue agent has traditionally been the point of contact for the taxpayer and 

is supposed to be the individual that manages the audit and makes the ultimate determination. There are 

instances when specialists are needed for an examination and the IRS has a formal process for agents to 

request assistance from specialists such as engineers, appraisers, and computer audit specialists. 

However, we have experienced instances where some SB/ SE agents hand cases off to specialists when 

valuation or highly technical issues are being addressed. While this assistance is necessary, the process is 

often mysterious and the taxpayer is left in the dark regarding who is conducting and deciding their 

examination and what the timeline for a decision may be. 

We have advised a number of small and mid-sized businesses where this happened to them. For 

example, a revenue agent who lacks expertise or experience may simply hand the case over to an IRS 

engineer or technical expert and have them make the ultimate decision that is written up in an 

examination file. In the best case scenario the specialist/expert is involved in the case and openly advising 

on document requests and participating in discussions with the taxpayer. However, this is another area in 

which budget cuts have had a pernicious impact on the process. The specialists may not have adequate 

time to do a quality job. For example, in some of ourcases revenue agents have only "consultations" with 

specialists/experts on a case rather than an accepted referral where detailed examination of the records 

takes place. Having only hours and not weeks to work an issue related to a specific taxpayer may not lend 

itself to a specialist being fully informed of the facts in a particular case. Moreover, in some of these cases, 

the taxpayer is not aware that this has occurred or has not had an opportunity to discuss technical 

conclusions that have been made. 

Another experience with SB/SE agents creates a greater concern in the exam process for small 

businesses and whether they are being treated fairly. Recently we have been advised by revenue agents 

that there is an approval process for their final reports on certain technical issues by a "technical 

specialist." Agents may not specify who is reviewing their lead sheets and work papers prior to discussion 

and issuance to the taxpayer of a report. They have indicated that the specialists are looking at the cases 

and that their hands are tied in determining the proposed adjustment for those taxpayers. This is 

particularly troublesome if the specialist is making the ultimate decision when they are not intimately 

familiar with the facts of the taxpayer. To t he extent this is happening, it is the antithesis of the 

transparency that should occur in an examination. We are even told by agents that they may agree with 

a taxpayer's position but have no authority over their own examination outcomes. 

8 
16 


Insert 33617A.011

We see these actions as a violation of the taxpayer's Right to be Informed and the Right to a Fair 

and Just Tax System. When decision makers are involved in a taxpayer's case it should be transparent to 

a taxpayer who those persons are and the rationale for any decisions that are made. 

4. Third Party Contact Procedures Are Prejudicial to Taxpayers 

The IRS often reaches out to third parties that are not under audit, but may have information and 

documents relevant to a taxpayer that is under audit. Such contacts are permissible in certain 

circumstances, but the IRS must give the taxpayer under audit "reasonable notice in advance" of such a 

contact.

13 While these contacts are often times justified as necessary to corroborate a taxpayer's 

records/testimony or to obtain otherwise unavailable data, we are seeing increased use of the contacts 

in a fashion that warrants concern. 

We would like to echo the findings made by the National Taxpayer Advocate, Ms. Olson, in her 

2015 Annual Report to Congress. 14 First, the IRS is not always effective in providing notice to taxpayers, 

often times only providing them Publication 1, Your Rights os a Taxpayer or some similar general notice 

at the beginning of the exam and not at or anywhere near the date of a third party contact." Such notice 

is useless and does not effectively apprise taxpayers that such contact will be made, to whom it will be 

made, or that the taxpayer can request a third party contact report from the IRS. Second, the Taxpayer 

Advocate found that the IRS did not first ask taxpayers for the information requested from third parties 

in 22.& percent of examination cases.'' This is unacceptable given the extraordinarily important taxpayer 

privacy protections that go out the window with third party contacts. 

Ms. Olson also discussed other valid concerns: the disclosure of confidential taxpayer information 

protected under IRC § 6103;17 that taxpayers are often not given the prior opportunity to volunteer 

information on their own; that third party contact requests can be vague;'8 and that the IRS does not 

automat ically provide periodic third party contact reports.'' 

In our experience, it appears the IRS has seemingly been using these contacts on an increasing 

basis in general examinations, often times when the IRS already has the information they request from 

third parties, and other times when they haven't even requested the information from the taxpayer. 

Requesting the information from third parties in these situations is intrusive, burdensome and needless. 

It creates an unnecessary burden for small and mid-sized businesses, and the practice of issuing third 

party contacts should be modified to ensure notice and an opportunity to respond closer to the time a 

third party contact is to actually be initiated. 

We encourage the Committee to consider what modifications can be made to the statute to 

ensure the IRS does not perfunctorily notify a taxpayer of these procedures at the beginning of the exam 

and only periodically provide a taxpayer with a list of third party contacts upon specific taxpayer request. 

"26 usc§ 7602(c). 

lot• National Taxpayer Advocate 2015 Annual Report to Congress, available at 

https://taxpayeradvocate.irs.gov/reports/2015-annual-report-to-<:ongress. 

" /d. at 123. 

16 /d, 

11 /d. at 124. 11 /d. at 126. 19 /d. at 125. 

9 
17 


Insert 33617A.012

The current IRS policy regarding third party contacts can be found in Internal Revenue Manual Section 

25.27.1. General requirements state that it is their practice to obtain information directly from a taxpayer 

whenever possible and that reasonable notice should first be provided to the taxpayer before a third party 

request. However, this appears to be an area where the intent of the law and even the IRM is not honored. 

It appears the IRS takes the position that Publication 1 serves as the only "advance" notice. These changes 

would further the taxpayer's Right to Privacy, Confidentiality, and a Fair and Just Tax System. 

5. IRS Needs Better Outreach and Taxpayer Education 

Even with improvements to the Exam and Appeals process, the IRS can assist taxpayers and tax 

practitioners with education on the front end, to reduce tax compliance costs. In Ms. Olson's July 26, 2017 

testimony, she stated that "Pre-filing outreach and education is particularly important for small 

businesses, which often need to learn and comply with complex rules that individual taxpayers do not 

encounter, such as rules governing eligible business expenses, equipment depreciation, and employment 

taxes. Yet the IRS has whittled down these outreach units to the point where they are barely functional." 

She went on to state that the IRS has only 98 outreach employees for the 62 million Small Business and 

Self-Employed taxpayers. 

Due to budget constraints, taxpayers have difficulty getting answers from the IRS on tax matters 

and are often unaware of filing requirements and the substantive rules of the Internal Revenue Code that 

affect them. Proactive outreach by the IRS could go a long way in educating ta>payers on issues that the 

IRS is focusing on as well as new initiatives that are taking place. Such education efforts can reduce the 

compliance costs to both taxpayers and the Exam function. 

In April 2017, alliantgroup signed onto a document with eight other tax practitioner organizations, 

outlining changes that the IRS can make to improve services provided to taxpayers and practitioners.

20 1n 

the Statement of Purpose it was stated that "as tax practitioners, we advise millions of taxpayers on tax 

matters, assist them with compliance responsibil ities, and represent them before the IRS. We understand 

what is working and not working with tax administration from both taxpayer and practitioner 

perspectives.~~ 

Although several issues were outlined in the document as a framework for ensuring a modern 

functioning IRS, we will focus on one specific recommendation today. This document recommended 

creating an executive level IRS Practitioner Service Unit. "A dedicated practitioner services unit would 

allow the IRS to rationalize, enhance, and place under common management the many current disparate 

practitioner impacting programs, processes, and tools." This Unit would have a high level executive lead 

for a centralized group similar to how identify theft efforts have been centralized at the IRS. The Unit 

would seek to coordinate and improve access of information to prevent unnecessary delays and 

inefficiencies. Included in this unit would be an online tax professional account, in which a tax 

professional could access all of their client's information and receive information and communications 

from the IRS in this single space. Practitioner priority hotlines with higher-skille:l employees would allow 

practitioners to understand and discuss more complex technical and procedural issues that small and midsized businesses face and result in a quicker resolution of issues. Lastly, designated customer service 

:tO Ensuring a Modern Functioning IRS for the 21n Century, April3, 2017. pg, 1, available at 

https://www.aicpa.org/Advocacv/Tax/DownloadableOocuments/IRS-Service-tmprovement-PractitionerReport.pdf. 

10 
18 

f 


Insert 33617A.013

representatives for each geographic area would be helpful for issues that can't be solved through the 

priority hotline. 

For those of us who signed the document it was noted that "we are committed to a serviceoriented, modernized tax administration system that earns the respect and appreciation of all taxpayers 

and stakeholders." We believe that these changes would go far in increasing the likelihood of taxpayer 

and practitioner access and education, which could lead to fewer and less contentious interactions with 

the IRS. These changes are in line with the taxpayer's Right to Quality Service. 

6. Taxpayer Bill of Rights 

Although there currently exists a list of rights afforded to taxpayers," referred to here as the 

Taxpayer Bill of Rights (TBOR), we believe more attention is needed by the IRS in ensuring that its 

employees understand and follow them. While taxpayers can clearly find information on the IRS website 

regarding their rights and understanding them it Is unclear what training has been held for employees of 

the IRS. We raise this issue as recently in a case where a practitioner raised a concern as to taxpayer 

right's being violated he was informed by a revenue agent that she was not aware of them and did not 

believe she had violated anything. 

Policy Statement 1-236 states in paragraph three that the tax law will be enforced with Integrity 

and fairness." It states specifically that "to ensure fairness to each taxpayer, we do our jobs with a focus 

on taxpayer rights, including due process and appeal rights. The Internal Revenue Code grants taxpayers' 

certain rights when working with the IRS, and these rights are embodied in Publication 1." 

We would like to echo the findings made Ms. Olson in her 2016 Annual Report to Congress 

regarding these rights" The perception of taxpayers is that IRS has not adequately incorporated the 

TBOR into its operations and this has negatively impacted taxpayers at times. It is unclear what options 

the taxpayer may have when this takes place. Ms. Olson addressed this in her May 19, 2017 testimony to 

this Committee stating that the practical impact of the TBOR provision was not clear and if a taxpayer 

were to assert that a right had been violated that it is not clear whether a court would "find the rights are 

legally cognizable."" I encourage this committee to take further action to ensure that taxpayer rights are 

clearly established and to review closely the recommendations laid out by the National Taxpayer Advocate 

in her testimony. 

Thank you for affording me the opportunity to be here today to provide the Committee with this 

information. I look forwa rd to your questions, and we would be happy to work with you in the coming 

months as you work on a more detailed plan to address the needs of taxpayers and practitioners. 

" 26 USC§ 7803{a)(3). 

"IRM 1.2.10.37 (Oct. 24, 2016): Policy Statement 1-236. 

u National Taxpayer Advocate 2015 Annual Report to Congress. ovoilobfe ot 

ttp s://taxpayeradvocate.irs gov/reports/2016·annua ~report congress. 

14 Written Statement of Nina E. Olson National Taxpayer Advocate, Hearing on IRS Reform: Perspec-tives from the 

National Taxpayer Advocate, Before the Subcommittee on Oversight_, Committee on Ways and Means, US House of 

Representatives (May 19, 2017), ovoiloble ot 

https:/ /www.irs.gov/pub/tas/nta_ wrftten_testimony _irs_reform_nta_perspectives_S _19 _2017 .pdf. 

11 
19 

Chairman BUCHANAN. Thank you. 

Mr. Sepp, you are recognized. 

STATEMENT OF PETE SEPP, PRESIDENT, NATIONAL 

TAXPAYERS UNION & NTU FOUNDATION 

Mr. SEPP. Mr. Chairman, Mr. Ranking Member, Members of the 

Committee, a number of my predecessors have actually testified in 

this very room on taxpayer rights issues, so I am particularly honored that you would ask me here to follow in their footsteps. 

And we need to follow in the footsteps of all of our predecessors 

in developing a bipartisan solution to many of the problems that 

have cropped up since enactment of the IRS Restructuring and Reform Act of 1998. 

One of my predecessors, Bob Kamman, put it this way: He called 

it taxpayers triage. What you need are a number of steps, a number of options, in resolving problems between the agency and taxpayers that provide a range of responses. 

One of them is prevention, of course. We can simplify the tax system. We can educate taxpayers about their rights in advance so 

they know going into the process of interacting with the IRS what 

to expect, and perhaps problems can be resolved at that level, the 

preconference level, for example. 

Then there is basic care. What we have now is the appeals process and a very nascent alternative dispute resolution process. We 

are going to hear a lot from the witnesses today about some of the 

malfunctioning systems within Appeals, and especially with the recent evolution in the large business and international division of 

strategies, like designating cases for litigation, that can be very 

harmful to the audit process. I hope we can discuss that in further 

detail later. 

But the rise of alternative dispute resolution mechanisms around 

the world and its relatively flat usage here in the United States— 

actually declining at the Appeals level right now—suggests that we 

need very serious reforms if we are going to make that process 

workable in the future. 

The third level of triage really is intensive care. That is when 

taxpayers and the IRS have to litigate an issue. And there, taxpayers’ access to the courts beyond the tax court level is still highly 

problematic. Everything from the Anti-Injunction Act to the Declaratory Relief Act essentially prevents taxpayers from enforcing their 

rights in court in a meaningful manner. Largely, their choices are 

confined to litigating for damages after the acts have already been 

committed by the agency that have deprived a taxpayer of his or 

her income or right to earn. 

The fourth level is essentially post-op observation, as I would call 

it, oversight. Now, current plans in several of the tax reform options being discussed would do away with the IRS Oversight Board. 

There are flaws in the Oversight Board certainly, but I would urge 

this committee to very carefully consider alternatives to the current 

IRS Oversight Board, which is essentially paralyzed due to a lack 

of a quorum. 

We really need to establish and maintain that kind of consistent 

oversight in some manner. Specifically, I would make a few recommendations, and, again, we can further discuss these in detail. 

20 

The foundation for another taxpayer rights package really ought 

to be based on H.R. 3220, the Preserving Taxpayers’ Rights Act. It 

is a bipartisan bill. It codifies the right to appeal, and it establishes 

a more business-like working relationship between the IRS and 

taxpayers in audits. 

This will apply to large businesses, small businesses, individuals 

across the board. Section 3 of that bill, which essentially directs the 

Secretary to begin developing more dispute resolution procedures 

at Appeals, would pave the way for more effective use of Alternative Dispute Resolution (ADR) in a number of situations. 

There are many, many other suggestions I could make that we 

should look at. The Taxpayer Bill of Rights Enhancement Act just 

introduced in the Senate yesterday, S. 1793, which would expand 

some of the assistance in the Volunteer Income Tax Assistance program, expanding low-income taxpayer clinics. All of these things 

need to be put into a package to work together to enhance the 

progress we have made in Taxpayer Bill of Rights I, T II, and the 

IRS Restructuring and Reform Act. And this is the committee 

where it all starts. 

Every single piece of important IRS reform legislation began 

with Members of this Committee, your predecessors, and you now, 

such as with the RESPECT Act that just passed, coming together 

in a bipartisan fashion to do better for taxpayers. We can do it. We 

must do it. 

I thank you for your leadership. 

[The prepared statement of Mr. Sepp follows:] 

21 


Insert 33617A.014

' ' IVTU 

National Taxpayers Union 

Statement of 

Pete Sepp 

President 

National Taxpayers Union 

Prepared for 

The Subcommittee on Oversight 

Committee on Ways and Means 

United States House of Representatives 

Regarding the Subcommittee's Hearing on 

"IRS Reform: Resolving Taxpayer Disputes" 

Submitted September 13, 2017 

Contact information : 

Pete Sepp 

President 

National Taxpayers Union 

25 Massachusetts Avenue, NW, Suite 140 

Washington, DC 20001 

703-683-5700 

president@ntu.org 

2S MaSS3(.husettsAvenue. NW, Suite 140 * washlnaton. DC 20001 * Phone; (703) 683· 5700 * hx: (703) 683·5722 *Wtb:www,ntuora 
22 


Insert 33617A.015

Introduction 

Cbainnan Buchanan, Ranking Member Lewis, and Members of the Subcomminee, it is a great honor for 

me to provide comments today for your hearing, "IRS Rcfonn: Resolving Taxpayer Disputes." 

My name is Pete Sepp and I am Prcsidcm of National Taxpayers Union (NTU), a non-partisan citizen 

group founded in 1969 to work for less burdensome taxes, more efficient, accountable government, and 

stronger rights for all taxpayers. More about our work as a non-profit grassroots organization, and the 

thousands of members we represent across the nation, is available at www.ntu.org.• 

Although we advocate for many structural changes to the tax system, from the c-omprehensive to the 

incremental, one common aspect on which NTU often specifically focuses is the administrabi/ily of such 

proposals. As policymakers define the rates, bases, deductions, credits, and other features of a tax system, 

what will the practical impact be on taxpayers' lives and their rights? Unless this question is adequately 

addressed, the result will be a tax system that burdens all and serves none. Taxpayers will be more fearful 

or mistntstful of their government, revenue officials will encounter greater difficulty in pcrfonning their 

public service, tax practitioners will become increasingly frustrated with complex rules, and all sectors of 

the economy will pour too many productive resources into compliance. 

For these reasons, throughout its history NTU has led efforts in support ofCongressionallcgislation to 

improve operations of the Interna l Revenue Service (IRS) and provide greater balance in the tax 

enforcement process. During the late 1970s and 1980s, NTU infonncd Congress of taxpayers who 

experienced IRS maladministration firsthand, as well as organi.zcd a large coalition of civil liberties 

organizations that successfully persuaded Congress to enact the first "Taxpayers' Bill of Rights" as pan 

of the Technical and Miscellaneous Revenue Act of 1988. 

In 1997, NTU's then-Executive Vice President David Keating was named to the National Commission on 

Restructuring the Internal Revenue Service ("Restructuring Commission"), a federal panel whose 

recommendations later became the basis for the most extensive IRS overhaul in a generation. More 

recently we worked with the IRS National Taxpayer Advocate (NT A) and Congress in promulgating and 

finally codifying (in 20 15) a set of l 0 fundamental taxpayer rights. 

This beariog is being held amid discussions of systemic tax refom1- an exercise that NTU 

wholeheartedly supports. I wish to note at the outset, however, that even i r Congress were not 

contemplating major revisions to the rates, base, and other operational aspects of the Tax Code, most of 

the proposals and policies discussed here can and should be able to stand on their own. 

The following testimony is intended only to provide highlightS surrounding taxpayer dispute resolution 

issues. They should be viewed through the broader prism of taxpayer rights and tax administration policy. 

Over the past three years, I have been asked to testify before Subconunittees of the House Small Business 

Committee, and have submitted comments to the Senate Finance Committee, the Treasury, and the White 

House Transition Team on various aspects of tax administration. Some of these commentaries and 

analyses have been updated or modified for inclusion in various portions of this document. 

*As a mauer of organizational policy National Taxpayers Union neither seeks nor accepts any kind of 

grant, contract, or other fimdingfrom any level of government. 

NTU Testinrtmy, Subcommillee o~r (ft-ersight, 9/IJ/2011 2 
23 


Insert 33617A.016

I. Resolving Disputes: The Remedies behind Rights 

Since NTU's founding, a fundamental clement in the quest for an administratively equitable tax system 

has been remedies for when that c.quitable treatment falls short. It is therefore no surprise that most 

taxpayer rights laws have striven for either new procedures to resolve tax disputes or safeguards to help 

existing mechanisms work better. Among these: 

The Taxpayers' Bill of Rights in the 1988 Technical and Miscellaneous Revenue Act 

directed the IRS to create an administrative appeal procedure for liens, empowered what 

was then called the Taxpayer Ombudsman to issue Assistance Orders, allowed taxpayers 

to recover damages for certain unauthorized IRS actions, and strengthened taxpayer 

protections during tl1c conduct of field audits. 

"Taxpayers' Bill of Rights II" in 1996 replaced the Ombudsman's office with a much 

more effective Taxpayer Advocate capable of assisting taxpayers more fully, established 

administrative review when installment agreements were terminated, expanded the 

availability of offers-in-compromise, and placed the burden on the IRS of proving its 

position was substantially justified if a taxpayer who wins a dispute sought a cost and fcc 

award. 

The IRS Restructuring and Refonn Act of 1998 ("RRA 98") further augmented the 

powers of the Taxpayer Advocate, altered burden of proof standards for factual issues in 

certain tax cases, sought to solidify taxpayer appeal rights, and set into motion other 

dispute resolution remedies described in sections to follow. 

The Protecting Americans Against Tax Hikes (PATH) Act of2015 set into law 10 

principles guiding administration of the tax system; three of the most relevant of these for 

purposes of resolving disputes arc the "Right to Challenge the IRS's Position and Be 

Heard," the "Right to Appeal an IRS Decision in an Independent Forum" and the "Right 

to a Fair and Just Tax System." 

Last year, House Ways and Means Committee Chairman Brady released a blueprint for tax reform 

entitled "A Better Way." This plan envisions a new tax administration authority whose functions will be 

divided along the lines of a families and individuals unit, a business unit (for firms of all types), and a 

"small claims court" independent of these units. A new commitment to individualized taxpayer assistance 

and a "Service First" mission that adheres to the PATH Act's taxpayer rights principles would be 

instituted. The post of Commissioner would be replaced by an Administrator who could serve no more 

than two three-year terms. 

NTU believes that many clements of this approach have a great deal of promise to improve tax dispute 

resolution procedures. Yet, we also believe the job of protecting taxpayer rights will never be finished. As 

the Tax Code, the economy, and technology are all constantly evolving in new directions, so must the 

laws designed to prevent abuse of authority and provide appropriate remedies when such abuse occurs. 

The following sections will explore the current challenges in doing so, both within the context of"A 

Better Way" and in other scenarios. 

NTU 1'estimo,y. Subcommiuee 0 11 Oversight. 911311017 
24 


Insert 33617A.017

H. Why is Reform Still Needed? A Case Study in Small Businesses 

Prior to rcfonns enacted in the 1988-98 period, taxpayers had only a few options in disputing an IRS 

assessment that did not involve considerable expense and time. Given the progress made since then, is it 

even necessary to consider additional steps? The circumstances that continue to surround small business 

taxpayers provide some clues. 

ln NTU's experience, IRS treatment of the small business community has historically served as a 

barometer for systemic reforms of tbe tax laws as well as tax administration. Thus, many of the first 

Americans to approach NTU's advocacy staff and share "horror stories" of treatment by the lntemal 

Revenue Service were small business owners. 

This is generally because they face the least ideal situations. Their tax returns tend to be more extensive 

and complex than that of a non-business household, yet they often lack the resources of larger businesses 

to maintain full-time tax compliance employees. A September 2014 report for the National Association of 

Manufacturers calculated that the regulatory cost per worker for all tax compliance activities in unus of 

any si7.c was a whopping $960 (using 20 12 data and expressing in 2014 dollars). For companies with 

fewer than 50 employees, the tab was much worse - over 50 percent more, at $1 ,5 18 per worker. 

They arc also likelier than other non-business households to come in contact with examinations, appeals, 

and other parts of the dispute resolution system. For example, the IRS Data Book indicates that the 

examination rate for all "large corporation" tax returns was l l.l percent in Fiscal Year 20 15, compared to 

0.9 percent for "small corporations." On the other hand, businesses declaring income through the 1040 tax 

retum instead of a C·Orporate fonn do have much higher audit rates than the general filing population. 

Depending on the income level of the business, the rate can be three times higher than that of all 

individual tax returns, or even eight times higher than nonbusiness returns without Schedules C, E, F, or 

Form 2106. 

The fact remains that some of the most contentious issues surrounding tax disputes center upon, or arc a 

consequence of, audits. These mailers range from the clarity and certainty of the laws themselves, to 

appeals of audit results, to IRS employee conduct, and to remedies in the courts. 

Ranking Member Nydia Velazquez of the House Commiuee on Small Business eloquently summed up 

the problem in an opening stat em em from 2013, when she observed that, "In the past, small businesses 

have told us that complexity and uncertainty create difficulty when r.ting tax returns. Many business 

owners worry that one simple mistake can lead to a costly and timely audit. And, at a time when many 

businesses arc striving to expand, every hour and dollar coums." 

For businesses or all sizes, those dollars and hours add up quickly. An annual study published by our 

research affiliate, National Taxpayers Union Foundation (NTUF), calculated that for this year the federal 

personal and corporate tax system extracted 6.98 billion hours and S262.6 billion out of the economy (a 

trend that has been worsening). Other analyses suggest that two-thirds or more of these sums would be 

auributable to the business sector, including corporations, partnerships, and sole proprietorships. 

Unfortunately, these considerable outlays and resources do not buy peace of mind for small business 

owners who, as Ranking Member Velazquez stated, often operate in fear of vague laws being used against 

them. 

Uncertainty has also crept its way into the audit selection process itself. A Government Accountability 

Office (GAO) report issued in January of 20J6 on the Small Business/Self Employed (SB/SE) division of 

the IRS concluded that the "lack of strong internal control procedures" in the agency's 33 work streams 

for identifying and reviewing retums for possible audit "increases the risk that the audit program's 

NTU 1'e.stimon)~ Subcommiltee on Ol.-el"$ighl, 911 J/21) I 7 
25 


Insert 33617A.018

mission of fair and equitable application of the tax laws will not be achieved." The tem1 of"faimess" in 

selecting returns was unclear or even contradictory in how it was defined among IRS staff, while 

"documentation and monitoring procedures were inconsistent" for ensuring that selection procedures met 

internal controls. Flawed inputs like these could have real-world consequences in terms of the 

effectiveness of audits for the government and equitable treatment for taxpayers. 

Previous taxpayer rights laws have certainly improved audits and auditor behavior. Still, members of the 

tax representation community have observed that the conduct and attitudes of audit personnel have not 

been subjected to the same level of regulation as personnel involved in collection. A passage from a 20 12 

article appearing on AOL News by Ross Kenneth Urkcn, personal finance editor for ThcStrcet.com, is 

particularly illuminating: 

In response to the 'storm trooper' reputation, the IRS publicly tried to clean up its act during 

the Clinton administration. Yet most of the changes it made had to do with C·ollections, 

according to Anthony Parent, the founding partner of IRS Medic, a law firm oriented toward 

those with tax troubles. There was a lot of congressional testimony about revenue officers' 

abuses, but there was no censuring of abusive auditors, nor were any concrete limitations 

placed on their powers . ... 

Given that the typical auditor today was just a kid during the Clinton administration, Parent 

says, the public now can still expect 'skittish' auditors who 'if pushed into a defensive 

position, will lash out at a taxpayer.' 

To this day, taxpayers and advisers continue to report on troublesome developments in IRS audits that 

range from isolated cases to broader policies. Here I am indebted to Daniel J. Pilla (an author and tax 

litigation expert), Leonard Steinberg, E.A. (a New York area tax representative), NTU's members, and 

others for providing me with background infonuation on their challenges: 

Some auditors continue to ignore or deny protocols in the Internal Revenue Manual, including 

"audit reconsideration" procedures when, for instance, an individual Iiles an amended retum that 

could obviate the need for continuing an examination. 

IRS delays in resolving some cases allow the statutory clock to keep ticking on interest that is 

almost never abated, even tbougb the agency's own lack of follow-up may be to blame. 

In other areas, however, "Speed Up Audits," brought on by what some say is a reduction in IRS 

enforcement resources, may be leading taxpayers to a financial dead end. Writing in The New 

York Times in 2015, Dave Du Val ofTaxAudit.com explained that, "Examiners for the I.R.S. are 

giving taxpayers and their accountants much less time to respond to certain audit letters ... . An 

initial request for an appointment is followed quickly- in some instances, on the same day- with 

a follow-up letter that states that the requested infonuation has not been received." That second 

letter contains a threat that failure to respond to the first notice could result in loss of appeal 

rights. A taxpayer in this situation has little, if any, time to consider even a basic response, much 

less an appeal. 

The IRS "rounds up" in making its case against taxpayers. Restaurants, for example, become 

targets through no fault of their own because of the IRS's fixation on credit-card transactions as 

part of the audit determination process. These transactions include taxes and tips, generating an 

artificially larger cash-Oow than records which would rcOect only actual sales of menu items. 

Innocent "chit chat" between auditors and taxpayers can become the basis for wider 

investigations. An auditor might innocently raise the topic of where the citizen might have last 

gone for vacation, or ask for advice on buying a car based on what the taxpayer owned. 

NTU Testimony. Subcommince ()II Ol-"CJ"$ight. 9113/1017 j 
26 


Insert 33617A.019

Correspondence (rom the IRS can intimidate as well, whether intentionally or not. According to Daniel J. 

Pilla, who has decades of experience in helping thousands of clients, the Revenue Agent's Report (RAR) 

mailed with the post-audit "30-day letter" can be misunderstood. As he wrote in his rece111 book, How to 

Win Your Tax Audit, "Citizens commonly mistake the RAR for a bill, which it is not. They do not 

understand that it is merely a proposed change, which they can appeal." 

Thus, by its very nature, any IRS examination involves a considerable expenditure of time, effort, and 

money on the part of the business owner and the owner's professional advisors. Substantiating deductions 

or reconciling income often requires gathering or producing copious records. The owner's mental energy 

is shifted away from maintaining or growing the business and toward meeting what can seem like an 

endless list of IRS demands. And of course, the out-of-pocket expense for fmancial and legal advisors can 

take on enonnous dimensions, sometimes out of proportion to the amount of tax at issue. With so much at 

stake, one would be led to believe that most small businesses would appeal adverse IRS determinations. 

This is not the case, and the reasons merit further analysis. 

According to the IRS Data Book, 29 percent of all licld audits and 57 percent of all correspondence 

examinations of small corporations in Fiscal Year 2015 involved no proposed change to the taxpayer's 

liability. Amol\g 1040 returns reporting business income, the percentages were generally smaller, 

although those with business receipts above $200,000 subject to correspondence audits had a no-change 

rate of above 50 percent. 

It is clear that tbe number of sma ll business taxpayers who actually appeal their audits is quite low. There 

arc several ways o f measuring the appeal rate, but Data Book presentations show that 6,291 taxable 

nonfarm 1040 returns with business income of under $200,000 involved "unagrccd recommended 

additional tax" out of 191 ,501 returns in that category examined. Even after throwing out "no change" 

returns and recommended decreases in tax liabilities, from these statistics a lone tbe rate of appeals in 

audit situations appears to be paltry, hovering somewhere below 5 percent. 

Is this apparent low frequency of disputes simply attributable to the IRS being correct in the position it 

takes from the vast majority of examinations? Numerous authorities, from prominent members of the tax 

advisory community, to the Government Accountability Oflicc, to the National Taxpayer Advocate, 

would answer. not at all. 

Many business people told lawmakers in hearings during the 1980s and 1990s tbat they believed the cost 

of disputing an IRS tax bill - even if they knew the agency was wrong- simply became too prohibitive. 

To be sure, appeal and abatement processes for audits have improved over time in terms of accessibility 

and affordability for taxpayers without extraordinary means. Unfortnnately, many Americans facing IRS 

demands still felt helpless. According to a 1995 study by Daniel J. Pilla: 

The average individual face-to-face tax audit led to the assessment of$4,780 in additional tax and 

penalties, not including interest. Howcver, just 5 percent of those found to owe more money 

appealed [Pete Sepp comment: note 2015 statistics above showing how /iu/e this figure seems to 

have changed]. The 5 percent number is signilicant in this way: the GAO has proven that the 

IRS's computer notices are wrong 48 percent of the time. Still, 95 percent of the public is 

persuaded that IRS audit results arc correct or not worth fighting. That tcstilics to the degree to 

which the IRS has the public convinced that it cannot win when challenging an audit. 

In short, all too many Americans thought it was cheaper to pay what the IRS said they owed rather than 

light. Consider, for example, the average additional recommended tax in 2015 resulting from field audits 

of business 1040 tax returns with receipts between $25,000 and $ 100,000- a total bill of$9,947 per 

return. Imagine the decisions this audited business owner -the very delinition of"the little guy"- would 

face. 

NTU T•m;mony, Subrommiucc 011 Oversight, 911 J/201 7 
27 


Insert 33617A.020

If he or she hires a tax professional for representation, the average fee, according to the National Society 

of AccoumaniS' most curren1 public data, would be $150 per hour. h would not be unusual for the 

accountant to spend 10 hours on this stage of the audit. Should the initial examination go against the 

owner, he or she could choose to retain the accountant for the administrative appeals process, perhaps 

involving an additional I 0 hours of time. Meanwhile, the owner could have easily spent 10-20 hours of 

time gathering records, reviewing paperwork. etc., at an average compensation amount (according to the 

National Association of Manufacturers study mentioned previously) of$48.80 per hour. 

To get this far into the audit process, the owner could have already spent roughly $4,000, more than onethird of the contested bill. Should the administrative route fai l, the owner then has broad options 10 file a 

Tax Court petition or try to litigate in federal court. While many Tax Court petitions never advance, and 

often lead to settlements, this process could easily consume another 10 hours of a legal professional's 

time (at likely a higher rate of compensation). Should litigation actua lly take place, a qualified tax 

auorncy might demand $300 per hour or more. If the owner prevails, his or her ability tO recover the 

entirety of fees like these remains doubtful. The maximum amount that can be awarded is barely $200 per 

hour. and only if the court dctcmtincs the IRS's position was not "substantially justified." 

In a 2013 Wall Street Journal article, respected tax lawyer Robert Wood estimated that over the past 

decade, he identified at least 22taxpaycrs involved in IRS disputes who received some kind ofanorncy 

compensation or litigation costs from courts, "although some rewards may later have been reduced." 

Other award cases may exist but their prevalence remains rare. 

On the other hand, the IRS's litigation resources against small businesses are fonnidable. Over dte past 

ten Fiscal Years, the IRS Chief Counsel's Office has typically closed some 70,000 "tax enforcement and 

litigation" cases per year. Roughly % of those cases fell under the category of"Small Business and SelfEmployed." 

Confronted with this type of calculus, along with ihe "fear factors" described above, it is little wonder that 

many businesses arc forced into either conceding completely to the IRS's position or making a 

compromise that substantially weakens their balance sheets. The latter course can acnoally backfire on the 

government, should the business become so infirm that it no longer is able to deliver receipts to the 

Treasury. In this context, striving to provide bcucr tax dispute resolution processes makes perfect sense. 

Ill. The Right to Appeal: A Concern for AU Taxpavers 

Dispute resolution is not confined solely to controversies involving small amounts or minor points of law. 

In fact, a set of issues stemming from examinations in the Large Business and International (LB&I) 

division of the IRS has implications for all taxpayers. 

In recent years the IRS has envisioned shifting its LB&I examination focus away from industry-specific 

clusters and toward nine practice areas, four of which arc regionally oriented and the remaining five 

subject-oriented (e.g., enterprise activities, pass-through entities, cross-border activities, withholding and 

individual international compliance, and treaty and transfer pricing operations). The LB&I audit approach 

is 10 be issue-based, outcome-driven, collaborative, and transparent. 

In 2015, National Taxpayers Union enthusiastically joined as a member of the Coalition for Effective and 

Efficient Tax Administration (CEETA), which was formed to constructively engage both the Treasury 

and Congress on audit process issues as the LB&l reorganization took place. CEETA is comprised of 

more than a dozen trade associations and citizen groups. 

NTU Teslimony, Suhcommiuee Olt ()l,oe,ight, 9111110/1 
28 


Insert 33617A.021

Because it is so remarkably broad, this coalition has been able to gather the experiences of numerous 

companies and unify them around several themes embodying opportunities to improve the way business 

(and in some aspects individual) tax audits should be conducted. These themes were contained in an 

extensive November 2015 memorandum to IRS officials: 

Lack of Ceotral.ized Management and Accountability in Audits. Under the new LB&I 

auditing process, more than one practice area (e.g., a regional area and an expertise area) may be assigned 

to a single audit. In addition, the IRS's chains of command for domestic and international audit issues are 

split. How will the IRS's personnel lines of reponing and most importantly, decision-making authority, be 

allocated in such a situation? 

Lack of Transparency. Nowhere is greater transparency more urgent than in the way official 

guidance over highly complex issues raised in audits is promulgated through the IRS Chief CounseL 

CEET A has determined that over the past 15 years, there has been a dramatic shift toward relying upon 

less formal Chief Counsel Advice (CCAs), which generally have no taxpayer participation, and away 

from Technical Advice Memorandums (TAMs), which require agreement between the taxpayer and the 

IRS on the facts surrounding a given question. 

This development has serious downstream effects. CEET A noted in its November 2015 communication, 

"The lac.k of taxpayer involvement is bound to result in a less robust consideration of the facts and the 

issue. The usc ofCCAs can also hinder the resolution of cases in the Office of Appeals because Appeals 

officers may be disinclined to engage on an issue" after a CCA has been disseminated. 

Breakdowns in the Information Document Request (!DR) Process. Tluough peer review, the 

IRS's own staff have acknowledged that I DRs arc a major impediment to the work now of audits. In 2013 

LB&l clarified procedures for aiiiDRs going forward, requiring them to be issue-focused, discussed with 

the taxpayer prior to issuance, and guided by a deadli ne negotiated between the taxpayer and the agency. 

Unfortunately, the execution of these otherwise sound procedures has been uneven and c.rratie. Problems 

have been reponed such as I DRs with overbroad issue focuses, or "kitchen sink" I DRs for all types of 

irrelevant information before the initial audit conference has begun. Moreover, examiners have issued 

muhiplc I DRs with the same deadlines, or have requested infom>alion for tax years or entities not under 

audit. These problems and olhers can make the new process chaotic. 

Delays in Closing Cases and Honoring Estimated Completion Dates. As noted previously, 

businesses have been experiencing both fruslrating delays and demanding accelerations of audits at the 

hands of the IRS. In the case of LB&I,the prospects for resolving or appealing audits are less tenable. 

Increasingly, taxpayers are receiving multiple requests for extending the statutory period of examination, 

while estimated completion dates established in audit plans have become less meaningful. 

The Calch-22 becomes evident in the Appeals division's policy requiring that 12 months always remain 

in the statutory examination period; this becomes a justification for the IRS to continue the audil rather 

than conclude the case. Taxpayers can never actually avail themsel ves of an appeal, and are forced into 

Tax Court. 

A Litigation Mentality as Opposed to an Issue Resolution Mentality. In some instances 

CEETA members have observed that IRS exam tc.ams seem more occupied with "preparing for litigation 

rather than ascertaining the correctness of a return and resolving issues." The end result "negatively 

affects the cooperative relationship, impedes transparent interaction, decreases efficiency, increases costs, 

and delays certainty for both taxpayers and the Service." 

NTU Ttsrlmony, Subct>mmlllee on O•·trsighr, 9/1 J/1017 8 
29 


Insert 33617A.022

CEETA has identified several key matters that should be addressed through legislation io this Congresswhile prudent inputs and adjustments can still be most effectively absorbed into the IRS's LB&l audit 

strategy. They arc: 

Properly Limiting the Designated Summons. Although the IRS has the conventional power to 

summon testimony and documents in examinations, the designated summons is a special authority 

intended, according to a top IRS audit official, for situations "only after the taxpayer under examination 

refuses to extend the statute of limitations ... and the examiner has exhausted all other means to obtain the 

needed information." The designated summons, unlike conventional summonses, will act to suspend the 

assessment period when a court proceeding is brought to enforce or quash it. As a consequence, the 

designated summons c.an, if employed improperly, compel taxpayers into nearly endless extensions of the 

statutory examination period. 

Until quite recently, designated summons enforcement was quite rare. But as CEETA's memo wams, 

"current and former IRS officials have publicly commented that designated summonses will become a 

more frequent IRS management tool." It bears mentioning here that like many weapons, the designated 

summons can be effective when employed as a threat, not just a reality. 

Better Defining Circumstances for Designating Cases for Litigation. Just as the designated 

summons was designed to be used only under special circumstances, the IRS has given itself the authority 

-when approved by high-level agency and Chief Counsel officials -to force a case or audit issue into the 

courts. This power bas never been authorized by Congress. It is again, i11tended to be wielded infrequently 

because doing so strips a taxpayer of the right to an administrative resolution unless the taxpayer 

unconditionally surrenders their position on the issue. lRS guidelines indicate that cases suitable for 

designation arc those that "present recurring, significant legal issues affecting large numbers of taxpayers 

... and there is a critical need for enforcement activity with respect to such issues" (e.g., tax shelters). 

In theory this power, carefully employed, could function effectively. But as CEETA notes, when used 

with less circumspection, or e\•eo threatened, designation has raised "concem [among taxpayers) 

regarding the predictability of their own audits and in particular the availability of Appeals." 

Ending the Improper Use of Private Contractors in Examinations. In 2015, Senate Finance 

Committee Cbainnan Orrin Hatch made an imponaot inquiry to Commissioner Koskinen regarding a 

$2.2 million contract extended 10 a private law firm in a large corporate audit; this comract permitted 

examination activities from the firm best described as overbearing and harsh. Chainnan Hatch stated: 

The IRS's hiring of a private contractor to conduct an examination of a taxpayer raises concerns 

because the action: I) appears to violate federal law and the express will of the Congress; 2) 

removes taxpayer protections by allowing the pcrfonnance of inherently government functions 

by private contractors; and 3) calls into question the IRS's usc of its limited resources. 

From NTU's standpoint, the IRS's action is fraught with additiona l risks. Allowing more entities access 

to confidential taxpayer information only raises the likeli hood of additional data security breaches in the 

future, on top of several recent hacking incidents and a continuing plague of tax-related identity theft. 

Furthermore, if the agency is allowed to continue this practice, by issuing a "temporary regulation" 

without a comment period or notification, the door will be open for other grave trespasses against 

taxpayers' rights affecting many constituencies. 

All of These Factors, and More, Undermine Taxpayer Rights to Appeal. The Office of 

Appeals is approaching its 90'b year of service, while the IRS Restructuring and Reform Act of 1998 

created "£irewalls" between Appeals and compliance functions as well as directed the Commissioner to 

ensure availability of impartial appeal options. Most recently the 2015taxpayer rights legislation affirmed 

9 
30 


Insert 33617A.023

that a taxpayer should be able 10 disagree with the Service's posilions. Yet, these assurances arc becoming 

eroded in a number of ways. Taxpayers need, and deserve, definitive Slatutory protections that provide, in 

crystal-clear detail, their right to appeal an audit without the duress of capitulating. 

Daniel J. Pilla was among the !irst members of the tax representation community to recognize tbe danger 

that LB&I's approaches would pose to other types of taxpayers. In his 2014 book, How to Win Your Tax 

Audit, Pilla wrote: 

AI the time of issuance, the [IRS's LB&I] memo was pointed at only large businesses. However, 

it is clear that the agency will push the practices 'more deeply' into the system, exposing more 

taxpayers 10 their pitfalls. I fully expect the IRS to utilize 'strong arm' tactics more often in 

pressing for documents in all audits. particularly those related 10 business income and particularly 

with respeetto computerized recordkeeping systems . ... 1 fully expcctJthe policy]to migrate 

deeper into the IRS sooner rather than later. 

More recently, in an April 19'' 2016 cndorscmcnt lcncr, the Small Business and Entrepreneurship Council 

(SBEC, a CEETA member) expressed just how relevant CEETA's stance was 10 its many thousands of 

supporters across the country: 

Small business owners do not have the resources 10 endure audits without end. They certainly do 

not have the resources 10 go up against a powerful $1 ,000-an-bour legal team in a tax dispute, 

Indeed, it's not hard 10 sec how powerful, private anomcys doing the most complex and sensitive 

work of the IRS could lead to abuse and harassment, not to mention expensive legal bills. 

Those who believe the IRS would never hire such "big guns" to pursue smaller businesses' tax liabilities 

should bear in mind that decisions by auditors and Appeals officers arc guided first and foremost by the 

facts and the law. While the agency will weigh the danger of seniog an adverse precedent for the 

government if a case might wind up in court, the "nuisance cost" is not a fom1al determinant. Even so, the 

opening given the IRS by this questionable practice could easily permit private auorneys commanding 

somewhat lower rates to routinely involve themselves in cases involving smaller liabilities. 

There is a larger point to be explored here. How meaningful is the distinction between small and large 

businesses for the purposes of audits'/ LB&I's jurisdiction encompasses a wide range of entities called 

"large corporations," including not just major multinational firms but companies with assets at n 

minimum level of$10 million. Granted, the Iauer entities can hardly be described as "mom and pop" 

concerns, but neither arc they massive conglomerates. They could be "hometown" companies employing 

several dozen, rather than thousands, of individuals. Census Bureau slatistics show that an establishment 

of any type reporting receipts of between $35 million and $39.99 million had a payroll averaging fewer 

than 50 employees. Even those establishments in the $10 million-$14.99 million receipt category, an 

amount that still seems quite large, employed an average of fewer than 40. Assets and annual receipts arc 

two different statistical snapshots, but they arc ofien closely related pans in the mural of n company's 

finances. 

Finally, audit and enforcement actions pursued against the very largest Amcric.1n businesses have "ripple 

effects" in the small business community that works with them. Large multinationals tend 10 have supplier, 

distributor, or contractor networks numbering hundreds or even thousands of member bus.inesses. These 

often-small entities suffer adverse consequences to their own bon om lines when their larger customers must 

alter expansion plans or reconfigure business models due to tax concerns. 

Ultimately the tax system must be viewed holistically. Otherwise, the rights of individual and business 

taxpayers become catcgori,.cd, divided ... and conquered by bureaucratic overreach. 

NTU Te.NimQny, SubCQmmittee o" Oversiglu, 9/ JJ/2017 10 
31 


Insert 33617A.024

IV. Alternative Dispute Resolution: Why rs the U.S. Lagging? 

Given all of the developments described in the previous two sections of this testimony, one goal of 

taxpayer rights advocates has been to establish a less fom1al, less expensive way for taxpayers to obtain 

justice. The National Commission on Restructuring the IRS gave extensive consideration to improving 

Alternative Dispute Resolution (ADR) methods for use in federal tax controversies, including mediation 

as well as binding arbitration. Limited procedures were in place at that time, applying primarily to cases 

of over SIO miltion or more. AOR at the tax agency was a relatively new concept, following passage of 

the government-wide Administrative Dispute Resolution Act of 1996. 

Ultimately, the Commission did not make major recommendations in this area, although the subsequent 

1998 RRA did remove the dollar threshold, and establish a pilot program for binding arbitration. 

Unfortunately, the usefulness of ADR for most taxpayers has so far been questionable. As the 

Subcommittee is well aware, the National Taxpayer Advocate's 20 16 Annual Report to Congress has 

made the IRS's failure to "effectively usc ADR" as #15 on the "Most Serious Problems" list. 

It is clear that when ADR is employed, the results arc generally encouraging. For "Fast Track 

Settlement," which applies to factual and legal disputes during an examination, the average settlement 

rate for FY 2016 was above 80 percent and the average time to resolution was less than two months. 

At the same time, the utilization rate of ADR is pitiably low, at less than one half of one percent of all 

cases in the IRS Appeals division and dropping. 

Why is all of this happening? It seems implausible, for example, that unlike taxpayers in other natioos, 

Americans would prove uniquely resistant toADR. As the NTA 's report pointed out, survey data indicates 

that more than 4 in 5 business people "report that arbitr~tion is a fair and just process." Nor does the U.S. 

government seem uniquely unable to implement such reforms. The Environmental Protection Agency and 

the Social Security Administration arc just two of several federal-level practitioners of ADR. 

The NTA identified several reasons why the potential of ADR has yet to be fully achieved in tax matters. 

We offer the following observations of contributing factors, in order of priority. 

Intentionally Narrow Scope. In a sense, ADR at the tax agency is a self-selecting proc.ess from 

the start. Most "Campus Collection" (e.g., non-field) cases are not eligible for ADR, as are cases which, 

in the IRS's opinion, could have "controll ing precedent." Equally difficult is the fact that the IRS can 

refuse to engage in ADR when a taxpayer requests it. 

Lack of Perceived Impartiality. Private-sectOr arbitration or mediation usually involves a 

completely neutral third party with no prior direct knowledge of tl1e case or its parties. This is somewhat 

more difficult to achieve in public sector settings, since a specialized level of expertise as well as a 

government-supported forum are usually occessary. Nonetheless, as the NTA bas pointed out. other 

federal agencies house their mediators in a stand-alone department staffed specifically for the purpose of 

ADR proc.eedings. 

Not all ADR data is encouraging, but it is instructive. Post Appeals mediation cases in FY 2016 involved 

only about one-fourth of all ADR proceedings, with settlements of barely more than 10 percent. These 

cases can be especially difficult to settle, given their nature of taking place between the point of appeals 

and potential litigation. Still, it cannot be helpful that the mediator involved in this particular interaction is 

selected from the regular caseworker pool of the Appeals division to interact between the auditing team 

and the taxpayer. 

N1V ~'1imon , Subcommittctt 0 11 Ovcr&iJ!Iil, 91131201 7 II 
32 


Insert 33617A.025

NTU is long familiar with this perceived (and occasionally genuine) connict of interest in tax cases. One 

hurdle that the older Problem Resolution Program for assisting taxpayers was that its staff were often 

housed in the very same IRS district office whose personnel were the subject of the taxpayer's complaint. 

Bob Kamman, an Arizona a11orney who advised NTU on taxpayer rights mailers, noted in testimony to 

Congress that sometimes a problem resolution officer would even refer that complaint directly back to 

person responsible for the problem, instead of his or her supervisor or another office. This perception took 

considerable effort to overcome on the pan of the National Taxpayer Advocate. 

IRS Culture Has Yet to fully Adapt. The Internal Revenue Manual itself states that "mediation 

programs achieve (the] objective" of resolving "tax com•·ovcrsies at the lowest level without sacrificing 

the quality and integrity of those determinations." Yet, the Agency has often applied the ADR tenu 

loosely to processes that many experts would not characterize as such. These include Collection Due 

Process Appeals and the Collection Appeals Program. There is a tendency for any large agency or 

business to redefine existing operations to appear as if it is embracing change. But the IRS's culture has 

often presented especially difficult challenges. As the IRS Restructuring Commission's report indicated, 

"the culture ofiRS i.s overly risk averse," and there is a "lack of stntcture to improve operations." Some 

20 years later, this culture has been evolving, but not necessarily at the pace to support full 

implementation of ADR. Fast Track Sculcmcnt, to give one example, was not extended to small business 

and self employed taxpayers until late 20 13. 

Lack of Consistent Evaluation. Other federal entities (as well as international tax authorities) 

have attempted to measure the time and cost benefits of ADR for themselves and for taxpayers. The 

results arc reported in various parts of this testimony. Yet, this presents a "chicken and egg" problem for 

the IRS. With so few cases currently being processed through ADR, would this type of data be 

statistically sufficient and valid to encourage further participation? Frankly, the agency has little choice in 

the matter but to proceed, even with what could be described as a limited data set. For ADR to take root 

and nourish in the field of tax disputes, even preliminary findings would be helpful. So would an honest 

evaluation of the agency's efforts to promote these ADR options, especially if Congress decides to 

instruct the IRS to expand them. 

V. Resolving Taxpayer Disputes - New Approaches 

With the 20'• a1111iversary of RRA '98 approaching, it is fitting that the Subcommittee embrace the 

tradition of thoughtful, bipartisan cooperation that has succeeded in making a major difference in the lives 

of everyday taxpayers who, for one reason or another, encounter the IRS after fi ling their returns. 

Accordingly, NTU makes the following rec·ommendations concerning resolution of taxpayer disputes, 

which involve many layers in all three branches of government. 

Codify and Strengthen the " First Line" of Resolution- The Right to Appeal. One of the 

most important recommendations NTU can make in this communication is that Members of the 

Subcommittee support a recently-introduced bill to improve transparency, accountability, and resolution 

of administrative matters between citizens and the IRS. HR 3220, the Preserving Taxpayers' Rights Act 

sponsored by Reps. Jason Smith (R-MO), Terri Sewell (D-AL), and a strong bipartisan list of cosponsors, 

contains some of the most comprehensive improvements to tax administration since RRA '98. First, it 

would codify the right of taxpayers to have their appeal hc.ard by an independent and impartial IRS Office 

of Appeals to ensure there is a timely and efficient resolution to tax disputes between the agency and the 

taxpayer. Second, it narrows the scope for which kinds of cases can be designated for litigation by 

clarifying the limits of the agency's prerogatives. In fac~ this power has never been authorized by 

Congress, but is an administrative power the IRS has developed institutionally. 

Third, HR 3220 would limit the IRS's ability to issue designated summonses, a tactic which law-abiding 

individuals and businesses acting in good faith have increasingly encountered. Under the proposed law, 

NTU Testimony. Subcommilfee <m <A·ersight, 911 J/2017 11 
33 


Insert 33617A.026

this power could only be applied to taxpayers who arc uocoopcrative and refuse to provide information or 

documents requested by the IRS. Finally, the language prohibits a growing, and unpre.cedented practice of 

the IRS outsourcing federal tax audits of citizens to third parties. 

The provisions outlined in this bill represent a strong start toward restoring faith in the audit process and a 

more businesslike resolution environment between the IRS and the taxpayer. If adopted, the results will 

be lower IRS litigation costs, increased efficiency of agency resources and reduced uncertainty for 

taxpayers undergoing audits. h should be the foundation for further dispute resolution reforms. 

Expand ADR and Other Taxpayer Resolu tion Options. Legislation introduced in the previous 

Congress, the Small Business Taxpayer Bill of Rights (HR 1828 authored by Rep. Mac Thornberry (R· 

TX)), provides a good starting point for discussion on how to jumpstart the utility of ADR in tax cases. 

The bill would allow a taxpayer to seck private, accredited mediation or arbitration from an "independent, 

neutral individual not employed by the Internal Revenue Service Office of Appeals." The taxpayer would 

under most circumstancc.s share the cost of such a mediator. 

The legislation would likely ha,•c to be augmented in other respects. Congress will need to either embed 

in statute or c.onvinc.e the lRS to widen the availability of ADR to campus cases, and should at least 

consider methods to limit the agency's prerogative to refuse mediation or arbitration. 

Even if Congress finds this proposal wanting, a dedicated body of more neutral arbiters that taxpayers 

will come to respect is absolutely necessary for ADR to succeed. The NTA recommends a separate, 

distinct ADR branch housed at the LRS for such purposes. This is the mininnuu action that must be taken. 

Congress could direct the IRS to create this entity, with its own organic management and counsel as well 

as arbitration and mediation personnel. As a stronger alternative, Congress could give agency status to 

such an entity outside the IRS under Treasury, or even consider housing it at the Deparuuent of Justice. If 

Congress pursues the new tax agency structure outli.ned in tbe Better Way Blueprint, then the entity could 

serve as an adjunct to the proposed small claims court. 

Other pieces of legislation introduced in the previous Congress contain numerous helpful augmentations 

to taxpayer rights. HR 1828 (114"' Congress) would also: 

Strengthen safeguards against taxpayer abuses, such as a ban on ex pane communications 

between IRS case employees and appeals officers, and a prohibition on new issues being raised 

during a taxpayer's appeal process. 

Provide more avenues for redress when the IRS recklessly or intentionally disregards the law, 

including increases in the cap on damages and more options to recover attorney fees. 

Deliver additional opponunitics for spousal relief, such as more time for filing petitions and 

clarifying that Tax Courts must follow applicable appellate procedures when reviewing such 

petitions. 

Other reforms discussed in the Senate Finance Committee in the previous Congress merits the 

Subcommittee's attention. Among these was an amendment developed by Senators Grassley, Thune, and 

Cardin to tax identity theft legislation. Although it was authored prior to the PATH Act's codification of 

the Taxpayer Bill of Rights, the remainder of this amendment could still answer to many purposes under 

discussion in today's hearing. Highly desirable clements include clarified lien notice filing procedures, 

cxpcditc.d "hardship" relief for businesses subje.cted to levies, and a new consultation requirement that 

will ensure that the IRS bureaucracy seeks early, systematic input from the Taxpayer Advocate before 

new regulations arc published. Some of these concepts owe tbcir genesis to Senator Grassley's bill from 

the 114'• Congress, the Taxpayer Bill of Rights Enhancement Act (S. 1578). 

NTU Tt',stlmouy, Subcomm;flctf. 1>11 0 '1-'CI'$ig/!l. 9/13/2017 IJ 
34 


Insert 33617A.027

L·ook Abroad for Advice. Dispute resolution may seem to be an arcane matter to some, but 

across the world, it is a major underpinning of stability in tax administration systems. A March 2017 

report from the International Monetary Fund (IMF) and the Organization for Economic Cooperation and 

Development (OECD) contained the results of a Forum on Tax Administration survey of tax authorities 

taken in January of this year. The results arc enlightening. 

The survey, drawn from 25 countries in the OECD, G20, and elsewhere, asked participants to rank 2 1 

factors (on a scale of I to 5) that contribute "to tax uncertainty for business taxpayers in your country's 

tax system, regardless of whether or not the factors are within the control of the tax administration to 

innucncc." "Lengthy decision making of the courts, tribunals, or other relevant bodies" received the 

second-highest mean score among all 21 factors, with "Complexity in tax legislation" ranking first. 

Respondents were Lhcn asked to rank the importance of 25 various "tools to enhance tax uncertainty." 

Placing at #2 on the list (by media score) was "Effective domestic dispute resolution regimes," topped 

only by "Detailed guidance in tax regulations." 

Of course, U.S. tax laws and their system of administration vary from Lhosc of other countries. Still, other 

nations have fine-tuned Lheir dispute resolution systems to provide instructive guidance: 

Prior to a tax court case, Australian law Sltbjects both the tax authority and the taxpayer to a 

mandatory requirement that they report on "genuine steps" taken to avoid litigation. As a result, 

ADR is more prominent in the dispute process. 

New Zealand's experience has received considerable evaluation from scholars Lhcrc. In 2013 

Melinda lone at the University of Canterbury examined the country's tax dispute resolution 

structure, for which rcfom1s such as mediation were being considered. In conducting both 

qualitative surveys and focus group interviews of practitioners, lone and her colleague 

determined Lhat "the most important aspect of the defined proposed regime is tl1c inclusion of a 

mediator who is independent of both parties and moreover, that the mediator is foremost trained 

and qualified in mediation as opposed tO being a specialist in tax law." Providing Lhis as a COSt· 

free service "shou ld in tum enhance taxpayers' perceptions offaimess oft11e disputes procedures 

and therefore voluntary comp iance .~ 

In 2011 Portugal initiated an ADR process for certain tax cases falling below prescribed amounts. 

If a given dispute meets those qualifications, revenue authorities arc bound to engage in 

arbitration if the taxpayer requests it. An arbitration tribunal is empaneled that normally cons isiS 

oflhc taxpayer's nominee, the government's nominee, and a third member agreed to by these two 

nominees. Qualification requirements for the nominees may apply in disputes of larger amounts, 

and generally arbitration results cannot be subject to another level of appeal. 

In the United Kingdom, Her Majesty's Revenue and Customs has been bu ilding experience with 

mediation-style ADR since making the Option widely available in late 2013. Initial results have 

shown that roughly 4 in 5 cases for mediation among businesses were resolved; more than 4.5 

mill ion taxpayers in what are called "small and medium enterprises" arc eligible for this fom1 of 

ADR, and most have seen resolutions to their cases within 120 days. Considering that simply 

obtaining a bearing through the UK's First Tier Tax Tribunal entailed an average wait of ttcarly 

four times as long, this is a vast improvement. Even when ADR fails at its immediate task of a 

resolving a case, it can still perform a constructive purpose by sharpening issues under contention 

when they arc litigated. • 

*A useful guide in regard to the UK's recent A DR procedure is entitled "Mediation of Tax Disputes" by 

Car/Islam Barrister, TEl', available at http://ncwsitc.earlislam.eo.uk/wpcontentluploads/20 161021Guidc-to-thc-mediation-of-tax -disputcs.pdf. 

NTU T~stimony. Subcommittee o, 0\'er.figltt, 91/J/1017 
35 


Insert 33617A.028

Numerous other sources cited by the NTA and international mediation organi7.ations can point to useful 

information on dispute resolution abroad. I do hope, however, that the Subcommiuee will avail itself of 

an additional resource. National Taxpayers Union is a founding member of World Taxpayers 

Associations (www.worldtaxpaycrs.org), a global alliance of dozens of organizations dedicated to 

taxpayer rights. They possess a wealth of knowledge surrounding tax administration procedures in their 

own nations that could richly inform and supplement the testimony NTU is providing today. I would look 

forward to connecting Subcommiuce members and staff in the coming weeks with WTA leaders for 

focused dialogue on issues of mutual interest 

Look to States as Well. For more than a decade, independent state tax tribunals have been 

gaining in popularity. In 2006, the American Bar Association (ABA) developed model stale legislation 

("Model Act") to serve as an alternative to traditional income tax dispute methods, which tended to fall 

into administrative appeals heard by the tax authority and litigation in courts. Today, such tribunals are 

commonplace. Although ABA 's model act has some provisions that resemble existing federal 

implements, (such as tbe U.S. Tax Court}, there are nuanc.es worth exploring: 

While the U.S. Tax Court permits Enrolled Agents and CPAs to represent taxpayers in 

proceedings if they pass an exam, some state tax tribunals offer fewer such restrictions. 

The Model Act stipulates that the tribunal resides in the executive branch of government 

Even though they do not operate a.s courts, tribunals arc still established as separate and distinct 

entities from the tax agency. 

In a familiar theme to discussing unden•tilization of ADR procedures the Internal Revenue Service has 

developed, the Tax Executives Institute (TEl) characterized its support for tax tribunals by stating, "The 

most importantauribute of a tax tribunal is its independcnc.c. An impartial process for resolving tax 

disputes is a hallmark of both equitable tax administration and a competitive business environment." 

NTU would urge the Subcommittee to further c-onsult with ABA, TEl, and the Council on State Taxation 

for views on tribunals that could prove pertinent to the fashioning of federal legislation. 

Unlock the Courts for Changing Times. At the 20171nternational Conference on Taxpayer 

Rights, Professor Kristin Hickman presented on the issue of "Administrative Law's Growing lnOuence on 

U.S. Tax Administration." Her abstract pointed out that in the 20 11 Mayo Foundation decision, the U.S. 

Supreme Court "declared its reluctance 'to carve out an approach to administrative review good for tax 

law only.' [This and other] cases ... aim ultimately tO require Treasury and the IRS to do a bcuer of 

complying with APA [Administrative Proecdurc Act] requirements and explaining their actions at the 

time they undertake them - and thereby provide for greater transparency and accountability for Treasury 

and the IRS." 

As this jurisprudence develops, now would be a good time for Congress to explore whether legislative 

affinnations of APA would be helpful in hastening this outcome, which could markedly improve the 

quality of information in many instances of judicial dispute resolution. 

NTU would add that the availability of courts themselves for dispute resolution could be dramatically 

improved. Although the 1988 and 1998 taxpayer rights laws provided for certain exceptions, taxpayers 

still generally cannot enforce their rights in court until after they have been violated. Under Section 7421 

of the Internal Revenue Code, no lawsuit can be brought by any person in any court for the purpose of 

restraining the assessment or collection of a tax. except under limilcd circumstances. 

NTU Te.stimO")'. Subcommincc 011 0\'(:r.sighr. 91 I J/101 7 15 
36 


Insert 33617A.029

The case law around the Anti-Injunction Act further impedes the ability to restrain the collection of the 

tax. Injunctions CM be granted where the failure 10 grant relief would rcsull in irreparable damage to the 

taxpayer. But an injunction will only be allowed where it is clear that under no circumstances would the 

government prevail (or the taxpayer would not owe the tax). Moreover, the Declaratory Relief Act, which 

allows citizens to file a suittbat can persuade a court to declare their rights, indicates that the law applies 

«except with respect to federal taxes." The Federal Tort Claims Act presents additional barriers to taxrelated controversies. 

Congress should give serious consideration to providing citizens with the limited ability to stop the IRS 

from violating their rights through litigation. Doing so will involve some level of controversy, and will no 

doubt prompt lengthy deliberation. A passage from NTU testimony before Congress in 1995 indic.1tcs a 

solid starling point, which is by amending the Anti-Injunction Act: 

Taxpayers should be allowed to file suit in a federal district court to enjoin the IRS from 

enforcement action because: the deficiency assessment was made without knowledge of the 

taxpayer and without benefit of the appeal procedures provided by law; there has been an 

improper or illegal assessment; there has been an action in violation of the law or tax laws or 

regulations providing for procedural safeguards for taxpayers; the IRS has made an unlawful 

dctcm•ination that collection of the tax was in jeopardy; the value of seized properly is out of 

proportion to the amowll of the liability if other collection remedies arc available; or the IRS 

will not release the seized property upon an ofTcr of payment of the U.S. interest in the 

property. 

Increase Representation Options. Though first partially funded by the federal government 

through RRA '98, Low-Income Taxpayer Clinics (LTCs) have their roots in remarkably successful pro 

bono and nonprofit programs established decades before then. Prior to her position as NTA, Nina Olson 

was associated with the Virginia-based Community Tax Law Project. In remarks to this Subcommittee on 

September 26, 1997, she wrote; 

Our clieots have cases involving complex issues, such as invcstmellltax credits and depreciation 

deductions claimed by rural farmers; the taxable nature of severance pay received by a Navy pilot 

in combat status at the time of retirement from service; and the taxable nature of a payment 

received iuthe settlement of a complicated suit allcgiog anti-trust violations ... Other cases 

involve the responsible person penalty (IRS 6672) and employee classification issues. 

Today, the income eligibility thresholds for LITC assistance are set at250 percent of poverty level (e.g., 

$61,500 for a family of four). This is helpful for working-class, some middle-class, and a limited number 

of small business owners. Should Congress follow the IRS reorgani>.ation proposal called for in the Better 

Way Blueprint, access to administrative, quasi-judicial, and legal remedies should be more afTordablc 

than it is today. 

Nonetheless, Congress should remain sensitive to the needs of taxpayers who fear their c.1pacity to assert 

their rights is limited by lack of representation. The Social Security Administration provides 

Administrative Law Judge services at no charge to participants in ADR procedures. Taxpayers face more 

complicated circumstances, as Olson's account above amply demonstrates. Short of providing a "public 

defender" oflice for taxpayers- likely the costliest policy option - Congress could simply rec·ognize the 

valuable contribution of the current nonprofit LITCs and their volunteers. Raising the eligibility threshold 

(and concomitant funds) to 300% or 350% of poverty level would begin opening up assistance to more 

small business taxpayers in particular. Although Congress could employ a difTcrent measure of eligibility, 

such as size of tax dispute or AGI on the tax rctum in question, each carries with it pros and cons. 

Beware of "Scoring" Tra11s. One technical aspect the Subcommittee is no doubt considering has 

to do with the "revenue loss" of any taxpayer rights provisions. While such a conccm can be valid, NTU 

NTU Tesrlm<nty, Subcommittee Qtt Q,·ersiglu, 911 Jf2011 16 
37 


Insert 33617A.030

would caution that many revenue estimates are highly dependent upon changes in behavior that are more 

complex to model than they would seem. Without wading into the static versus dynamic scoring debate, it 

is often easier to assume that collections will be dramatically impacted when restricting the tax agency's 

powers. Y ct this has not necessarily proven true. 

The Natio11al Commission on Restructuring the IRS found "no evidence that the rights to redress" under 

the 1988 and 1996taxpayer rights laws "have caused significant disruption to IRS collection efforts." The 

Commission's report determined that the cost of providing reimbursement for representation fees under 

those laws was $5 million, rather than the $100 million originally estimated. In the final analysis, even if 

the "cost" turoed out to be $50 million, or $100 million, tbe central question here is whether justice is 

being more effectively served. This is generally what policymakcrs ask when it comes to other issues of 

access to the legal system. 

Furthermore, even from a cold, hard dollars-and-cents perspective, the ner rather than the gross impact on 

revenue must be taken into account. For example, the very existence of dispute resolution mechanisms 

can have an additional, quantifiable fiscal benefit- better voluntary compliance. During a September 25, 

1991 hearing before this Subcommittee, Eroest J. Dronenburg, then Vice Chairman of California's State 

Board of Equalization, provided an illustration of this point that is still potent today: 

Many tax administrators initially viewed taxpayer bills of rights with skepticism and 

apprehension. However, others immediately saw the Taxpayers' Bill of Rights as a 'two-fer.' By 

that, I mean it changes the attitudes about tax administration and the tax system, and it also sends 

an emphatic message to tax agency personnel that we arc going to be doing business differently. 

Both of these changes create better compliance within the system and reduce the number of 

people who drop out of the system because they arc afraid or unsure of it. ... For example, a .5% 

increase in voluntary compliance resulting from taxpayer education and changing attitudes would 

increase revenue in my state by over $400 million annually. Conversely, doubling our current 

audit coverage from 3% to 6% would produce less than half that amount. 

National Taxpayer Advocate Nina Olson has since expressed Dronenburg's point in other temts, but 

Droncnburg's contention that such procedures "make tax agencies more approachable, and encourage 

working relationships to solve problcmsu remains convincing to us. 

In some instances, data docs exist to help monetize the potential of administrative reforms. As the NTA 

reported, the Air Force's 17-year-old "ADR First" policy with contractor claims bas saved the service 

$275 million, while case resolution times have dropped an average of80 percent. Resolving issues 

through ADR typically costs EPA staff less than half the hours they would expend in traditional 

adversarial resolution proceedings. These experiences, as well as those from other governments and the 

private sector, ought to be incorporated into any cost projections for expanding ADR that the Joint 

Committee on Taxation and the Congressional Budget Office may attempt to calculate. 

Mai ntain Oversight of the System - Even Without an Oversight Board. Few clements of 

R RA '98 were more sweeping and crucial to transforming the tax agency than the IRS Oversight Board -

and few have been more difficult to preserve. In August 2013, William Hoffman of Tax Nores 

interviewed many of the principal actors in the passage ofRRA '98. According to Russell Sullivan, who 

served as Senator Bob Graham's (0-FL) tax counsel during the evolution of the bill, "The biggest failure 

in the legislation (was]thc Oversight Board . ... [It] should have been the principal entity for giving 

impetus for the IRS to develop streamlined procedures from a tax administration standpoint and 

informing Congress to the extent that that's not happening, so Coogrcss could act..." Senator Charles 

Grass ley (R-IA) contended the Board has "been more of a tool for Treasury and the IRS to get what they 

want - and mostly more money - as opposed to zeroing in on abuse of taxpayers by the IRS." 

NTU Testimony, Subcommitte4 on Ovtnight, 91/ J/1017 17 
38 


Insert 33617A.031

Many causes have been given for the Oversight Board's apparent shortcomings in meeting the intent of 

RRA '98, including members who only served part-time and controversies over policing problems with 

the IRS's nonprolit division and with the Affordable Care Act. Both the White House and the Better Way 

Blueprint call for abolishing the Board. Nonetheless, NTU would caution the Subcommittee not to 

overlook the role that an oversight body outside the IRS and Treasury could have in ensuring that 

progress is made on future dispute resolution policies. 

During our service with the IRS Restructuring Commission. it was evident to NTU that future legislation 

aimed at affecting the culture of the tax agency could not succeed without consistent guidance from a 

non-IRS entity. This was by no means a universally-held view. Five Commissioners dissented from the 

Commission's Oversight Board proposal, three of whom praised instead Treasury's efforts to 

institutionali ze oversight with a Management Board consisting of public officials, as well as an IRS 

customer service task force (again comprised of government officials and employees). 

The majority of Commissioners' intent, however, was to provide the "focus, expertise, and continuity that 

will be necessary for the IRS to meet the legitimate expectations of the American public"through an 

Oversight Board. That intent largely carried through to RRA '98, but struggled for recognition. The 

Clinton Administration did not send any Board nominations to the Senate for 18 months. 

More than 15 years after that incident, the IRS Oversight Board lacks a quorum, for which there arc 

practical consequences. The IRS's strategic plan receives less emphasis and monitoring from 

professionals with years of experience in successful business transformations. Information technology 

issues such as identity theft do not receive as robust a benefit from private sector expertise in developing 

comprehensive solutions. Furthcnnore, another source of innovative budgeting practices, again backed by 

private sector experience, is denied the IRS. Taxpayers ultimately suffer the most from this loss. 

Congress could pursue several altematives to the current Oversight Board. One is to work with ~1e 

Administration to identify more full-time nominees and staff who can devote additional hours to the 

Oversight Board's mission. That mission could be further clarified so as to distinguish it from Treasury 

and IRS Advisory Groups as well as the National Taxpayer Advocate and Treasury Inspector General for 

Tax Administration. The Board could focus on providing practical private-sector guidance to the IRS on 

meeting the goals of its strategic plan and embracing innovation (such as ADR techniques). Further, the 

Board could analyze data and feedback from other bodies such as the Taxpayer Advocacy Panels to 

provide direct, ongoing input to Congress on legislative responses to some of the most pressing tax 

administration issues. 

Congress could instead c.onsider c.reating a new entity wbose function is to coord inate inputs from various 

sources and bold IRS leadership publicly accountable for progress on taxpayer rights. During a July 18, 

199 1 bearing of this Subcommiuce, HR 2472 (I02""Coogress)was mentioned as a way of creating a 

"monitoring group" that would have consisted of two appointees from the House's oversight 

Subcommiuee, two from Senate's equivalent, two from private life, and two from the IRS Commissioner. 

The group was to receive infonnation on taxpayer rights issues and ensure that the IRS Commissioner 

annually reponed on means of resolving them. Perhaps this structure could be modified (to include the 

National Taxpayer Advocate in place of one oftbe Commissioner's nominees) to fit current needs. 

Another possible approach was brought to the auention of the Restructuring Commission during its 

Omaha, Nebraska field hearing on April 4, 1997. During those proceedings, Samuel Walker, a Professor 

of Criminal Justice at the University of Nebraska-Omaha, offered a proposal for an IRS citizen review 

board. This office, modeled aficr citizen review and complaint entities established in many cities for 

police departments, would not be charged with resolving tax administration problems (the mission of the 

National Taxpayer Advocate) or allegations of criminal behavior (investigated through the Inspector 

NTU Tutimony. Subcommiuee Ort 0\'eFSight, 9/J J/]QJ 7 18 
39 


Insert 33617A.032

General or the Department of Justice). Rather, it would hear taxpayer concerns over spccilic instances of 

mistreatment by IRS personnel and make recommendations for disciplinary action. 

Walker outlined a structure whereby an External Independent Complaint Aud itor, appointed in 

consultation with Congress, would oversee an Internal Office of Citizen Complaints to receive spccilic 

reports from citizens and. summarize annually any changes to personnel procedures that might help to 

minimize incidents and complaints in the future. The Restructuring Commission's final report proposed, 

instead, that the IRS should "centralize the cataloging and review of taxpayer complaints of IRS 

misconduct on an individual employee basis." This advice, subsequently embedded in RRA '98, bas 

failed to provide a more formalized grievance procedure which, along with regular reporting on personnel 

remedies that a citizen review board can provide, could result in more productive resolution of 

disciplinary problems among tax agency employees. 

Congress could request a srudy from the National Taxpayer Advocate to evaluate the experiences of city 

police department complaint entities since 1997, and explore the suitability of updati ng Walker's proposal 

to current circumstances with the tax agency. 

Simplicity Is the Best Form of "Resolution." Finally, I would be remiss in failing to mention 

the single most effective method of resolving taxpayer disputes: avoiding them in the lirst plac.c. Tax 

simplification can play a major role in this regard. When citizens and tax professionals can understand the 

laws more clearly, resolution procedures can function more properly as tools of last resort. How can such 

simplification become habitual? 

NTU can offer numerous perspectives in fostering this consultation, but two suggestions come foremost 

to mind. Section 4022 (a) of RRA '98 required the IRS to produce an annual report to Congress on 

"sources of complexity in the administration of the federal tax laws." 

Tbe provision was successful, even though IRS compliance with it was limited. According to the National 

Taxpayer Advocate, the tax agency has issued just two annual reports compliant with the I 998 statute, but 

in both instances, "Congress adopted legislation to address each area of complexity referenced in the 

reports, and the IRS addressed the administrative problems they uncovered. Thus, the IRS's decision to 

discontinue the reports has likely contributed to tax complexity." The last rcpon was published in 2002; 

Congress should order resumption of the annual reports now, so that a 2018 document can be readied. 

NTU also concurs with the Taxpayer Advocate's recommendation that "the IRS establish a process to 

automatically provide the tax writing committee staff with a list of specilic front-line technical experts 

who can discuss the administrability of pending (or existing) legislation directly with the tax-writing 

committees," as provided in Section 4021 ofRRA '98. The most important results would be in budgetary 

savings to the IRS and reduced private-sector compliance costs - a win-win situation for taxpayers. 

Regardless of the direction comprehensive tax refonn may take in 2017, the need for a regular review of 

the tax laws with an eye toward clearing away unnecessary, coonicting, or cumbersome provisions will 

always be exta.nt. NTU's staff recalls vividly (rom lield hearings and other submissions to the 

Commission that many members of the private-sector tax community were willing to volunteer 

substantial time and energy to make suggestions for simplification. A panel, meeting once every four 

years, would hamess this volunteer activity. 

There arc several models for a process such as this, among them creation of an executive bmnch body 

(e.g., via the Federal Advisory Committee Act). It's mission: to evaluate Title 26 of the U.S. Code and 

Title 26 of the Code of Federal Regulations in order to methodically identify spccilic opportunities for 

simplification, clarification, and repeal of provisions that arc complex, contmdictory, difficult to 

NTU Testimo"f· Subcommittee o, Ovenight, 911311017 /9 
40 

f 


Insert 33617A.033

administer, or outdated, and provide actionable recommendations that the Executive and legislative 

Branches can implement in expedited fashion. 

Members would include individual taxpayers, business taxpayers, tax practitioners, tax auomeys, 

academics, and former public officials with an expertise in tax administration (subject to federal 

employment rules). The Commission's management could be drawn from the National Taxpayer 

Advocate's Office or the Treasury Inspector General for Tax Administration. Participation and 

consultation of Congressional staff would be invited and encouraged. The Commission's report could be 

partitioned according to those requiring legislative action and those necessitating cxc.cutivc action. In 

order to precipitate such action, the legislative portion could be required by law to be received by the taxwriting comminccs and brought to the noor under privileged consideration. The executive portion could 

be automatically referred to the rulcmaking process under APA. 

The preceding outline would require additional details. NTU is ready and willing to assist in developing 

the charter for this Commission. 

Conclusion 

Just one week ago, the House of Representatives unanimously enacted HR 1843, the Clyde-Hirsch-Sowers 

RESPECT Act. This was an emblematic bipartisan moment for which Members of this Subcomminee 

deserve great praise, and for which taxpayers arc most grateful. h is also a lining tribute to the title o f 

today 's hearing. This legislation brought a much-needed resolution to a policy that bad created ongoing 

taxpayer disputes with the IRS over its excessive, often abusive exercise of asset forfeiture powers. 

Congress's stattttory remedy, in the form ofHR 1843, arrived about three years after many of the IRS's socalled "structuring" investigations made national headliues. Unfortunately, the agency had been engaged, 

along with the Justice Department, in these acts for a number of years prior. 

NTU raises this point to encourage the Subcommittee in reaching bipartisan consensus on the plethora of 

taxpayer rights and remedies issues that have arisen since the IRS Restructuring and Rcfonn Act. With HR 

3220, for example, leading Democrats and Republicans Oll the Subcommittee and the full Committee have 

come tOgether tO address the right to appeal in a meaningful fashion. Other opportunities for such 

cooperation abound with your colleagues in the House and Senate. Indeed, the history of this movement 

for sensible progress on taxpayer rights has been wrillen by Members of both parties, among them Bob 

Kcrrcy (O-NE), Rob Portman (R-OH), Chuck Grasslcy (R-IA), David Pryor (D-AR), Harry Reid (0-NV), 

and Bill Archer (R-TX). 

Tax refonn and simplilication arc integral pans of a long-lasting framework for taxpayer rights. Whatever 

shape these may take, the Members of this Subcommittee can build administrative foundatious that will 

ensure the currellt and future tax system functions efficiently, effectively, and respectfully. Accordillgly, 

NTU welcomes the leadership that each of you can provide at this critical moment. 

I am most grateful to all of you for engaging in this hearing and for devoting so much attention to these 

lengthy remarks. 

NTU Testimo11y, Subcommiuee on CA·ersight. 911312017 2Q 
41 

Chairman BUCHANAN. Thank you. 

Mr. Shinn, you are recognized. 

STATEMENT OF BYRON SHINN, FOUNDER AND MANAGING 

PARTNER, SHINN & CO. 

Mr. SHINN. Thank you, Chairman Buchanan, Ranking Member 

Lewis, and Members of the Subcommittee. Thank you for the opportunity to discuss reforming how the IRS resolves taxpayer disputes. 

As a practicing accountant for over 38 years and a Florida CPA, 

I have seen a lot of change. 

Chairman BUCHANAN. Could you speak up a little bit more in 

the mike so everybody can hear? 

Mr. SHINN. In my opinion, our focus should be taxpayer service 

first, improve tone with access, consistent controls, and require 

Fast Track steps. 

I have a unique perspective as I have been involved in oversight 

of the Florida CPAs as a member of the Board of Accountancy’s 

Probable Cause Panel for well over a decade. And most practitioners work hard to get it right. It is the handful of marginal practitioners and aggressive taxpayers that try to push the envelope. 

These are the practitioners and taxpayers that need to be reviewed. 

First, I would like to discuss correspondence audits. They have 

been expanded in lieu of field exams for many individual returns. 

These exams require responses in a specific period of time. However, the IRS responses are taking considerably more time than the 

taxpayer is given. 

These exams have a high probability of no change once the IRS 

receives the submitted responses. In several instances, the taxpayer’s rights have been ignored by the issuance of 15-day letters 

and then, shortly thereafter, 90-day notice of deficiencies, thereby 

ignoring the 30-day letter and which grants the rights of the taxpayer for an administrative hearing and appeals, and that also 

breaks their Taxpayer Bill of Rights. 

This also prevents the Fast Track Settlement opportunity. Therefore, I believe a standard, that it should exist, that the process 

must be maintained, and the Service, when it jumps over process, 

should lose the right to pursue additional revenue: Follow the rules 

or lose the adjustment. We also should require Fast Track to prevent the circumstances that are existing today. 

I next want to speak about field exams. The process has been 

very taxpayer-unfriendly with a litigious and enforcement tone. 

Over my 38 years, we have reached a new low regarding the respect that the taxpayers and their professionals have with the 

Service. It is as if the taxpayer is guilty and has to prove the IRS 

wrong. The agents are doing several audits at the same time, and 

they tend to start and stop during the audit, many of them taking 

much more than 12 months. This just is not right. 

We have new rules that are also killing the system. An example 

is the new partnership exam rules that have brought the process 

to a state of total chaos. In order to close issues and reduce the 

time necessary, we talk about the call centers and the local office 

access. Unfortunately, the wait time on the call centers is extremely long. 

42 

Overall, my experience is it has been good once you get to a 

qualified person. This shows how the Service needs to open up access. The Service should increase the call center available hours, 

making them earlier, later, and on weekends. 

The Service has a very good e-service process. However, this has 

been reduced due to budget cuts. This needs to be expanded back 

in a much broader sense. 

The local offices no longer allow walk-ins. This is just not—sorry. 

It is not taxpayer right. It is just not taxpayer first. They need to 

have reasonable access. 

Another area of concern is foreign disclosure exams. We are seeing a situation growing with the continued disclosure of foreign assets and bank accounts going to Appeals, and the Appeals officers 

feel that they cannot settle, so the issue goes on to offshore technical advisers. Then it ends up all or nothing. We need to give 

them guidance on settlement. 

Tax law complexity has created opportunities for debate. The 

Code in its current state remains the number one problem facing 

both the Service and the taxpayers. Since most of our career has 

been with small and medium-sized business, I can talk specifically 

about the challenges in compliance. 

Identity theft. Since many ID thefts were in Florida, I was also 

a victim. We should require all taxpayers to have PIN numbers. 

My information was stolen through e-services on a data dump, and 

that shouldn’t happen. If we had all taxpayers with PINs, that 

wouldn’t happen. 

And, lastly, I think that I would like to recommend a separate 

task force that answers to you, Congress, to assist the National 

Taxpayer Advocate in developing change in the business structure 

and processes. 

Thank you very much. 

[The prepared statement of Mr. Shinn follows:] 

43 


Insert 33617A.034

WRITTEN 

TESTIMONY OF 

BYRON E. SHINN, CPA 

MANAGING PARTNER, SHINN & COMPANY, LLC. 

BEFORE THE 

HOUSE WAYS AND MEANS COMMITTEE 

SUBCOMMITTEE ON OVERSIGHT 

REFORMING HOW THE IRS RESOLVES TAXPAYER DISPUTES 

SEPTEMBER 13, 2017 

INTRODUCTION 

Chairman Buchanan, Ranking Member Lewi s, and Members of the 

Subcommittee, thank you for the opportunity to discuss "Reforming How the IRS Resolves 

Taxpayer Disputes". 

As the 2016-2017 recent past Chairman of the FICPA Federal Tax Committee and the Managing 

Partner of a successful Southwest, Florida CPA firm since 1993, this is a topic that I have been 

professionally engaged in for over 38 years. During this time, I have experienced the 

conversion from paper filings toe-filing and the start of e-services and then helped w ith 

establishing filters for protecting the innocent taxpayer who had their identity stolen. In fact, 

my identity was stolen through an illegal request through e-services of my data and a false 

return was filed and I received the very letter from the filter that prevented the "bad guy" from 

getting illegal funds from the US Treasury. 

"Taxpayer Service First" 

I have a unique perspective as I have been involved in oversight of the Florida CPAs for well 

over a decade and most practitioners work hard to get it right. It is the handful of marginal 

practitioners and aggressive taxpayers that try to push the envelope. These are the 

practitioners and taxpayers that need to be reviewed. As the National Taxpayer Advocate, Nina 

Olson spoke of in her May 2017 report that "98 percent of all revenue is paid timely and 

voluntarily. Less than two percent is collected through enforcement actions". I agree 

completely. I want to give you several recommendations for improvement of services that w ill 

help both the taxpayer and the Service. Remembering the mission of "Taxpayer Service First," I 

have collected several concerns from fellow CPAs and Tax attorneys that I have worked with 

over the years and have also included their thoughts. 

Correspondence Audits -

Correspondence audits have been expanded in lieu of field examinations for many 

individual retums. These exams have a high probability of no change once the IRS 

receives the submitted response. Taxpayers' rights are being ignored by the issuance 

1 
44 


Insert 33617A.035

of 15-day letters and then shortly thereafter the issuance of a 90-day letter (Notice of 

Deficiency), and thereby ignoring the 30-day letter, which grants the taxpayer the right 

to request an administrative appeals hearing. Taxpayers are put in a position where a 

large proposed assessment is assessed against them, which in many cases they do 

NOT owe. The evidence to support their position has been previously submitted, in 

most cases by certified mail, and although proof of delivery is furnished, the Service 

moves on with issuing the 90-day letter with no further adjustments to the erroneous 

proposed assessments. The taxpayer is then left with having to spend more time and 

fees for representation in Tax Court or docketed Appeals because of the lack of contact 

availability with an examiner to correct the issue at hand. 

All taxpayers are entitled to a fair and impartial administrative appeal of most IRS 

decisions, including correspondence examinations: but, by not issuing the proper 30· 

day letter, the Service is violating the taxpayers' rights to request an administrative 

appeals hearing as afforded by the Taxpayer Bill of Rights. 

Solutions1. Have a standard that exists that the process must be maintained and if the 

Service jumps over the process the Service losses the right to pursue additional 

revenue. Only the largest taxpayers can afford to take on the Service when 

faced with the incredibly complicated and expensive track to clear up the issues. 

"Fast track" is not being considered since the option is only available to a certain 

point. It appears the Service wants to quickly close open exams because 

management is tracking the time that exams are open versus review of the 

process they are not having a proper sign off of each step prior to issuing a 

Notice of Deficiency. 

2. We should always maintain proper process to protect the taxpayer and the 

Service. Simplify the steps and REQUIRE "Fast Track" to prevent the 

circumstances that exists today. 

Field ExaminationsThe process has become VERY TAXPAYER UNFRIENDLY with a litigious and 

enforcement tone. Over my 38 years, we have reached a new low regarding respect for 

the taxpayer and their professionals. It is as if, the taxpayer is guilty and they have to 

prove the IRS wrong. The agents are doing several audits at the same time and they 

tend to start and stop during the audit. This prolongs the process and time spent 

increases while reducing flow of issues and discussions start and stop repeatedly. The 

IRS personnel are trying to do their job; however, the process is very strong handed, as 

shown with the various statements required to be signed and agreed to at the beginning 

of the exam process. An example is the new partnership exam rules that have brought 

the process to a state of total chaos. 

2 
45 


Insert 33617A.036

Solutions1. Simplifying the process, stay on task while maintaining proper tone and 

protecting taxpayer rights is imperative. 

Telephone Calls and Local Offic·e Access -

Unfortunately, the wait times on phone calls are extraordinarily long for the taxpayer or 

their professional to get to the right person that can handle the particular issue. Overall 

my experience has been good once you get to that person. This shows how the 

Service needs to open up the process to handle the communications reasonably. 

Solutions1. The Service should increase call center available hours (earlier, later and 

weekends) and adding additional personnel would improve service. 

2. The Service had a very good e-service process and that was reduced due to 

"budget cuts". Please expand that immediately with proper authentication of 

taxpayer/professional. 

3. The local offices used to allow walk ins and this is now abandoned to an 

appointment only policy. This is just not TAXPAYER FIRST. The taxpayers 

need to have reasonable access. 

Foreign Disclosure ExaminationWe are seeing a situation growing with the continued disclosure of foreign assets and 

bank accounts going to appeals and the appeals officers feel like they can't settle, so 

the issue goes to an offshore technical advisor. Then it ends up "all or nothing" with no 

leeway. This creates more controversy, time and resources. 

Solution1. Allow flexibility to Appeal Officers with guidance on settlement opportunities. 

Tax Law Complexity -

The tax code, in its current state, remains the number one problem facing both the IRS 

and taxpayers. The complexity of the code creates enormous administrative challenges 

for the IRS and imposes huge compliance burdens on taxpayers. With a simpler code, 

the job of the compliance by the taxpayer and the IRS would be far easier. 

Since most of my career has been with small and medium size businesses, I can talk 

specifically about the challenges complying with the law and rules. According to the 

3 
46 


Insert 33617A.037

Tax Policy Center, 93% of small businesses are organized as pass-through entities, 

which is what we primarily file for our clients. Knowing this then: 

1. Why do Partnerships and S Corporations have different rules for calculating Tax 

Basis, and how Business Debt is treated differently for partners of a partnership 

versus the shareholder of an S corporation. If the shareholder/owner guarantees 

the debt and this then reduces available borrowings, should it be different? 

2. If the losses are from real negative cash flow shouldn't they be allowed regardless 

of PASSIVE RULES? 

What have we created? Have we created more complexity than really needs to be in 

place? Can't we just converge the best into one set of rules. Reality and practical 

considerations should flow to the integrity of the law. 

Parts of the Law have created cottage industries for areas such as the Research & 

Development credit which has become excessively complex breeding specialty 

industries to assist business. Is this taxpayer first? 

We could go on and on. 

Online Accounts -

I strongly support providing online account access to taxpayers, but I believe the IRS 

should continue to fully staff other service channels such as telephone and face-to-face 

service for taxpayers who want or need to interact with the IRS through personal 

contact. The population of the United States is large and diverse in its taxpayer service 

needs, and a one-size-fits-all approach is not appropriate for a tax collection agency. 

Moreover, voluntary compliance and trust in the tax system are best promoted by 

person-to-person contact. Thus, a multi-faceted service strategy based on the needs 

and preferences of taxpayers is required 

New Entity 10 NumbersWe have experienced recently a serious slowdown in the assignment of new Federal 

Identification Numbers which has taken numerous follow up calls and refaxing of the 

application forms with weeks involved to issue said number. This has held up opening 

of accounts at banks and closings on purchases of real estate to name a few examples. 

It appears that layered LLC entities is causing a slowdown or paralyzing effect on the 

system. 

Solutions1. A review of the process and streamlining similar to trusts and estate numbers 

should be considered. 

4 
47 

f 


Insert 33617A.038

Identity Theft and Refund Fraud -

Since many 10 theft victims were in Florida, and I was also a victim and chair of the 

FICPA subcommittee on ID theft, we should REQUIRE all taxpayers, business and 

individual, to have a PIN number for authentication of thee-filing and with any 

communications. Same as in banking. 

I concur completely with National Taxpayer Advocate - Nina Olson - with her 

assessment and have quoted her below from her May 23, 2017 Report to Congress 

entitled "Hearing on IRS Oversight": 

"Taxpayer Service: The IRS must be a "taxpayer service first" agency. In my most 

recent annual report, I expressed concern that the IRS historically has viewed itself first 

and foremost as an enforcement agency, and its emphasis on enforcement over 

taxpayer service is detrimental to both taxpayers and tax compliance. High-quality 

taxpayer service helps taxpayers voluntarily comply with their tax obligations and builds 

trust. Facilitating front-end compliance is much more cost-effective than collecting from 

noncompliant taxpayers one audit at a time. This is critical because more than 98 

percent of all revenue the IRS collects is paid timely and voluntarily. Less than two 

percent is collected through enforcement actions. There is no doubt that enforcement 

plays an important role in deterring noncompliance. But today the IRS spends 43 

percent of its budget on enforcement and less than six percent on taxpayer outreach 

and education activities ... We can and should do better." 

Solution1. We should REQUIRE all taxpayers, business and individual, to have a PIN 

number for authentication of the e-filing and with any communications. 

ConclusionI recommend a separate taskforoe that answers to Congress to assist the National 

Taxpayer Advocate in developing change in the business structure and processes being 

used. 

Practical, and reasonable changes must be put at the forefront to protect taxpayer rights 

and help the IRS with oversight. 

Thank you in advance for the opportunity to share my thoughts with you and with your 

leadership we will have a much-improved Tax System. 

5 
48 

Chairman BUCHANAN. Thank you. 

Ms. Wilson, you are recognized. 

STATEMENT OF CHASTITY WILSON, PRINCIPAL, NATIONAL 

TAX OFFICE, CLIFTONLARSONALLEN LLP 

Ms. WILSON. Chairman Buchanan, Ranking Member Lewis, and 

other Members of the Subcommittee, thank you for the opportunity 

to testify. 

The AICPA applauds your efforts to address the importance of 

the IRS resolving taxpayer disputes in a timely, efficient, and costeffective manner. Today, I would like to share our thoughts on refining the independence and efficiency within the IRS dispute resolution process. 

I will also address the importance for the IRS to understand the 

taxpayer’s perspective and deliver customer-focused service. 

First, let’s start with penalties. Upon receipt of an IRS notice, 

taxpayers or their representatives may determine a reporting error 

was made. However, if the taxpayer made the effort to comply with 

the reporting requirements, the taxpayer may request relief from 

penalties. 

Frequently, the initial IRS response is a routine denial. This 

process is currently handled independently within each of the primary IRS divisions. We recommend that the IRS undertake a review of this process across the agency to identify necessary training 

to ensure a consistent and fair treatment of all taxpayer disputes. 

Next, let’s discuss Appeals. Appeals is the primary forum for taxpayers’ disputes. Their mission is to resolve tax controversies without litigation on a fair and impartial basis. We appreciate them 

holding conferences which provide a meaningful and unique opportunity for taxpayers to present their positions. 

In October of 2016, Appeals made several changes to its conference procedures, which arguably impact the ability or perception 

to independently and objectively help taxpayers. We recommend 

that, one, the IRS limit settlement conferences to the appropriate 

Appeals personnel; and two, they provide taxpayers with the option 

of a face-to-face conference. 

In one settlement conference, the Appeals officer openly asked 

the Exam team what they thought was a fair settlement. My client 

asked, how is it possible for Appeals to maintain their independence when they are seeking the opinion of the same IRS employee 

who examined them? 

Although, in reality, IRS employees may or may not have influence over the appeals process, it is hard to view them as objective 

when other IRS employees are involved. We suggest that, once the 

taxpayer’s presentation to Appeals begins, they should limit the 

meeting participants to the appropriate Appeals personnel and the 

taxpayer. 

In another Appeals case, payroll obligations were not met until 

my client discovered the error. The Appeals officer said it took him 

a whole 5 minutes to determine there was no reasonable cause and 

asked not to discuss it. 

In this particular situation, a conversation, much less a face-toface conference, was considered unnecessary from his perspective. 

However, from the client’s perspective, he was not heard. He was 

49 

unfairly denied the right to present his case. While it is possible 

to resolve some issues over the telephone, we think it is important 

that taxpayers have the option of a face-to-face conference. 

For larger tax disputes, cases are assigned a team of IRS Appeals officers and a case leader who is designated settlement authority. In these situations, we urge the IRS to provide truly independent settlement authority to these case leaders and eliminate 

the approval process that was recently added. 

Finally, a customer-focused service approach should extend to all 

IRS services. It will help reduce disputes in the first place. For example, the IRS should create a new dedicated, executive-level practitioner services unit that would centralize and modernize its approach. 

With a mindset of understanding the taxpayers’ perspective, the 

Service will enhance voluntary compliance and increase the public’s 

confidence in the integrity of the Service. 

We appreciate the opportunity to testify. I will be happy to answer any questions. 

[The prepared statement of Ms. Wilson follows:] 

50 


Insert 33617A.039

. AICPA' 

WRITTEN STATEMENT OF CHASTITY K. WILSON 

ON BEHALF OF THE 

Ttl£ AMERICAN INSTITUTE OF CERTLFI£ 0 PUBLIC ACCOUNTANTS 

BEFOR£ 

HI£ UN ITED STATES HOUSE Of REPRESENTATIVES 

COMMITTEE ON WAYS AND M.EANS 

SUBCOMMITTEE ON OVERSIGHT 

HEARING ON 

" IRS REFORM: £SOLv1!\~ TAXPAYER DISPUTESrt 

SEPTEJ\ffiER 13,2017 

1455 Pemsylvon;o AYe. NW, WosNogfQI\ 0C 20004·1081 

T:•1 202.737.6600 F: •1 202.638.4512 

·~•loom 1 c;moglobaloom 1 o;cpo.org 1 cgma.org 
51 


Insert 33617A.040

AlCPA's Writteu Statement of Chastity K. Wilsou 

U.S. House Ways and Means Committee, Subcommittee on Oversight 

September 13, 2017 Hearing on " IRS Reform: Resolviug Taxpayer Disputes" 

Page I of8 

INTRODUCTION 

Chairman Buchanan, Ranking Member Lewis, and Members of the House Subcommittee on 

Oversight, thank you for the opportunity to testify today. My name is Chastity Wilson. I am 

a principal in charge of dispute resolutiou services at CliftonLarsonAileu LLP and specialize 

in lntemal Revenue Service (IRS or "Service") controversy matters. I am also the Vice Chair 

of the IRS Advocacy & Relations Committee of the Americau Institute of Cenified Public 

Accountams (AICPA). lam pleased to testify today on behalf of the AlCPA. 

The AICPA is the world 's largest member association representing the accounting profession 

with more than 4 I 8,000 members in 143 countries and a history of serving the public interest 

since 1887. Our members advise clients on federal, state, local and international tax matters 

and prepare income and other tax returns for millions of Americans. Our members provide 

services to individuals, not-for-profit organizations, small and medium-sized businesses, as 

well as America's largest businesses. 

We applaud the leadership taken by the Subcommittee to address bow the IRS can better serve 

the public through focusing on the taxpayer perspective and the need for the agency to resolve 

taxpayer disputes in a timely, efficient and cost-effective manner. 

The IRS Office of Appeals ("Appeals") offers tax payers a number of viable options to resolve 

a dispute (fast track settlements, early referral, fast track mediation, post appeals mediation, 

etc.). However, without an independent and customer-focused approach, the dispute process 

is intimidating, inefficient or ineffective for most taxpayers. 

The AICPA is committed to improving the taxpayer and tax preparer experience when 

interacting with the .IRS. Our testimony primarily focuses on recommendations to improve the 

independence and efficiency of the dispute resolution process. We also offer suggestions to 

ensure that the IRS understands the taxpayer perspective and delivers "customer-focused" 

service. 

PENALTY DrSPUTES 

Upon receipt of an IRS notice, taxpayers and/or the taxpayer representative will review the 

agency's claim and sometimes agree tbat there was a reponing error and the taxpayer owes the 

tax and related interest. However, if the taxpayer made an effon to comply with the 

requirements of the law, but were unable to meet the tax obligations due to circumstances 

beyond their control, the taxpayer may qualify for penalty relief (reasonable cause, first time 

penalty abatement, and statutory exception).' 

The initial and most-efficient process for resolving taxpayer penalty disputes begins with the 

taxpayer sending a letter requesting penalty relief providing details on facts and circumstances 

1 lntemal Revenue Manual (lRM) ~. introduction and Penalty Relief. 
52 


Insert 33617A.041

AlCPA's Written Statement of Chastity K. Wilson 

U.S. House Ways and Means Committee, Subcommittee on Oversight 

September 13, 2017 Hearing on "IRS Reform: Resolving Taxpayer Disputes" 

Page 2 of8 

that prevented the taxpayer from meetiug their tax obligations. Penalty disputes are currently 

handled independently within each of the primary IRS divisions (Wage & Investment, Large 

Business & International, Small Business/Self-Employed and Tax-Exempt & Government 

Entities). 

The IRS needs to ensure independent and consistem senlement of penalty disputes. It has been 

our experience that there is no consistency across the IRS divisions on the application of the 

penalty relief provisions. There is also concern that the IRS personnel assigned to penalty 

notices often do not have the necessary training or expertise to review the taxpayer's 

submission for penalty relief. 

Frequently, the initial IRS response to the taxpayer's request for penalry relief is to deny 

abatement without full consideration of the taxpayer's technical arguments or reasonable cause 

submission. From a taxpayer perspective, this practice is inefficient because the request for 

penalty relief is the first and certainly the most expedient opportunity to resolve a taxpayer's 

dispute. This routine denial of requests for penalty relief has forced an increased number of 

taxpayers to simply pay the tax and penalties they view as unwarranted, or seek Appeals' 

involvement, in order to resolve their tax penalty ootices. 

We recommend that Appeals' leadership undertake a review of the penalty notice processes 

with other IRS divisions to idemify necessary training, systemic problems and duplication of 

efforts to ensure a consistent settlement process of penalties. The review should reduce the 

number of taxpayers having to pursue Appeals - providing a more-timely, efficient and costeffective process- while ensuring taxpayers have the opportunity to present their case in a fair 

and independent manner. 

IRS APPEALS 

Appeals is the primary administrative dispute resolution forum for any taxpayer contesting an 

IRS compliance action. The mission of Appeals is to "resolve tax controversies, without 

litigation, on a basis which is fair and impartial to both the government and the taxpayer in a 

manner that will enhance voluntary compliance and public confidence in the integrity and 

efficiency of the Service."2 

To resolve tax controversies, without litigation, Appeals holds conferences. Conferences 

provide a meaningful and unique opportuniry for taxpayers to present their positions and allow 

Appeals officers to independently consider settlement proposals in order to resolve tax 

disputes. We appreciate the successful efforts of Appeals to settle the majority of the cases 

that come within itS jurisdiction in this less formal and less costly manner, relative to litigation. 

In October 20 16, Appeals implemented several changes tO its conference procedures through 

revisions to the Internal Revenue Manual (IRM) seeking to improve the quantitative and 

2 IRM ~. Accomp~shing the Appeals Mission. 
53 


Insert 33617A.042

AlCPA's Written Statement of Chastity K. Wilson 

U.S. House Ways and Means Committee, Subcommittee on Oversight 

September 13, 20 17 Hearing on "IRS Reform: Resolving Taxpayer Disputes" 

Page 3 of8 

qualitative aspects of the Appeals results. 3 Although we appreciate the IRS's efforts to 

reevaluate their processes, we suggest considering whether such changes affect Appeals' 

ability to independently and objectively help taxpayers resolve tax disputes. 

To prevent erosion of the core values of independence and impartiality with regards to the IRS 

dispute resolution process, the AI CPA suggests that the Subcommittee consider the following 

key areas: 

Limit appeals conferences to Appeals personnel, the taxpayer and/or the taxpayer's 

representative; 

Offer taxpayers the option of face-to-face conferences; and 

• Provide tbe Appeals Team Case Leader delegated settlement authority. 

1. Limit Appeals Conferences to Appeals Personnel, the Taxpayer and/or the 

Taxpayer's Representative 

For Appeals to effectively accomplish its mission, it has long been recognized that Appeals 

needs adequate insulation and independence from influence of other IRS functions during 

settlement conferences.4 Appeals officers should independently evaluate the facts and law in 

each case while attempting to reach a fair and impartial settlement. Historically, the settlement 

conference participants were the Appeals officer and the taxpayer and/or the taxpayer's 

representative. 

One significant change to the IRM involved the participation of other IRS employees in the 

Appeals settlemem conference. Appeals now has the discretion to invite the IRS Office of 

Chief Counsel ("Counsel") and/or representatives of the IRS's Examination divisions 

("Compliance") to the settlement conference. 

Independence is essential in order for Appeals to operate in a fair and impartial manner. 

However, the perception of an Appeals officer's independence, and the faimess of the Appeals 

process, is diminished ifthe conference attendees include the IRS compliance employees who 

examined the tax returns (and likely the team's manager), IRS specialists who participated in 

the issues before Appeals (and likely each specialist's manager), and IRS Counsel who assisted 

the Compliance team (and likely Counsel's manager). Taxpayers are easily outJmmbered and 

can feel pressured into conceding to the IRS's request. Altematively, if taxpayers question the 

fairness of the Appeals process, they may prefer costly and burdensome litigation as opposed 

3 As revised in O<:tober 2016, IRM 8.6 1.4.4 states: .. 1) Appeals has the discretion to invite Counsel and/or 

Compliance to the conference. The prohibition against ex p.1rte communications must not be violated. Sec Rev. 

Proc. 2012-18. Appeals may also request that other experts attend conferences. 2) See other IRM Part 8 sections 

for panicipation by IRS employees in cases under the Altemative Dispute Resolution (ADR) ProgranL Tbis 

includes IRI'vl 8.26.5.4.7, Participants, tltat reflects Appeals' discretion to have Counsel, the originating function, 

or both participate in a Post-Appeals Mediation proceeding for a Non-Collection Case." 

'IRS Restmcturingand Refonn Act ofl998, section IOOI(a)(4). The IRS Restmcturing and Refonn Act of 1998 

directed "an independent appeals ftmc-tion within the IRS." 
54 


Insert 33617A.043

AICPA's Written Statement of Chastity K. Wilson 

U.S. House Ways and Means Committee, Subcommittee on Oversight 

September 13, 2017 Hearing on " IRS Reform: Resolving Taxpayer Disputes" 

Page 4 of8 

to reaching a settlement. Without independence or the perception of independence, Appeals 

becomes an adversary to the taxpayer. 

In a recent settlement conference with my client, the Appeals personnel openly asked 

Compliance what they thought was a fair settlement before reaching a final decision. After the 

conference, the taxpayer asked how it was possible for Appeals to maintain independence 

when they were seeking the opinion of the Compliance team. Although in reality, fRS 

employees may or may not have influence over the Appeals process, it is hard to view Appeals 

as "objective, impanial, and neutral in fact as well as appearance" when Compliance and/or 

Counsel is intimately involved in the settlement decision. Without the perception of 

independence, the Appeals process is not nearly as effective as it has been in the past. 

Appeals should establish a conference process that highlights its independence by drawing 

distinct lines between its interactions with other IRS functions. If necessary, Appeals could 

invite LRS Counsel or Compliance, along with other appropriate expens, to a preconference. 

However, once the taxpayer's presentation to Appeals begins. it is crucial to limit the meeting 

participants to the appropriate Appeals' personnel. the taxpayer and taxpayer representative. 

2. Offer Taxpayers the Option of Face-To-Face Conferences 

As mentioned earlier, to resolve tax controversies without litigation, the Appeals office holds 

conferences with taxpayers. Historically, if a taxpayer or the taxpayer's representative 

requested a face-to-face conference, Appeals would automatically transfer the case to the 

appropriate field office, except in limited situations. However, in October 2016, the Appeals 

function revised its n1les transferring the decision to have a face-to face conference from the 

taxpayer to Appeals. While a taxpayer can request a face-to-face confe.rence, it is only 

pennitted if Appeals deems it is necessary. 

In my most recent experience with a penalty Appeals case, I had a young entrepreneur client 

with no financial background or experience. He hired and relied on an intemal accountant who 

was incompetent although she represented herself otherwise. Unfortunately, pay.roll tax 

obligations were not met for several quarters until the client discovered the error. The Appeals 

officer called me and said it took him a "whole five minutes" to determine there was no 

reasonable cause and asked me not to discuss reasonable cause because it was a waste of his 

time. He had once been a former business owner, and based upon that experience, he said that 

all taxpayers that open a business should have the capacity to manage payroll. In this particular 

situation, where the client hoped to discuss his facts of the case, a conversation, much less a 

face-to-face conference, was considered unnecessary from the Appeals officer's perspective. 

The client's confidence in the voluntary compliance system eroded. From his perspective, he 

was not heard. He was unfairly denied the right to present his case without prior judgement. 

For many taxpayers, the first opportunity to meet someone and talk about their case is at 

Appeals. For example, in correspondence exams, the taxpayer most likely will never speak to 

the same individual twice while trying to resolve their issue. In these cases, Appeals is the first 
55 


Insert 33617A.044

AI CPA's Written Statement of Chastity K. Wilson 

U.S. House Ways and Means Committee, Subcommittee on Oversight 

September 13, 2017 Hearing on " IRS Reform: Resolving Taxpayer Disputes" 

Page 5 of8 

opportunity they have to present their case and have a discussion about their particular 

situation. By limiting face-to-face conferences, taxpayers lose the sense that their tax positions 

and perspectives are considered impartially. While it is possible to resolve some issues over 

the telephone, it is important that taxpayers have the option of a face-to-face conference. 

3. Provide the Appeals Team Case Leader Delegated Settlement Authority 

For most significant tax disputes, where the cases are technically complex and generally 

include sizeable proposed adjustments, cases are assigned a team of IRS Appeals officers and 

an Appeals Team Case Leader ("case leader") who is delegated settlement authority. 5 The 

effectiveness of the Appeals process heavily relies on the case leaders' capacity to analyze the 

technical merits of tbe respective parties' positions and independently assess tbe hazards of 

litigation associated with the merits of each side's case. A case leader brings a unique value 

and quick settlement to some of the most significant issues that arise within our tax system. 

However, an additional step was recently added to the process before a case leader can finalize 

a settlement. Due to concerns regarding the manner that Appeals resolved penalty cases, the 

Chief of Appeals recently decided that an Appeals Team Manager ("team manager") must 

review a case prior to a case leader finalizing a settlement.6 

Unfortunately, this new requirement slows down the Appeals process and, from a tax 

practitioner perspective, has been detrimental to taxpayers. The new process generally results 

i.n an outcome that is less favorable to the taxpayer (since "reviewers" tend to only increase 

settlement amounts). Also, the additional review by a team manager can result in differences 

of opinion between the two government employees (the case leader and the team manager), 

whicb they must resolve internally before finalizing My agreement. As a result, taxpayers 

have reluctantly paid additional tax and penalty amounts to finally resolve the dispute or 

considered pursuing costly tax litigation. 

Historically, case leaders' settlement authority has been exercised judiciously and in a manner 

consistent with Appeals' overall mission to resolve tax disputes without litigation. We 

encourage Appeals to provide truly independent delegated settlement authority to the case 

leader, and eliminate the extra approval process that was recently added, to ensure the 

taxpayers can resolve disputes in a fair and efficient manner. 

' Sec Delegation Order 8-8 (Formerly 0.0.-66, Rev-15). 6 Case leaders are delegated seulement authority directly from tl1e IRS Commissioner to settle lax disputes. 

However, the Chief of Appeals recently initiated a review of Appeals team case leaders· settlement authority due 

10 a Treasury Inspector General for Tax Adminislrdtion (TIGTA) repon !hal highlighted discrepancies in the 

mrumer thai Appe-dls resolved penalty cases. h was noted tl1a1 tllC Appeals personnel making the initial decision 

on penally disputes generally are less experienced tl1an case leaders and without delegated seulemenl aulhorily. 

Regardless. the Chief of Appeals detennined !hal a team manager must review a case prior 10 the case lcMer 

finali1jng a seulernenl. 
56 


Insert 33617A.045

AICPA's Written Statement of Chastity K. Wilson 

U.S. House Ways and Means Comminee, Subcomminee on Oversight 

September 13, 2017 Hearing on "lRS Refonn: Resolving Taxpayer Disputes" 

Page 6 of8 

"CUSTOMER-FO CUSED" SERVICE 

It is essential that the IRS take into consideration the needs of tax practitioners and wlrepresented taxpayers especially when dealing with compliance responsibilities. A customerfocused service approach will help reduce disputes in the first place by ensuring taxpayers d1at 

the IRS bas given full consideration to d1eir technical argJlments. Furthermore, a customerfocused service approach should extend beyond the dispute resolution process and to all 

interactions with taxpayers and tax preparers. 

7 With a mindset of understanding the taxpayer 

perspective, the Service will enhance voluntary compliance and increase the public confidence 

in the integrity of the Service. 

I. rRS Taxpayer Service 

Congress and the administration should determine the appropriate level of service desired and 

needed by taxpayers. Agreed upon measures of success are necessary to improve bod1 

customer service and voluntary compliance. 

To instill trust in the tax administration system, we recommend taxpayer service goals based on the 

following two guiding principles: 

The IRS should only initiate contact with a taxpayer ifthe LRS is prepared and able to 

devote the resources necessary for a proper and timely resolution of the matter. 

Customer satisfaction must be a goal in every interaction the IRS has with taxpayers, 

including enforcement actions. Taxpayers expect quality service in all interactions 

with the IRS, including taxpayer assistance, filing tax returns, paying taxes, and 

examination and collection actions. 8 

2. New Dedicated Tax Practitioners Services Unit 

The IRS should create a new dedicated "executive-level" practitioner services unit that would 

centralize and modernize its approach to all practitioners. Over time, the IRS has established 

a number of f\.1nctional departments. These individuals are dispersed across the IRS and are 

not coordinated in a way that enables practitioners to timely access critical information (such 

as, dleir clients' account status or the availability of dispute resolution opponurtities). Nor do 

the current teams or processes systematically solicit, gather or evaluate practitioner feedback. 

Enhancing the relationship between the IRS and practitioners would benefit both the LRS and 

the millior1s of taxpayers served by the practitioner cornmunity. 

A dedicated practitioner services unit would allow the IRS to rationalize, enhance, and place 

under common management the many current, disparate practitioner-impacting programs, 

7 See AJCPA commentleuer. " Ensurjng a Modem-func!jonjng IRS for the 21st Cen!ury," April 3. 2017. 

• Verbatim quote of the two guiding principles, The National Commission ofRcstn•cturing the !merna! Revenue 

Service. A Vision !Or a New IRS. Reoort of the National Commission ou Reslntcluring the !merna/ Ri!l•enue 

pa e 23. June 25. 1997. 
57 


Insert 33617A.046

AICPA's Written Statement of Chastity K. Wilson 

U.S. House Ways and Means Committee, Subcommittee on Oversight 

September 13, 20 I 7 Hearing on "IRS Refom1: Resolving Taxpayer Disputes" 

Page 7 of8 

processes, and tools. Moreover, by centralizing these programs, IRS employees would have a 

consolidated approach to timely resolving issues. This coordination and improved access of 

infonnation would prevent unnecessary delays and inefficiencies (such as, requiring 

practitioners to submit the same infonnation multiple times to multiple IRS employees). 

Finally, to ensure success of the practitioner services unit, it is essential for these services to 

approximate comparable private sector services and allow practitioners to resolve account 

issues for their clients in a timely and efficient manner. 

Online tax professional account. Tbe IRS should provide tax practoi!Oners witb a tax 

professional account as part of the IRS's online portal with account access to all of their clients' 

infonnation (both individual and business accounts) where the practitioner has a valid power 

of attorney (PO A) on file. Additionally, the secure tax professional account should allow the 

IRS to communicate directly to practitioners the infonnation necessary to improve taxpayer 

awareness and allow practitioner correspondence with timely acknowledgement of receipt. 

Furthermore, a centralized login system allowing for single sign-on authentication of the 

practitioner and immediate access to all client data, as opposed to practitioner authentication 

before accessing each client's account, is an indispensable efficiency for the IRS and 

practitioners alike. 

Secure platfonn. The development of the online portal should include a comprehensive, agile 

platfonn that protects users' identities and their data, detects threats and immediately responds 

to potential security breaches. In order to enhance taxpayer protection, practitioners who want 

access to taxpayer accounts should consent to guidelines such as Circular 230 or other similarly 

approved requirements. Professional tax practitioners can become particularly active and safe 

users of online services if the IRS invests early in providing a digital mechanism for POA and 

disclosure authorization and creates practitioner accounts contemporaneously with individual 

online accounts. 

To continue to improve efficiency, we also recommend that the IRS focus its attention on 

replacing the Centralized Authorization File with a consolidated online solution utilizing 

electronic signatures and an algorithmic-driven approval process that is as close to real time as 

possible. 

Robust practitioner hotlines. IRS should provide tax practitioners with a robust practitioner 

priority hotline (or hotlines) with higher-skilled employees. These employees should have the 

experience and training to understand and address more complex technical and procedural 

issues. This expertise would allow the IRS to focus its training to a particular technical area 

allowing designated employees to resemble its counterparts in the private sector. The IRS 

should also consider hiring experienced people such as graduate students or retired 

practitioners seeking part-time or seasonal employment. 

Designated customer service representatives. Under the practitioner services unit, the IRS 

shoul.d assign customer service representatives (also known as a single point of contact) to eacb 
58 

f 


Insert 33617A.047

AI CPA's Written Statement of Chastity K. Wilson 

U.S. House Ways and Means Committee, Subcommittee on Oversight 

September 13, 2017 Hearing on " IRS Refom1: Resolving Taxpayer Disputes" 

Page 8 of8 

geographic area to address unusual or complex issues that practitioners were unable to resolve 

through the priority hotlines. We recommend allocating the number of representatives based 

on the number of practitioners in a specific geographic area. 

CONCLUDING REMARKS 

The dispute resolution function is a critical component in the IRS's ability to fulfill its mission 

and for taxpayers to properly comply witll their filing obligations. The most efficient process 

for resolving disputes involves the initial request for penalty relief from taxpayers. The IRS 

should undertake a review of this process across the agency to identify necessary training, 

systemic problems and duplication of efforts to ensure a consistent and fair treatment of all 

taxpayer disputes. 

If a taxpayer must take additional steps to resolve its dispute through the Appeals process, it is 

cmcial to (I) limit settlement conferences to the appropriate Appeals' personJJel, the taxpayer 

and taxpayer's representative and (2) provide taxpayers the option of a face-to-face conference. 

We would also urge the IRS to provide tmly independent delegated settlement authority to the 

case leader, and eliminate the extra approval process that was recently added, to ensure the 

taxpayers can resolve disputes in a fair and efficient manner. The rec-ent changes to the dispute 

resolution process jeopardize its customer-focused approach and their perception, or in some 

situations their assurance, of independence. 

Furthermore, a customer-focused service approach should extend beyond the dispute 

resolution process and to all IRS taxpayer services, includi ng a dedicated tax practitioner 

services w1it. With a mindset of understanding the taxpayer perspective, the Service will 

enhance voluntary compliance and increase the public confidence in the integrity of the 

Service. 

The AICPA appreciates this opportunity to testify and we urge this Subcommittee to consider 

our suggestions as Congress decides bow to improve the dispute resolution process. 
59 

Chairman BUCHANAN. Thank you, all of you, for your excellent 

testimony. 

I will now proceed to the question and answer session. In keeping with past precedent, I will hold my questions until the end. 

I now recognize the gentleman from Michigan, Mr. Bishop. 

Mr. BISHOP. Thank you, Mr. Chairman. 

And thank you to the panel for your time and expertise. I appreciate it. Lots of questions. So little time. 

Is it Ms. Petronchak? Pretty good? Close? Okay. Good. You indicated in your written testimony—I know you didn’t have much 

time today, but you indicated in your written testimony that there 

were procedures in place by the IRS during an audit that would 

give larger businesses an advantage over smaller businesses, specifically having to do with transparency. 

Can you elaborate on that? And can you tell us, is this something 

that the IRS is doing as a result of the Code, or is this an arbitrary 

kind of application of the rules? 

Ms. PETRONCHAK. So, with regards to that, Congressman 

Bishop, in my testimony, in the Large Business and International 

Division, they have put out procedures in a publication and indicated that, when you are issuing information document requests to 

taxpayers, that you have a discussion. You identify what the issue 

is, and you talk about what documents you are going to request so 

that the taxpayer has an opportunity to have a discussion with the 

agent and say: Well, maybe I don’t have those kinds of records; 

these might be more pertinent. But they understand what the IRS 

is looking at and where they plan on going with their examination. 

In the Small Business Division, that just doesn’t happen. What 

happens is you will get, you know, a letter saying, you are under 

exam. And then here is a 4-page document request with everything 

but the kitchen sink pretty much on the initial document request. 

And then, instead of, as in Large Business Division, when that 

response is made to that document request, it is expected in Large 

Business that they would review that response and then have a 

discussion with the taxpayer to say, we think it is complete or it 

is not complete and it is an ongoing discussion. 

In Small Business, you are more likely than not going to find out 

the results of their review at the end of an examination, which is 

way too late for a taxpayer to be understanding what issues are in 

dispute and even have the opportunity to use alternative dispute 

resolution. 

Mr. BISHOP. Well, it begs a question then: Why are they treated 

differently? And, again, is this a result of the Code, or is this something that the IRS is doing independently at its discretion? 

Ms. PETRONCHAK. Yes. Congressman Bishop, it is an administrative practice in the Large Business Division. So it is not required by Code. But certainly, although that procedure, you know, 

some would argue could be improved, it is a drastic change and different from that that is afforded to small and medium-sized businesses. 

Mr. BISHOP. I still don’t understand why. You all have done this 

before. Does anybody understand why small businesses are treated 

differently than large businesses in this area? It just seems like it 

is—— 

60 

Ms. PETRONCHAK. I personally don’t see a reason why they 

could not integrate some of those procedures into their examination 

practices. You know, having the discussion upfront meets the Taxpayer Bill of Rights to be informed and know what is going on, so 

I certainly don’t see why it could not become a part of their work 

processes. 

Mr. SEPP. I would agree that it should. Although, I would say 

that there has been some negative feedback, even from folks who 

have experienced audits in LB&I that the IDR requests are often 

poorly focused. So this might be a problem that is not only with 

small businesses but with the procedural latitude given to the IRS. 

Mr. BISHOP. You indicated that the non-in-person exam or the 

Appeals Officer, is the expert for the IRS in the room with the examiner? 

Ms. PETRONCHAK. So it is actually an Appeals meeting, and it 

is a telephone or they have moved to virtual conferences in some 

instances. The Appeals officer is in the room. They may have a 

technical specialist. And under the current rules, they could invite 

Exam to be on the phone as well. So that is a real concern, is that, 

well, who is on the phone. You have got so many parties. You don’t 

know who is speaking, whose perspective are you hearing. 

Mr. BISHOP. Is there a problem with ex parte communication 

in-house? 

Ms. PETRONCHAK. That does not violate ex parte communications because the way ex parte works, if the taxpayer is invited to 

attend the conference where Exam or Compliance will be present, 

then it is not a violation of ex parte. 

Mr. BISHOP. I get that in practice. In theory, you are 100 percent right. But in practice, it seems that that would be an absolute 

recurring problem. 

Ms. PETRONCHAK. It could be. 

Mr. BISHOP. And one other thing, if I might, Mr. Chair, is the 

appeal process de novo, or is it a continuing process—does your appeal take up all the evidence? Do they consider everything or only 

that which was considered in the previous review? 

Ms. PETRONCHAK. So, in Appeals, they should be considering 

the information that was developed and presented to them by 

Exam as well as what the taxpayer submitted and then making an 

independent decision. 

When they changed—I think Ms. Wilson referenced the IRM 

change—they said: We are not going to hear new facts, new evidence in Appeals. We are only going to rely on what is in the file 

to make our decision. So it should be exactly what is in front of 

them. 

Mr. BISHOP. Thank you very much. 

Thank you, Mr. Chair. 

Chairman BUCHANAN. Thank you. 

I now recognize the Ranking Member, Mr. Lewis, from Georgia. 

Mr. LEWIS. Thank you very much, Mr. Chairman. 

Ms. Wilson, thank you for being here today. I understand that 

you are the head of the national tax office at your firm. What type 

of issues are taxpayers trying to resolve when they come to your 

firm? 

Ms. WILSON. Great question. 

61 

Mr. LEWIS. Small issues? Big issues? Global issues? 

Ms. WILSON. That is the unique thing about our firm. I would say they run the gamut, so they are all the way from small $1,000 

penalty issues up to very large exams. So, you know, we have a 

very unique client base, and we target mid-sized business, which 

by the nature of that, we have all range of issues that we see. 

You know, recently, the significant issues I see are around penalties and penalties appeal. We have a lot of clients or clients in 

our base that, you know, have been onslaughted with information 

return penalties. And so we try to help them manage through that 

process. 

Mr. LEWIS. In your experience, what are the biggest challenges 

you and your clients experience in resolving tax issues with the 

agency? 

Ms. WILSON. That is a good question. You know, I think the 

largest issue is just being heard, making sure that you—— 

Mr. LEWIS. Do you have a hard time, a difficult time in sometimes just being heard, just getting a face-to-face meeting? 

Ms. WILSON. Exactly. Exactly. And Appeals, as we discussed, as 

I discussed in my testimony, has dramatically changed that process. I have been doing this for many, many years where I focus just 

on IRS—— 

Mr. LEWIS. You haven’t been doing it. You are too young to be 

doing it for many, many years, now. 

Ms. WILSON. But, you know, face-to-face was the—that was the 

one time you got to sit down and face the IRS and really talk about 

the issues. And from a client’s perspective, they felt like they were 

being heard because they sat across the table from that Appeals officer, and they could see them listening. They could see the head 

nodding. 

And so, even if it didn’t come in their favor, they felt like they 

were being heard. When you turn to these telephone conferences, 

which are now the standard practice, you know, you remove that. 

And they question whether the Appeals officer—my clients do— 

are even listening, because you get to the end of the conference 

and—and I am not saying in every case, because a lot of times this 

process does work well. But in some cases, the client just walks 

away and says: I don’t even think they were listening; in fact, I 

heard keystrokes on the computer, right. 

And so, you know, I think, from the AICPA, that is one of our 

recommendations, is you really need to look at this new procedure. 

It is administrative. But you really need to look at it and say: What 

are we doing to taxpayers’ services here? Are our taxpayers really 

feeling like they are being heard, because this is their last opportunity, Ranking Member? When they get to Appeals, their next option is litigation. And I can tell you, in my client base, 99 percent 

of them are not going to want to take it to litigation because, again, 

maybe the dollar amount isn’t high enough, or they are just frightened by the whole concept of having to go to tax court. 

Mr. LEWIS. Are you suggesting or recommending that we need 

to do more to humanize the IRS and not make it so distant, this 

unbelievable agency at someplace? How do we go about doing that? 

What are your recommendations? What are you suggesting? 

Yes, Mr. Shinn. 

62 

Mr. SHINN. Ranking Member, that is why I got so choked up 

about doing it in person. You know, there are people that can afford to go to an enrolled agent or a CPA, but there are a lot of taxpayers out there that don’t have that access. And having the opportunity to walk in and talk at the local agent office level is so important. And having that face-to-face humanizes the circumstances 

and the facts in the situation, and you actually feel what is going 

on. 

Now, granted, we all understand that there are some States that 

don’t even have an Appeal officer in them, and so Appeal officers 

have to come from out of State. So, like in Alabama and Mississippi, they are coming from out of State just to deal with it. So 

we have a staffing issue. 

But having that conversation with the Appeals officer is a real 

opportunity to solve. And having the process, the process that you 

talked about with the small business audits, it is very much behind 

a dark curtain, and it is a very scary proposition. 

When those taxpayers get those letters and those long, 4-page requests, it is intense and a very scary moment. And we don’t get the 

chance, like with a large business audit, to have a face-to-face with 

the team. 

And then, not being able to pick up the phone and call, we have 

situations where you will go on hold for over an hour, and it will 

be at the end of the day. And at 4:30, they will pick up the phone 

and put it back down again, and you restart the next day. That is 

not taxpayer-friendly. 

Mr. LEWIS. Thank you. 

Thank you, Mr. Chairman. I yield back. 

Chairman BUCHANAN. Thank you. 

The gentleman from Pennsylvania, Mr. Meehan, you are recognized. 

Mr. MEEHAN. Thank you, Mr. Chairman. 

And I thank each of the panelists for your service and dedication, 

because it is clear that you are here as voices for people who feel 

that they have—if they are not abiding by the rules, they wonder 

sometimes what is the technicality. They are not people who are 

out there deliberately trying to skirt the rules or beat the system. 

There is a place for those who are deliberately recalcitrant, but 

so many of us are just caught in the melee. So I have some questions about trying to get your interpretations to make this a little 

better. It just seems so much of it is tied to a personal relationship, 

a sense that somebody is actually listening to me, and let’s just resolve this thing while we are here. 

I have a couple of questions. One had to do—and I think Mr. 

Shinn, it was you who was saying that there were—or, Ms. Wilson, 

it was you, according to my notes—that there were recording errors, penalty situations where there would be appeals, and they 

were just getting to be routine noes. 

Now, when I was a prosecutor and you had a case, you might do 

a declination or you would do a prosecution memo, but whenever 

there was a decision point, it was justified. Even though it was all 

internal in the—should we be requiring that if there is an original 

inquiry and there is a routine ‘‘no’’ set out, that there is a justification that you can know that somebody has actually analyzed the 

63 

file and has said that there is a reason why we are just saying no 

right now? 

Ms. WILSON. I would absolutely agree with you that there 

should be a requirement to, you know, document what the justification for denial was. And, again, you know, there is many a time 

where we do get the denial, and it does appear somebody has reviewed it because they have put specific facts in there. 

Mr. MEEHAN. But you are comfortable with that because at 

least you know you can counsel your client: Here is what it is—— 

Ms. WILSON. Exactly. But there have been instances where 

clearly it wasn’t read because they articulated—you know the 

way—and maybe Ms. Petronchak can speak to this, but they will 

take paragraphs. They have got modelled paragraphs that they can 

pull from a system to do a notice to a specific taxpayer. And it has 

been obvious that they just pulled those paragraphs and are dumping them into this letter—— 

Mr. MEEHAN. Pro forma. 

Ms. WILSON [continuing]. And it is very irrelevant to what was 

even discussed. 

Mr. MEEHAN. So what is the effect on the taxpayer? It just 

draws it out even further. Have penalties and fines been waived 

during this period, or is there further accumulation during the period in time that you are appealing this process? 

Ms. WILSON. So, yeah, interest continues to accrue while we are 

going through this process. 

Mr. MEEHAN. So the clock is ticking against the person who is 

appealing? 

Ms. WILSON. Yes. And so, you know, that is a discussion you 

have to have with your clients. But then, you know, there have 

been instances where, you know, your client will come to you and 

say: Do I pay now because, you know, I don’t want to accrue all 

the interest? 

But then there is a different process. You have to file a different 

form, the form 843, to make a refund claim, and it is a different 

process. And you will end up in the same place, but, you know, 

there are a lot of considerations to take in when you are counseling 

clients of what path to go down. 

But, you know, back to your point, I think the impact it has on 

my clients is that we are built on a voluntary compliance system. 

And, you know, what I have seen in some of this penalty administration recently just is that clients become very discouraged because they truly thought they were being compliant. And then 

when they get this notice that looks like they weren’t even really 

looked at, it can be very discouraging to them. 

Now, the positive note I will say is that, once we get to the appeals process in the penalty arena, a lot of times we do have success there. But it is that routine—it just seems to be when you 

make your initial request, it is just the routine—— 

Mr. MEEHAN. Well, maybe you can—and that appeals process, 

because that would be presuming we get to that point where you 

actually have somebody and now you are talking—but I am intrigued by the concept. 

I think, Mr. Shinn, you were talking about it where you believed 

that the presence of the examiner also at the appeal was creating 

64 

kind of a piling on, and yet I wonder to the extent that if you are 

actually trying to get to a resolution, should there be some capacity 

for the person that knows the facts to be able to present them to— 

I know that the IRS person is supposed to be independent, so to 

speak, but I would believe that if I was doing an appeal I would 

want to have at my availability the person who knows the record. 

Mr. SHINN. My experience has been the Appeals officers are extremely experienced and knowledgeable on the issues and if they 

weren’t, they would assign another person. And so they can come 

to their own conclusions based on the facts as presented that came 

up. That file is transferred. They get to see the file. 

Mr. MEEHAN. The file, but you don’t have the benefit—so just 

explain to me the difference. Why is it preferable not to have that 

person in the room who knows the record? 

Well, maybe for another time. Maybe if you have a thought that 

you want to share with us in written testimony or otherwise, we 

would benefit from it. Thank you so much. 

Chairman BUCHANAN. Ms. DelBene, you are recognized. 

Ms. DELBENE. Thank you, Mr. Chair. 

Thank you all for being here with us today. 

Ms. Petronchak, I wanted to follow up on comments you made 

earlier when we were talking about the challenges that small businesses face and the inconsistency that we see for small businesses 

versus large businesses. 

What do you think we should do to address these issues? What 

procedures would you like to see? Or do you have recommendations 

on what you think we could do that would work for small businesses? 

Ms. PETRONCHAK. So some of the things could be implemented 

administratively. I think Pete had talked about the IDR process, 

and LB&I isn’t perfect by any means. But those are things, from 

a quality perspective, within the Service, I think they could take 

a look at and decide that they want to change those processes for 

taxpayers and indicate that, gee, when we are developing the facts, 

it is important to put the human element on it and actually having 

a discussion with the taxpayer about the information. 

And although that is not perfect and you will still have disagreements and still have contentious exams, it is an administrative 

process that could be implemented by rolling out new procedures 

for their agents in how they interact with taxpayers on a routine 

basis. 

I mean, they are developing the facts. We have all spoken to the 

independence issue in Appeals. So that initial fact finding, that 

document request, is critical to a taxpayer feeling like they have 

had the opportunity to present their position and be heard by 

someone at the Service who is going to be open about what it is 

they are looking at and the treatment they are going to decide on 

a particular tax issue. 

So I don’t know that anything needs to be mandated, but the 

IRS, in looking at their procedures, could say—I was Commissioner 

of Small Business, and, yes, when I was there, back when I left 

in—was one of those things I could have looked at and said, gee, 

there are ways we could be interacting on a much better basis with 

65 

our taxpayers to make them feel better about the voluntary compliance system. 

Ms. DELBENE. Thank you. 

Mr. Sepp, it seems the current procedures for small business 

leave room for improvement, and I know you talked about that in 

your testimony as well. 

You also pointed out in your testimony that larger businesses 

also have some challenges when it comes to the right to appeal. 

And I wondered if you could talk a little bit about your assessment 

of why organizations, like members of the CEETA coalition, are 

facing the challenges in dealing with the IRS that you outlined. 

What are some of those challenges, and why do you think those are 

happening? 

Mr. SEPP. Sure. That is the Coalition for Effective and Efficient 

Tax Administration. It is a coalition not only of large business 

groups but taxpayer advocacy groups, because we are concerned 

that some of the trends, both in Small Business and Self-Employed 

Division toward audits but LB&I, are leaking across to each other, 

and we are going to have auditing procedures that are taking the 

worst elements in all divisions to be used against taxpayers across 

the spectrum. 

Some of the problems we are facing: designating certain cases for 

litigation, where they might have precedential value even though 

there really isn’t a clear connection to precedential value or large 

numbers of taxpayers who might be affected. There is the designated summons, which is a rather extraordinary IRS power for 

getting information out of uncooperative taxpayers that is being increasingly used in cases where the taxpayers really are being cooperative. And, of course, there is the use of third-party counsel to 

work auditing situations, not to advise but, rather, to do things 

that approach deposing witnesses. 

But all of this really matters to taxpayers across the board, because, again, as everyone has testified here, there is on paper a directive to the Secretary to provide procedures for fair and independent audit appeals, but, in reality, it is just not happening. And 

I see this in case after case. 

Even small business owners who are getting things like the 90- 

day letter, if they are lucky enough to ever have gotten a 30-day 

letter in the first place, they think it is a demand to pay tax. They 

don’t even realize it is the revenue officer’s report that would allow 

them to take an appeal to Tax Court. They don’t even understand 

the basic nature of the process, because they are so intimidated by 

it. 

And, again, this is why we support H.R. 3220 as a start of a 

package that could begin addressing these things. 

Ms. DELBENE. Thank you very much. 

I yield back, Mr. Chairman. 

Chairman BUCHANAN. Thank you. 

Mr. Holding, you are recognized. 

Mr. HOLDING. Thank you, Mr. Chairman. Thanks for holding 

this hearing. 

You know, obviously, we don’t usually hear from our constituents’ interactions with the IRS unless they are negative. And I apVerDate Sep 11 2014 07:37 Mar 07, 2019 Jkt 033617 PO 00000 Frm 00069 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\33617.XXX 33617
66 

preciate the Committee looking into ways to enhance this experience. 

So I am just concerned about what I think is a new diversionary 

tactic being used by the IRS to keep taxpayers from accessing administrative appeals. So we all know that cases docketed in the 

Tax Court are typically transferred to Appeals for consideration— 

are not typically docketed unless they are designated for litigation. 

And it has come to my attention that the IRS may be restricting 

taxpayer access to appeals in some cases that are docketed in Tax 

Court. 

And the case that I am aware of was not designated for litigation 

nor referred to Appeals, the two standard options for making an 

audit dispute. And, instead, the case was kept in a purgatory-type 

status, waiting for litigation, under the justification of ‘‘sound tax 

administration.’’ I put that in quotes because that is the term they 

used. And that was the only option available. The only option available to the taxpayer was litigation. 

So my question—and I am going to ask Mr. Sepp to respond first 

and then open it up to the panel: In your experience as a practitioner, have you or any of your clients experienced something analogous to this? 

Mr. SEPP. I should state I am not a practitioner, but people in 

the small business community—— 

Mr. HOLDING. Right. 

Mr. SEPP [continuing]. Other taxpayers have come to us, and 

there has been that sort of experience relayed to us. And there are 

other experiences, such as what are called speed-up situations, 

where a taxpayer may receive a notice of audit and requests for 

documents, and suddenly they will find in the mail yet another determination, and they haven’t even had a chance to respond to the 

first one. And it is a way of intimidating the taxpayer into taking 

a position that is detrimental to them. 

Mr. HOLDING. Mr. Shinn, you are nodding your head there. 

Mr. SHINN. Yes, sir. We have seen this in a very similar fashion 

with foreign penalties on foreign reporting. And I mention it in my 

verbal and in my written response. We have seen it numerous 

times. 

That is why I make the comment that they need to follow the 

rules or there needs to be a repercussion to the Service. You follow 

it, or you lose your opportunity. Somehow, we have to hold them 

accountable to the process. That is why you have a taxpayer bill 

of rights. 

Mr. HOLDING. Ms. Petronchak? 

Ms. PETRONCHAK. Congressman, I am not sure of all the specifics around it, but in the revenue procedure that addresses cases, 

so if a taxpayer filed a Tax Court petition, they generally can get 

their case heard by Appeals before they actually end up in Tax 

Court if they have not already been to Appeals. I don’t remember 

the revenue procedure that covers it. So there is a provision. 

However, you used a term that shows up in several of the revenue procedures: sound tax administration. I don’t know what that 

means, but in regards to sound tax administration, they don’t have 

to offer alternative dispute resolution, the fast-track process that I 

talked about in my testimony. 

67 

So I think sound tax administration is a way that they can 

choose to treat cases differently than what we would see should be 

the normal treatment of a taxpayer and how their case would move 

through the system. What the answer is to that I don’t know, but 

I think the use of sound tax administration they are using as leeway to do many different things with a taxpayer’s case. 

Mr. HOLDING. Thank you. 

Ms. Wilson, do you want to add anything to that in the final few 

seconds? 

Ms. WILSON. No. I just want to 100 percent agree with her that, 

you know, she is spot-on on the issue. And that is why you see my 

head going back and forth violently, because I couldn’t agree with 

her more on that issue. 

Mr. HOLDING. Thank you. 

Mr. Chairman, I yield back. 

Chairman BUCHANAN. Thank you. 

The gentleman from Oregon, Mr. Blumenauer, you are recognized. 

Mr. BLUMENAUER. Thank you, Mr. Chairman. 

I find the conversation fascinating, but in the backdrop of my experience, when I visit our local IRS offices and when I have meetings, which I do routinely with tax practitioners, tax attorneys, accountants, part of this strikes me that it would be easier to resolve 

some of this if the IRS was equipped to operate in a modern economy, if it didn’t have a computer system that is so far out of date 

that they have to delve into the archives, find somebody encased 

in amber that can figure out FORTRAN programming. 

I have meetings with people who work at the IRS and have them 

break into tears because they don’t have any time to talk to people 

on the phone to be able to maybe help guide a little bit. There are 

people who don’t fully understand the rules and regulations and 

the opportunities within the agency and the training budget. 

I hear from both people in the agency and from the practitioners 

who, interestingly, are not hostile to the IRS; they are frustrated. 

They are frustrated that they tell clients, ‘‘You have a good point. 

We can work together. We can resolve it and get your $3,700 back. 

But it will cost you more to work with me to get it.’’ 

And I just wonder what you think is attributed to the fact that 

we have slashed the budget, slashed the workforce. Congress, each 

year that I have been here, makes the Tax Code more complicated. 

And, in some cases, it is a rush to be able to actually get the stuff 

out in time, and sometimes we miss the deadline. 

So at what point is Congress complicit in this by not taking the 

largest tax-collecting system in the world, which relies heavily on 

voluntary compliance and treats our employees and our taxpayers 

with respect and put the resources behind it to make it a—any of 

you have any thoughts on that? 

Mr. Shinn? 

Mr. SHINN. Yes. In Sarasota, at our office there in Sarasota, 

Florida, the number of people in there, the whole area that was set 

for walk-ins is gone. The number of agents has been reduced. I will 

be the first one to stand up and say it is going to take more resources. 

68 

If we are going to stand here and say we are going to provide 

more appellate officers, that takes dollars. If we need more access 

through the internet and to broaden our e-services, which obviously 

we are all nodding our head, we need to use technology to give access. And in those phone calls, extending the hours, all that takes 

money. And that is why we are here today. 

Mr. BLUMENAUER. But would that be helpful for some of these 

things—— 

Mr. SHINN. Absolutely. 

Mr. BLUMENAUER [continuing]. If there were extended hours, 

if there were more people, if there was more training, a modern 

computer system? 

Ms. PETRONCHAK. Sir, I would say additional funding would 

be useful. I mean, IRS can do some things administratively, but 

you mentioned training. I mean, I was Commissioner of the Small 

Business Unit in 2008. And for me to have adequate training for 

my revenue agents who do the exams and the collection officers 

who—the revenue officers who did collection, it was a really highfocused training for one of those groups each year, but I couldn’t 

afford to have a real highly focused training for each of those 

groups, even back in 2008. So you can imagine. 

Well, how this plays out in terms of taxpayers and practitioners, 

I mean, we feel like we are having to try to educate the revenue 

agent on the issues, because they can’t get the training they need 

within the Service. And they are working issues on exams that 

they have never seen before, and so then they tend to go to somebody for advice. But you know how it is. You talk to three different 

people; how much gets translated as it goes down the line and really actually comes to form a final conclusion. 

Mr. SEPP. I would also make a quick plea for funding in another 

area, the Volunteer Income Tax Assistance program and the lowincome tax clinics. 

Right now, I think eligibility for the LITC program is 250 percent of poverty level. That is about $60,000 for a household of four. That 

is not going to capture all that many small business clients, for example, who might desperately need assistance and could get it 

through a nonprofit organization like that. 

Mr. BLUMENAUER. Great. 

Thank you for your patience, Mr. Chairman. I just hope at some 

point, when passions cool, to look at how we treat our accounts receivable and being able to think through the resource, the training, 

the computer, that I hope shouldn’t be politicized, but I think the 

evidence is that that will pay for itself many times over and relieve 

blood pressure medication. 

Thank you. 

Chairman BUCHANAN. I hear what you are saying. They said 

the computers, some of them are back from the seventies and 

eighties and sixties. I can’t imagine that, but that is part of the testimony we had. 

The gentlelady from Indiana, Mrs. Walorski. 

Mrs. WALORSKI. Thanks, Mr. Chairman. 

And thanks to the witnesses again for being here today and lending your expertise to us. I think this has just been a fascinating 

conversation. And it has been a conversation, listening to your exVerDate Sep 11 2014 07:37 Mar 07, 2019 Jkt 033617 PO 00000 Frm 00072 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\33617.XXX 33617
69 

pertise and to questions that we have, and the unanimous response 

that we all have. We are all kind of talking about all these same 

issues. 

One of the rights enshrined in the Taxpayer Bill of Rights is the 

right to pay no more than the correct amount of tax. 

Mr. Sepp, I was struck that less than 5 percent of small business 

taxpayers appeal their audit determinations and that a big reason 

for this is taxpayers believe it is cheaper to just give up and pay 

the IRS rather than appeal. That, to me, is incredibly disheartening. If a taxpayer thinks they are paying more in taxes than they 

should, you know, my advice is absolutely fight it. The tools are 

there to fight it. Instead, their perception seems to be that appealing it isn’t worth the time or the money. We need to change that 

perception, as well as the actual time and money associated with 

appealing. 

But I just wanted to address this to Mr. Sepp and Ms. 

Petronchak. You both discussed dispute resolution and options that 

would be less formal, lower cost for taxpayers. You also noted that 

the IRS has failed to expand its use of these fast-track dispute resolutions. 

Ms. Petronchak, can you explain how these fast-track procedures 

work and how they assist taxpayers in resolving cases quickly? 

And I am just going to tell you, my follow-up question to both 

of you, Mr. Sepp as well, is, is there a way that we in Congress 

can do something about that, or is it purely just IRS authority? 

So I would just like to hear about the options and then, what can 

we do. 

Ms. PETRONCHAK. So, in fast-track settlement, it is an option 

where, you know, I am being examined by the IRS and we know 

that I have a dispute over—let’s just make it simple—travel expenses. So they have said what their position is; I have said what 

my position is. So the taxpayer and IRS can agree that a fast-track 

settlement, having the use of an appeals mediator while it is in 

Exam, would be beneficial to all parties to come to resolution on 

the issue. 

So, getting to your earlier comments, it brings quicker resolution. 

The taxpayer is hoping to get this resolved at least cost so they 

don’t have to go on to formal appeals, much less go to Tax Court, 

which not only is cost, but many small- and medium-size taxpayers 

don’t want their laundry aired out in public court. 

Mrs. WALORSKI. Oh, absolutely. Right. 

Ms. PETRONCHAK. So, even though they may think they are 

right, they are not going to choose that as the venue to go to, because they don’t want their neighbors talking about their issues 

with IRS. 

And so fast track, you know, we used to see a lot of them; we 

don’t see as many anymore. But the procedures I talked about that 

Small Business is using for their exams, when they wait to the end 

of the process to have a discussion, doesn’t lend itself to having 

that alternative dispute resolution. 

Mrs. WALORSKI. And what can we do about it, Mr. Sepp? 

Mr. SEPP. Based on my limited study of other countries’ practices and what the taxpayer advocate has said, there seem to be 

several problems. 

70 

One, we have to restore the independence of the ADR process. In 

almost every case, from Australia to U.K., Portugal, all around the 

world where ADR is much more common and hundreds of thousands of cases will get resolved this way, they have to keep the mediator or arbitrator function well-insulated away from the tax authority. 

We may not be able to use private accredited mediators here, 

much in the way that it appears in the Small Business Taxpayer 

Bill of Rights that was introduced in the last Congress, but we 

could have a situation where there is an office of mediation with 

specially trained people, rather than plucking people from Appeals 

who have some training in mediation and arbitration. You could 

even house that bureau somewhere in the Treasury so that it has 

further independence. 

The other important thing, I think, is to instruct the IRS where 

mediation and arbitration can be used. The agency will often exclude so-called campus collection cases and other types of matters 

for ADR from the start. And we have to resolve those kinds of 

issues as well. 

Mrs. WALORSKI. I appreciate it. 

Mr. Shinn, did you want to add anything quickly? 

Mr. SHINN. Yes. And in response, that is why I think, especially 

in small business, that it needs to be a requirement of the steps, 

so that that way people aren’t afraid of appeals; it is part of the 

process. The fast track is there and is part of the sign-off. 

Mrs. WALORSKI. I appreciate it. 

Thanks, Mr. Chairman. I yield back. 

Chairman BUCHANAN. I want to thank everybody for the opportunity, but let me run through—and this will be a question to 

all of us. We are trying to simplify the dispute resolution, trying 

to improve on the process. And I want all of you to take a minute 

on that. 

But before I do, I want to say a couple of things. I do agree, with 

big corporations—it doesn’t mean that there is not work to be done 

in dispute resolution, but I have been in that world. And you have 

CFOs, you have plenty of cash, and you have to go to court, you 

go to court. You don’t want to, but they have resources. 

What I am concerned about personally is individuals. I read in 

USA Today 62 percent of Americans—I use this a lot, but it was 

stunning to me when I read it—don’t have $1,000 in the bank. So 

if you get a letter from the IRS that you owe $2,000, where are you 

going to go resolve that? A CPA, accountant, that is going to be a 

couple, $3-, $4,000. You probably are going to just say you are better off to write a check or get on a payment plan, just agree with 

the IRS and move on. 

Small businesses, a dispute resolution, if you ever think about 

going to court, you could be talking over $100,000, $50,000. 

Did you say, Ms. Wilson, you are in a law firm? 

Ms. WILSON. No. 

Chairman BUCHANAN. Okay, a CPA firm. But you know, when 

you hand it off to the tax lawyer, you are talking big money. And 

usually you just cave and say, you know, let’s go make the best 

deal and get down the road. That has happened to me and others, 

I have heard of it, where they don’t think they owe the money, but 

71 

at the end of the day, the $10- or $20,000, the $5,000, the $30,000, 

it costs you more with accountants and lawyers to go try to resolve 

it. 

So the question I have for the individual taxpayer, the 62 percent who don’t have $1,000 in the bank, how do we simplify this dispute 

resolution where people can have their day in court but it doesn’t 

take six months, a year? Because, as that meter is running, there 

is no way you can afford to go to court or, you know, arbitration 

or work with someone to try to resolve that. 

Mr. Shinn, I will give you the first opportunity from that standpoint. And I know you have dealt with that. But that is just my 

sentiment. That is what I have heard over the years. 

Mr. SHINN. That is why I said we have to have the opportunity 

to have access through phone calls and walk-ins. And, also, when 

the taxpayer doesn’t follow the deadlines, there are repercussions. 

When the IRS doesn’t follow their protocol, there needs to be repercussions, because, to the taxpayer, it is hard and fast. 

So I can give you one quick analogy that really struck me, is I 

helped an employee, a 90-year-old person of color who could not 

write. He was a night watchman at a packing house, worked several years there. Prior to that, he worked at another packing house, 

where they treated him as an independent contractor. And he got 

billed. And he didn’t know what to do. It went all the way to collections, and they garnished his wages. He ended up with pancreatic 

cancer, and the employer asked me to step in. 

I tried to get the collection officer to settle, and the employer was 

going to settle. They wouldn’t take a dime less, and he passed away 

21⁄2 weeks later. I called that collection officer, I sent him a copy 

of a death certificate, and I said, that isn’t in the taxpayer’s best 

interest. 

And that is what we are dealing with, and it is so sad. 

Chairman BUCHANAN. Yeah. 

Ms. Wilson? 

Ms. WILSON. You know, I now work at an accounting firm, but 

I was a local taxpayer advocate and worked with Nina Olson. So, 

you know, this is near and dear to my heart, as exactly what you 

are talking about, Chairman Buchanan, in the sense that—— 

Chairman BUCHANAN. Let me just say with you and all, we are 

looking to do IRS reform, and this is one of the biggest areas. I 

think we have to find a way that people can get these disputes settled. So that is what we are looking for. 

But go ahead. 

Ms. WILSON. Yeah. And I think we need to simplify the process. 

I think it is intimidating, and I think, because it is intimidating, 

taxpayers feel that the only way they are going to resolve it and 

win is if they engage help. And, as your point, most taxpayers don’t 

even have $1,000 in their account. 

So I think, you know, that we need to find a way to simplify the 

process. We need to find a way to make it less intimidating for the 

taxpayers. And we need to focus on that bill of rights that says you 

shouldn’t have to pay more tax than you actually owe. 

Chairman BUCHANAN. Mr. Sepp? 

Mr. SEPP. We have to find a way to institutionalize alternative 

dispute resolution mechanisms. We have got to learn from the exVerDate Sep 11 2014 07:37 Mar 07, 2019 Jkt 033617 PO 00000 Frm 00075 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\33617.XXX 33617
72 

periences in other countries, where millions of individuals have utilized the process, making it less formal but more actionable, with 

fewer delays, applying to a larger number of cases, with a more 

independent arbiter involved. 

If we do those things—and H.R. 1828 from the last Congress is 

only a starting point for this—if we do that, I think we will dramatically increase the access to justice that taxpayers need. 

Add to that things like the Low Income Taxpayer Clinics, add to 

that more resources for the Taxpayer Advocate’s Office, and you 

have the beginning of a core of principles that will get to this point 

of giving taxpayers the justice that they need. And they still need 

it. 

Chairman BUCHANAN. You get the last word. 

Ms. PETRONCHAK. Okay, Chairman. 

So fast-track settlement, I agree, should be available for all taxpayers. Just to give a little history, Large Business and International developed this process 2002, 2003, but it didn’t become 

final and actually institutionalized for small business and self-employed taxpayers until 2015. 

Chairman BUCHANAN. Yeah. 

Ms. PETRONCHAK. So when I commented on a couple processes 

I think could make things more transparent and easy for taxpayers, there are some things that they have there. 

Now, fast track isn’t the answer to everything, because you may 

have reluctant IRS folks to use it. Pete mentioned, you know—I in 

my written testimony mentioned outside mediator or taxpayer. To 

them, hiring an outside mediator for $1,000, $1,500 is cheaper than 

taking this on to Appeals or Tax Court. I hadn’t thought about the 

concept of a mediator group, you know, somewhere in Treasury or 

somewhere that serves as an independent mediator—— Chairman BUCHANAN. The problem is, if you owe $2,500 or $2,000, you can’t pay $1,500, because you just say—— 

Ms. PETRONCHAK. Right. 

Chairman BUCHANAN [continuing]. You know, I am going to go 

ahead and just write the check or figure out a way to write it. 

Go ahead. 

Ms. PETRONCHAK. But, again, you know, IRS hasn’t shown 

that they are extremely interested in this alternative dispute resolution. I would caution against saying, well, we mandate you to use 

alternative dispute resolution, because if they don’t come to the 

table willing to settle and fast track, the taxpayer and IRS have 

to agree, or they just walk away and the taxpayer still has their 

appeal rights. 

So, somehow, I mean, maybe looking at some of the other systems, come up with, well, what is the happy medium here and how 

this could be changed. It is there; taxpayers would love to use it. 

Individual taxpayers need to be able to use it, which—now it is 

available really to businesses, small and large. But it needs to be 

expanded and made available and at least cost and be successful 

once it is used. 

Chairman BUCHANAN. Well, I would appreciate for all of you 

to get your thoughts and your ideas to our Committee. We want 

to work together, the Ranking Member and myself, on a bipartisan 

basis, because this is an important issue. 

73 

And I have been in that world where larger organizations have the resources. I am concerned about the person that gets a $1,000, 

$1,500, $2,000 small business or individual tax bill. How do we resolve that without putting them into bankruptcy or putting them 

in a bad situation? 

I agree with you—a lot of times you get that notice through the 

IRS. I have gotten more than my fair share; a lot of us have. You 

know, it is frightening to a lot of people. And this is an area we 

need to work on and get your thoughts and your ideas. 

So, in closing, I would like to thank our witnesses for appearing 

before us today. 

Please be advised that Members have two weeks to submit written questions to be answered later in writing. Those questions and 

your answers will be made part of the formal hearing record. 

With that, the Subcommittee stands adjourned. 

[Whereupon, at 3:24 p.m., the Subcommittee was adjourned.] 

[Public Submissions for the Record Follows:] 

74 


Insert 33617A.048

STATEMENT OF 

THE COALITION FOR EFFECTIVE AND EFFICIENT TAX ADMINISTRATION 

TO 

OVERSIGHT SUBCOMMITIEE OF 

THE COMMITIEE ON WAYS AND MEANS 

UNITED STATES HOUSE OF REPRESENTATIVES 

HEARING ON 

REFORMING HOW THE IRS RESOLVES TAXPAYER DISPUTES 

SEPTEMBER 13, 2017 

On behalf of the Coalition for Effective & Efficient Tax Administration ("CEETA"), we 

respectively submit this statement providing our perspective and recommendations with 

respect to Treasury regulations and Internal Revenue Service (the "IRS" or "Service") guidance 

and procedures for the resolution of disputes with taxpayers. We nave provided a list of 

particular regulations and guidance that we believe require the immediate attention of 

Congress, the Department of the Treasury ("Treasury"), and the Service, as these items test the 

Service's adherence to its mission of fairness in t he enforcement of Federal tax laws. 

Additionally, in this statement, CEETA offers its public support for H.R. 3220, Preserving 

Taxpayers' Rights Act, a bipartisan bill introduced on July 13, 2017, by Representatives Jason 

Smith and Terri Sewell and referred to the Committee on Ways and Means. Enactment of H.R. 

3220 will directly address certain concerns w ith current IRS overreach resulting in unnecessary 

disputes w ith taxpayers which is inefficient, t ime consuming, and expensive for taxpayers and 

the IRS. 

CEETA is a coalition of companies and trade associations that seeks to effect constructive 

administrative and legislative changes to ineffective and inefficient IRS practices and 

procedures.' CEETA thanks the Committee on Ways and Means Oversight Subcommittee for 

the opportunity to submit this statement and expresses hope in a continued dialogue within 

the Subcommittee, and Committee generally. 

1 The coalition of business organizations comprised of: ACT f The App Association; Americans for Tax Reform; 

Citizens Against Government Waste; Financial Executives International; Information Technology Industry Council; 

National AsSO<:iation of Manufacturers; National Foreign Trade Council; Retail Industry Leaders Association; Small 

Business & Entrepreneurship Council; Software Finance and Ta_x Executives Council; Tech Net; and U.S. Chamber of 

Commerce. 

100M Street, SE I #655 I Washington, DC 20003 

www.EETAX.org 
75 


Insert 33617A.049

Revenue Procedure 2016-22 

Revenue Procedure (Rev. Proc.) 2016·22 generally provides a description of the administrative 

appeals process, within the IRS Office of Appeals, for cases docketed in the U.S. Tax Court. 

CEETA's concern with this revenue procedure is particular to Section 3.03, which provides: 

Chief Counsel will not refer to Appeals any docketed case or issue if IRS Division Counsel 

or a "higher level of Counsel official" determines that referral is not in the interest of 

usound tax administration." 

CEETA opposes any general IRS authority to deny a taxpayer the right to administrative 

resolution of disputes before the Office of Appeals. A taxpayer's right to an independent 

administrative review of examination results in the Office of Appeals is vital to efficient tax 

administration. Both taxpayers and the IRS alike seek to achieve mutually agreeable resolution 

of tax issues in Appeals thereby avoiding litigation. Resolution in Appeals conserves finances, 

resources, and time of taxpayers, the IRS, and the Federal judiciary. In recent years, use of 

broad IRS discretion has resulted in heightened Congressional oversight, ultimately weakening 

taxpayer trust in the agency and calling into question the integrity of the tax administration 

process. Such broad discretion to deny appeal rights is neither in the interest of the taxpayer 

nor the IRS. If any limitations were to be placed on a taxpayer's right to Appeals, the limitations 

should be particular and narrowly defined, preferably by statute (see below discussion of H.R. 

3220). Allowing Counsel the unilateral authority to deny a taxpayer a right to Appeals in the 

interest of "sound tax administration," a wholly undefined and amorphous term, provides 

Counsel with any imaginable basis to deny a taxpayer a right to Appeals and force litigation, at 

the expense of all parties. 

In past communications with the IRS and Treasury, CEETA recommended the deletion of 

Section 3.03 of Rev. Proc. 2016·22 and continues to maintain that recommendation. 

Treasury Decision 9778 (I.R.C. § 76021 

On July 14, 2016, the IRS and Treasury finalized regulations under I.R.C. § 7602 that clarify that 

persons described in I.R.C. § 6103(n) and Treas. Reg.§ 301.6103(n)·1(a) with whom the IRS or 

IRS Chief Counsel contracts for services (such as outside economists, engineers, consultants, or 

attorneys) may receive books, papers, records, or other data summoned by the IRS. 

Additionally, the final regulations provide that such contractors may, in the presence of an IRS 

officer or employee, participate fully in the interview of a person the IRS has summoned as a 

witness to provide testimony under oath. 

2 

100 M Street, SE I #655 I Washington, OC 20003 

www.EETAX.org 
76 


Insert 33617A.050

In a letter dated May 5, 2016, addressed to the IRS, CEETA respectfully requested that the 

proposed and temporary regulations (T.D. 9669} issued under section 7602 be withdrawn. 

CEETA maintains this position. CEETA believes the final regulations fall short on both policy and 

procedural grounds, thereby failing to promote a more effective and efficient tax 

administration. These regulations delegate, outside statutory allowance, inherently 

governmental functions to private contractors. Allowing contractors to fully participate in 

summons interviews and receive documents will result inevitably in deferring control of an 

examination to outside contractors. Undoubtedly, the regulations will lead to longer, more 

contentious, and less efficient examinations. 

Accordingly, CEETA recommends the withdrawal of these regulations. 

Senator Orrin G. Hatch, Chairman of the Senate Committee on Finance, expres.sed similar 

concerns when the IRS previously hired a private law firm to assist in the income tax 

examination of a corporate taxpayer. In a May 13, 2015, letter to IRS Commissioner John 

Koskinen, Chairman Hatch noted that the hiring of the private law firm to participate in the 

examination (1) appeared to violate Federal law and the express will of the Congress, 

(2) removed taxpayer protections by allowing the performance of inherently governmental 

functions by private contractors, and (3) called into question the IRS's use of its limited 

resources. 

Retaining outside lawyers to conduct audits of private taxpayers is unprecedented in the history 

of the Service. At least one court has stated that it is " troubled" by the practice, noting, "[t]he 

idea that the IRS can 'farm out' legal assistance to a private law firm is by no means established 

by prior practice, and this case may lead to further scrutiny by Congress." 

H.R. 3220. Preserving Taxoayers' Rights Acts 

CEETA enthusiastically supports the enactment of H.R. 3220 as a step forward in ensuring 

efficiency and fairness in the Service's administrative procedures, as the bill directly addresses 

CEETA's concerns stated with Rev. Proc. 2016-22 and T.D. 9778, and more. 

The bill would codify a taxpayer's right to an administrative appeal before the Office of Appeals 

and limit such right only in particular instances defined within the statute; there would no 

longer be any discretion for the Service to deny a taxpayer the right to an appeal on the 

grounds of "sound tax administration." Additionally, the bill appropriately, and statutorily, 

100M Street, SE I n655 I Washington, DC 20003 

www.EETAX.org 
77 


Insert 33617A.051

limits the Service's ability to "designate cases for litigation," an authority which allows the 

Service to deny a taxpayer administrative appeal rights. 

The bill also modifies t he Service's authority to issue "designated summons." A designated 

summons issued under I.R.C. § 6503(j) unilaterally suspends the period of limitations on 

assessment under I.R.C. § 6501, thereby lifting a very crucial protection to taxpayers. Periods of 

limitations are a cornerstone of statutory law at the Federal and state level. Periods of 

limitations ensure that the Service, and taxpayers alike, do not indefinitely sit on potential 

claims; either the Service or taxpayer must act within the statutory period or have the potential 

claim legally closed to further action. As the suspension of section 6501 is a serious 

consequence of the Service issuing a designated summons, H.R. 3220 establishes an additional 

check against this authority. The bill provides that it must be clearly established that the 

taxpayer "did not reasonably cooperate with reasonable requests by the Secretary for 

witnesses, documents, meetings, and interviews .... " This requirement does not currently exist 

in section 6503U). This is a well drafted addition to the authority of the Service to issue a 

designated summons. 

Finally, H.R. 3220 amends I.R.C. § 7602 to expressly nullify the final regulations of T.D. 9778. 

The bill would amend section 7602 to prevent any person, other than an officer or employee of 

the IRS or for the sole purpose of serving as an expert, to receive any books, papers, records, or 

other data obtained in an examination. CEETA commends the drafters of H.R. 3220 for 

recognizing the final regulations of T.D. 9778 delegated inherently governmental functions to 

private contractors, and c.orrecting the Service's and Treasury's overreach in issuing the 

regulations. 

Publication of IRS Notices Asserting Future Regulations 

Although not specific to dispute resolution procedures amongst the IRS and taxpayers, CEETA 

requests the Subcommittee consider the following scenario and consider necessary review and 

oversight. 

There have been several recent occasions where the IRS has issued "Notice" guidance which 

provides that t he Service and Treasury "expect" to issue regulations that incorporate the 

guidance or asserts that the Agency "will amend" existing regulations to incorporate the 

guidance. See, e.g., Notice 2016·73; Notice 2012-15; Notice 2012·39; Notice 2014-32. In t he 

case of the Notices cited, despite the passage of time - in some cases several years- the 

regulations have not been issued. The result has been that taxpayers have been obligated to 

4 

100 M Street, SE I #655 I Washington, OC 20003 

www.EETAX.org 
78 

f 


Insert 33617A.052

follow the Notice guidance as if it were regulatory law, despite the lack of Administrative 

Procedure Act compliance in the Notice issuance and lack of the clarity formal regulations 

would provide. See I.R.C. § 7805(b)(1){C). The Notices oftentimes have an interrorem effect 

and bring attendant uncertainty. CEETA views this practice, whether intentional or 

unintentional, as circumvention of the requirements of the Administrative Procedure Act. 

Conclusion 

Thank you in advance for your consideration of the above matters. CEETA is happy to 

participate in any further discussions concerning the above-listed issues or more generally the 

procedures for resolving disputes between the IRS and taxpayers to minimize unnecessary 

litigation which is inefficient, time consuming, and expensive for taxpayers and the IRS. Please 

contact one of the following: 

Pam Olson 

Principal, PricewaterhouseCoopers LLP 

600 13th Street, NW 

Suite 1000 

Washington, DC 20005 

Telephone: (202} 414-1401 

Kevin Brown 

Principal, PricewaterhouseCoopers LLP 

600 13th Street, NW 

Suite 1000 

Washington, DC 20005 

Telephone: (202} 346·5051 

100M Street, SE I H655 I Washington, OC 20003 

www.EETAX.org 
79 


Insert 33617A.053

Fitzgerald Kit Trucks & Sales LLC 

Statement for the Record 

"IRS Reform: Resolving Taxpayer Disputes" 

Committee on Ways and Means 

Subcommittee on Oversight 

United States House of Representatives 

September 18,2017 
80 


Insert 33617A.054

Fitzgerald Kit Trucks & Sales LLC 

Statement for the Record 

"IRS Reform: Resolving Taxpayer Disputes" 

Committee on Ways and Means 

Subcommittee on Oversight 

United States House of Representatives 

September 18,2017 

Fitzgerald Kit Trucks & Sales LLC ("Fitzgerald") commends the Subcommittee for 

holding this hearing on reforming the Internal Revenue Service ("IRS") to improve the tax dispute 

resolution process. Fitzgerald, is a family-owned business my brother and I started in 1989. For 

almost thirty years, the company has been repairing worn or wrecked tractors with glider kits and 

selling the repaired tractors to the public. Fitzgerald is now the largest glider assembler in the 

country. 

While other businesses were shuttering their operations in the Upper Cumberland Region 

of Tennessee and Southern Kentucky, Fitzgerald was buying former manufacturing facilities and 

expanding its glider business. Fitzgerald has created a lot of good-paying jobs in economically 

challenged areas. Fitzgerald now employs in excess of 400 workers in its glider business and is 

responsible for thousands of other jobs at parts suppliers and other vendors who serve Fitzgerald's 

business. 

Fitzgerald has been the subject of six IRS examinations over the last two decades, each of 

which turn on the same excise tax issue. For five consecutive examinations, that issue was 

resolved favorably for Fitzgerald by either the IRS Examination Division ("Exam") or the IRS 

Appeals Division ("Appeals"). On those five occasions, Exam and Appeals operated as 

independent functions of the IRS and the tax dispute resolution process worked as intended. 

Sadly, Fitzgerald is once again in the IRS's crosshairs, only this time the process has 

utterly failed us. The IRS's sixth examination was like the five that preceded it and involved the 

same issue. Despite a post-appeals mediation in which Appeals fully conceded the excise tax 

issue in Fitzgerald's favor, Appeals has now backed out of the proposed resolution because 

Exam objected to it-a classic case of the tail wagging the dog. As a result, the IRS has 

assessed approximately $70 million of tax, penalties, and interest against Fitzgerald. 

The IRS's conduct in our case is egregious and it should alarm Congress. Independence 

is essential in order for Appeals to operate in a fair and impartial manner and for the tax dispute 

resolution process to function properly. Indeed, the mandate of Congress in the Internal Revenue 

Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, 112 Stat. 685 (the "1998 

RRA"), was to ensure an independent appeals function and prohibit ex parte communications 

between appeals officers and other IRS employees. It is important to highlight that in 

Fitzgerald's case the interaction between Appeals and Exam occurred not before the 

preconference, but after Fitzgerald and Appeals had reached a proposed resolution. How can 

small businesses like Fitzgerald feel confident that Appeals is operating independently and 

objectively when Exam can so freely override Appeals? 
81 


Insert 33617A.055

Fitzgerald now faces grave uncertainty. Exam's objection imperils 400 direct assembly 

jobs and thousands of indirect jobs. The specific excise tax issue is also much bigger than just 

Fitzgerald. More broadly, the IRS's actions are jeopardizing 15,000 to 20,000 jobs in the glider 

segment of the trucking industry. 

The IRS is forcing Fitzgerald to litigate this matter. This bullying tactic and failure of 

impartiality nms headlong into the mission statement of Appeals, which seeks to resolve tax 

controversies without litigation on a basis which is fair and impartial to both the government 

and the taxpayer, and the 1998 RRA. The IRS's subjective policies and procedures must be 

corrected for the bellern1ent of all taxpayers. No one should feel intimidated or forced into 

certain action because of a failure in the tax dispute resolution process. 

I applaud the leadership of this Subcommittee for investigating and hearing from 

witnesses about the significant consequences such collusion can have on taxpayers. I am hopeful 

this discussion and inquiry into resolving taxpayer disputes will continue and I would welcome 

the opportunity to share Fitzgerald's personal story to the committee. We appreciate any 

assistance you may be able to offer in this matter. If you have any questions or need any 

background materials, please contact Jon Toomey at (202) 999-8880. 

Sincerely, 

ToZ:tt!::~ President and Founder 

Fitzgerald Kit Trucks & Sales LLC 

cc: Congressman Diane Black 

Attaclunent: Taxpayer Confidentiality Disclosure Waiver 
82 

f 


Insert 33617A.056

Taxpayer Confidentiality Disclosure Waiver 

In conjunction with attached letter, Fitzgerald Kit Trucks & Sales LLC, EIN 62-1811834, 

752 Interstate Lane, Crossville, TN 38571 , hereby authorizes and consents to disclosure under 

section 6103(c) to any member or any member's staffofthe House Committee on Ways and 

Means, the Senate Committee on Finance, and any member of Congress copied on the attached 

letter to all tax return infonnation pertaining to federal excise taxes (Fonn 720) and any related 

penalties for all quarters for the years including 1991 through 2016 tax years. 

~.Fit:iera~ President and Founder 

Fitzgerald Kit Trucks & Sales LLC 
83 


Insert 33617A.057

Submission by John Klotsche 

House of Representatives 

Committee on Ways and Means 

Subcommittee on Oversight 

Hearing on Resolving Taxpayer Disputes 

1100 Longworth House Office Building 

September 13, 2017 

Room 1000, 2:00pm EDT 

I ask the House Ways and Means Oversight Committee to consider the proposal 

described below as a comprehensive administrative tool to resolve taxpayer disputes 

with the IRS. 

The idea is a call to the IRS to do what Congress told it to do many years ago: import 

best Alternative Dispute Resolution practices from the commercial world to 1111 

Constitution Avenue. The Agency has barely paid lip service to that mandate, and its 

efforts have failed to provide taxpayers embroiled in tax controversies with impartial, 

expeditious and cost effective tools to resolve their disputes. 

Why not incorporate at the IRS proven Alternative Dispute Resolution principles and 

practices widely and effectively used in the commercial world and at other federal 

agencies? ADR has for more than 40 years been the tool of choice to resolve 

commercial disputes and there is no reason why it wouldn't be equally effective in the 

tax world. This proposal envisions the IRS seriously implementing the 19-year-old 

Congressional mandate to overhaul and modernize its dispute resolution system. 

Congress in the 1998 Taxpayer Bill of Rights (aka Internal Revenue Service Revenue 

and Restructuring Act of 1998) instructed the IRS to develop mediation and arbitration 

procedures. Over the years, the Agency has cobbled together an a Ia carte menu of 

ADR programs - for which taxpayers have little appetite. During 2015, 113,870 cases 

got resolved at the IRS' Appeals Division; yet a paltry 99 taxpayer disputes were 

wrapped up using an ADR procedure. At the audit stage, only a scant 266 out of 

hundreds of thousands of disputed cases used an ADR program. 

There are two reasons ADR hasn't caught on at the IRS. First, the Agency hasn't 

shown a serious commitment to ADR principles - its enforcement culture clings to the 

vintage, outdated model of timeless two-party adversarial negotiations. Second, its ADR 

offerings are conceptually flawed, so taxpayers find them unattractive and not 

compelling. Case in point: The Agency's faulty premise that its main dispute resolution 

arm, IRS Appeals, can truly function "independently" when the Appeals "neutral" is on 

the IRS payroll. Couple that with an exam team (who propose the tax liabilities) and IRS 

chief counsel (who litigate them) who are constantly and often aggressively looking over 

Appeals' shoulder, and you have a dysfunctional dispute resolution system. 
84 

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Insert 33617A.058

A comprehensive and critical evaluation of the IRS's ADR programs can be found at 

www.ADRTax.org, including a number of ideas and recommendations for change. 

Here are three key recommendations: 

(a) New ADR Unit. IRS Appeals would be stripped of all ADR activities and a 

new Alternative Dispute Resolution Center would be established in Washington D.C., 

physically separate from IRS headquarters and completely detached from Appeals. 

(b) Independent Neutrals. Following the lead of the commercial world and 

other successful federal agency programs, the use of truly independent third-party 

neutrals with no ties to either party to serve as mediators and arbitrators. The current 

IRS practice of using IRS Appeals employees as "neutrals" surely defies perception, if 

not reality. 

(c) Mandatory Mediation. Following the practice followed in most state and 

federal courts, make the non-binding mediation process mandatory. That mediation is 

by definition and practice a non-binding procedure takes the sting out of the 

"mandatory" notion; the parties need only use their best efforts to resolve the dispute by 

mediation. 

The Ways and Means Blueprint Service First goal is addressed at www.ADRTax.org 

that details proposals to provide taxpayers embroiled in tax controversies with impartial 

and cost effective mediation and arbitration tools to resolve their disputes. The new 

AOR Center would be dedicated to managing the intake, processing, and swift 

disposition of unresolved cases filed by taxpayers, as well as oversee the parties' 

selection from a pool of highly qualified, independent neutrals. Under this new structure, 

taxpayers would be given a clear choice to have their disputes resolved either by 

genuinely impartial neutrals at the ADR Center or by IRS employees through the 

traditional Appeals process. 

Proposal. It's time to implement modern, proven, efficient and cost-effective ideas of 

the type outlined in www.ADRTax.org, which are widely and successfully used in the 

commercial world and at some federal agencies. The IRS should be required to take 

seriously its 1998 Congressional mandate to seize AOR as a strategic dispute 

resolution tool and put in place needed and meaningful ADR programs. This will also 

promote the IRS's overarching Mission of maximizing tax compliance and accelerating 

revenue collections through more collaboration and less confrontation. 

* * * * 

The author published this proposal in Tax Notes, "Drain the IRS Swamp: Proposals to 

Disrupt the Nation's Tax Collector," Vol. 154, No. 7, p. 877 (February 13, 

2017). The idea is meant to be comprehensive in scope and would render moot and 

unnecessary a proposal formulated earlier by the Ways and Means Committee 

Blueprint calling tor the creation of a "small claims court." 
85 


Insert 33617A.059

The State of Dispute Resolution at the Internal Revenue Service 

Submission of the National Association of Enrolled Agents 

September 27, 2017 

"As a guiding principle, the Commission believes that taxpayer satisfaction must became 

paramount at the new IRS and that the IRS should only initiate contact with a taxpayer if 

the agency is prepared to devote the resources necessary for a proper and timely 

resolution of the matter." 

Report of the National Commission on Restructuring the IRS, June 2997 

Unfortunately, 20 years later, t his vision is not being fulfilled. 

Defining the Problem 

Increasingly, enrolled agents are expressing the view that the quality of dispute resolution 

within the IRS has deteriorated to an unacceptable level over the last five years. The National 

Association of Enrolled Agents (NAEA) represents the interests of over 53,000 enrolled agents 

nationwide. Enrolled agents are tax experts, licensed by the Department of Treasury. They 

must pass a thorough three-part Treasury-administered exam covering all elements of the 

Internal Revenue Code. Additionally, they are subject to background checks and must meet 

continuing education and ethics requirements to continue as enrolled agents in good standing. 

NAEA takes an expansive view of dispute resolution, encompassing the entire spectrum of tax 

administration. Our members represent taxpayers on a daily basis, dealing with notioes, 

correspondence, examination, appeals and collection matters. Quality dispute resolution 

should not be an organizational value only for Appeals, but should be trained at every level of 

the agency. While the measure of the decline in quality is anecdotal, based on input from our 

membership, it can be demonstrated starkly by considering the answers to three important 

questions: 

Do key enforcement personnel have an adequate understanding of t he Internal 

Revenue Code, the regulations, the Internal Revenue Manual and the "Taxpayer Bill of 

Rights?" 

• Are cases resolved in a timely fashion? 

Do IRS enforcement personnel work to resolve cases fairly at the earliest point of the 

process? 

While there are many skilled, conscientious, and dedicated employees at the IRS, enrolled 

agents are telling us that they must answer "no" to all three questions, too frequently to be 

accept able. 
86 


Insert 33617A.060

Enrolled agents are finding that auditors and tax compliance officers often lack a basic 

understanding of the statutes and regulations they are tasked to administer. More disturbingly, 

they often do not know their own procedures as laid out in the Internal Revenue Manual (IRM). 

Additionally, with few exceptions, dealing with the IRS has become a game of hurry-up-andwait. Taxpayers and their enrolled agents respond in a t imely fashion to notices or requests for 

audit responses, but then find themselves waiting long periods of t ime for an acknowledgment 

or response, let alone a resolution of their case. 

While correspondence exams increase efficiency for the IRS, they typically increase taxpayer 

burden and can be more expensive and take more time than an in-person audit. Because there 

is only one chance for resolution, enrolled agents report that they expend substantial time and 

effort to present a relatively simple case that could be taken care of with a single telephone 

call. 

When responses from taxpayers arrive at the correspondence examination unit, they can sit in 

a queue at the IRS processing center for weeks, or even months depending on the backlog, 

causing great anxiety on the part of taxpayers. These computer-generated cases are assigned to 

tax examiners only when a response is received from the taxpayer or their representative. If all 

goes well, the IRS issues a letter thanking them for their responses and informing them nothing 

more is needed. All too often though, taxpayers or their representatives respond with a timely 

submission of documentation, but the case does not receive proper consideration of facts and 

circumstances, and the only subsequent communication from the IRS is an audit report with a 

balance due notice enclosed. 

If a protest of this assessment is submitted to the IRS, the response is often inadequately 

handled as well. In a number of cases, it is obvious that the protest was hastily reviewed by an 

inexperienced or under-trained employee, resulting in the denial of a valid protest. If this denial 

is appealed, similarly trained employees evaluate the argument, adding another step in an 

exercise in futility. Any further request for a referral to Appeals of these disputed items are all 

too often not considered or acknowledged, and a Statutory Notice of Deficiency is summarily 

sent to the taxpayer. 

Once the computer has taken this action, filing a petition in Tax Court is the only way to get the 

case heard by a qualified Appeals Officer. Enrolled agents believe there must be greater 

accessibility to be heard by an independent Appeals Officer at multiple stages while the 

taxpayers' fate is being determined in these automated audit pipelines. 

Enrolled agents have noticed that as mastery of the laws and regulations has declined, there 

has been a corresponding decline in resolving cases quickly and fairly. In some cases, we 

believe this change in culture means that rather than getting to the right answer and then 

moving on, IRS compliance personnel in the field and campuses are more inclined to "find 

something wrong" if they have invested substantial t ime on an examination. In other cases we 

have seen, the Service's desire to close cases as quickly as possible with their limited resources 
87 


Insert 33617A.061

spread thin has led to a hesitation on the part of IRS personnel to accept follow-up 

documentation or request an explanation when documentation is not understood. 

Historically, Appeals Officers were experienced and knowledgeable and operated in a culture of 

resolving cases quickly and fairly. Over time, as resources have dwindled system-wide, more 

cost-effective alternatives have been developed by the IRS. In our experience, many of these 

cost-saving processes have led to severe reductions in service while taxpayer rights are 

increasingly being compromised. The end result has been reduced public confidence in the U.S. 

Tax system as fair and equitable. 

The issue at hand is that there are not enough Appeals personnel to provide taxpayers with in· 

person conferences across the 50 states and territories. For example, between fiscal years (FYs) 

2013 and 2016, the number of Appeals Hearing Officers available to resolve cases dropped by 

24 percent

1

. Consequently, the IRS created Campus Appeals units, which rely on telephone and 

now video conferences to handle their workload. 

Root Causes 

Decline in the IRS Budget: In the last five years, the IRS budget has declined from $12.146 

billion in 2012 to $11.235 billion in 2016. As a result, the number of revenue agents decreased 

22 percent from 10,216 to 7,937, and the number of tax compliance officers decreased 28 

percent from 1,154 to 832. Contact representatives within the Automated Collections System 

(ACS) has decreased 22 percent, from 2,426 in FY 2012 to 1,897 in FY 2016. Enforcement 

personnel are not typically seen as customer service. However, if a taxpayer receives a letter or 

notice about their account and then are not able to resolve the issue in a timely and accurate 

fashion, then the non-resolution does become a customer service issue. 

Retirements: The IRS is hemorrhaging experienced, well-trained personnel. Since 2010, 

approximately 17,000 employees have departed from the IRS and 40% more are or will be 

eligible to leave the Service in the coming year. The loss of these experienced employees has 

necessitated t he hiring, training and deployment of many inexperienced personnel in a short 

period of time. Exacerbating this problem is the fact that training at the IRS is done by taking 

experienced people out of the field to pass on their knowledge to the newly hired, creating an 

even larger vacuum. 

Lock of Quality Training: The IRS training budget has been slashed from $172 million in FY 2010 

to about $22 million in 2013 (unable to obtain more updated data), a staggering 87 percent 

reduction. Training is not only key to increasing knowledge and understanding of the tax code 

and regulations, but is also among the IRS's responsibilities under the taxpayer bill of rights. 

On the collection side, revenue officers have been given very little discretion or training on 

resolving taxpayer cases. When a taxpayer's expenses exceed the financial standards for an 

1 Taxpayer Advocate Service 2017 Report, volume 2, page 112 
88 


Insert 33617A.062

Installment Agreement, the taxpayer must enter into a payment plan that is unaffordable, 

which greatly increases the likelihood of default down the road. In addition, the National 

Standards for Collection Information Stat ement analysis are unrealistic for taxpayers living in 

high cost areas. More flexibility in making determinations of collection potential would improve 

the public's perception t hat the system is fair and equitable. 

Recommendations 

To increase the quality and t imeliness of dispute resolution within the IRS, Congress should 

consider the following policy and legislative changes: 

Increase IRS budget for hiring Appeals Offi cers, compliance, and enforcement personnel. 

With this increased budget, the IRS should guarantee that taxpayers or t heir representatives do 

not have to travel more than 100 miles (where feasible) to have a face-to-face audit meeting or 

an in-person conference with an Appeals Officer. At the same time, it is important for the IRS to 

continue exploring video-conferencing and other options for increasing communications. 

Additionally, once a taxpayer responds to an IRS notice or letter, t he IRS shall communicate a 

decision to the taxpayer wit hin 30 days. Appeals and enforcement personnel should be given 

great authority to set tle cases early and the IRS should evaluate them based on a singular focus 

on early and fair resolution of disputes. 

Increase the Authority of and set higher standards for campus Appeals personnel. While we 

welcome and applaud t he IRS for the recent addition of video conferencing as a substitute for 

some in-person Appeals hearings, we suggest additional provisions be implemented. The 

knowledge, experience and authority of the Appeals personnel should meet a higher standard 

than the campus Appeals Technical Employees, who may have very little aut hority and may not 

grasp the intricacies of the cases assigned t o t hem. 

Create and fund a dedicated training division w ithin the IRS. A dedicated training division w ill 

streamline the IRS education process, ensuring t hat tax law and administrative policies be 

t aught consistently t hroughout the country while guaranteeing that experienced personnel will 

not have to be taken offline to train new employees. Instructors will be tasked to research 

state-of-the-art tax administration techniques at the state, local and international levels and 

w ill help incorporat e these techniques into t heir education mat erials and the Internal Revenue 

Manual. Additionally, as was done immediately after passage of the IRS Restructuring and 

Reform Act of 1998, IRS training shall focus on early and fair resolution of tax disputes. Only 

clear and consistent training will move t he IRS to a more customer service-oriented 

organization. 

Give Collections personnel wider discretion to reach agreements on payment plans. Congress 

and the IRS need to give collections personnel the authority and training to resolve cases 

quickly that might otherwise deviate slightly from the financial standards to facilitate payments 

by taxpayers. Addit ionally, the IRS should reevaluate the National Standards for Collection 

Information Statements by either adjusting the allowable living expenses for regional or local 
89 

f 


Insert 33617A.063

cost of living variations, or by returning to use of a dollar range, based on gross monthly income 

(as was the case prior to the IRS decision in 2007 to apply a single dollar amount for food, 

clothing and other items, based on family size alone). 

Give the Taxpayer Advocate Service authority to make adjustments, rather than merely 

making recommendations to IRS personnel. Taxpayer Advocates are at the forefront of 

problem resolution within the IRS. We recommend reinstituting a Problem Resolution group 

with representation from examination, appeals and collection housed in the Taxpayer Advocate 

department with fixed authority to resolve issues up to $10,000 and close cases. 

Collections personnel must refrain from bypassing representatives with active powers of 

attorney. Congress should reemphasize and reaffirm the consequences of violations of 26 USC 

7525, to ensure that IRS personnel shall not ignore valid powers of attorney by directly 

contacting taxpayers by telephone or at their residences or places of business. 

Require IRS exam and collection personnel to offer alternative dispute resolution options. We 

commend the IRS for the expansion of Fast Track Settlement earlier this year, bringing the 

opportunity for small business and individual taxpayers to resolve unique examination issues 

through Appeals, allowing for consistency with large and mid-sized businesses. We recommend 

that the IRS expand alternative dispute resolutions options to all taxpayers and that exam and 

collection personnel be required to offer these options at the appropriate time. 

To facilitate earlier resolutions to disputes, the IRS should debut online accounts for tax 

practitioners with a robust and secure means of communicating with IRS personnel on audit 

and collections issues. Access to secure online communication is especially important as the 

agency becomes increasingly reliant on correspondence audits that currently require snailmailing documents to anonymous IRS campus employees. Communicating through the 

practitioner's online account would go a long way to improving resolution times and hopefully 

mitigate, if not eliminate, the lost documents experience.. Individual online accounts should 

display a Publication 1 equivalent when taxpayers utilize payment options in their accounts. 

The IRS should provide guidance on the use of electronic signatures for Forms 2848 and 8821 

for Circular 230 practitioners. 

The National Association of Enrolled Agents commends the Committee on Ways and Means in 

its bipartisan approach to improving the Internal Revenue Service. Our membership believes 

strongly that well funded, well trained IRS, fully cognizant of taxpayer rights and the value of 

Circular 230 tax practitioners to the process, will improve dispute resolution at every level of 

the organization. We look forward to continuing our work with the Committee. 
90 


Insert 33617A.064

g-;pr•c Software Finance & Tax Executives Council 

Via Email 

September 12, 1017 

Hon. Vern Buchanan 

Chairman 

Subcommittee on Oversight 

Committee on Ways and Means 

U.S. House of Representatives 

Washington, DC 

www.softwarefinance.org 

Re: Hearing on Reforming How the IR S Resolves Taxpaver Disputes 

Dear Chairman Buchanan: 

I write to express the views of the Software Finance and Tax Executives Council 

(SoFTEC) with respect to the upcoming September 13, 2017 Oversight Subcommittee 

hearing entitled "Reforming How tbe IRS Resolves Taxpayer Disputes." SoFTEC supports 

your efforts at shining a light on procedures designed to protect taxpayers' rights in their 

dealings with the IRS. SoFfEC members are concerned current practices and procedures tilt 

too heavily in the IRS's favor, may result in unnecessary disputes, which are time consuming 

and expensive for taxpayers and the IRS. They believe legislation is needed to restore 

balance to the relationship between taxpayers and the IRS while preserving the IRS' ability 

ensure taxpayers pay the appropriate tax. 

SoFTEC is a trade association providing software industry focused public policy 

advocacy in the areas of tax, finance and accounting. Because its member companies 

routinely are audited by the IRS and frequently have disputes with the agency, they have an 

interested in the practices and procedures used by the IRS in ascertaining the accuracy of 

their tax returns and in resolving disputes in an efficieot manner for both taxpayers and the 

IRS. 

SoFTEC supports H.R. 3220, the Preserving Taxpayers Rights Act, a bi-partisan bill 

recently introduced by Reps. Jason Smith and Terri Sewell, along with other co-sponsors. 

This bill, if enacted, would: 

• Provide a statutory right to an internal IRS appeal prior to issuance by the IRS of a 

notice of deficiency if the taxpayer extends the statute of limitation by 12 months. 

Limit the ability of the IRS to negate this right to an appeal to only when the dispute 

involves a I isted tax shelter transaction. 

Limit tbe ability of the IRS to issue a so-called "designated summons," wh.icb 

uoilaterally tolls the staMe of limitations, to cases where the taxpayer bas been 

uocooperative, as inteoded in tbe legislative history. 
91 


Insert 33617A.065

• Prohibit the taking of witness testimony and examination of taxpayers' books and 

records by outside contractors. 

SoFTEC believes enactment of these provisions would minimize unnecessary disputes that are 

time consuming, inefficient, and expensive for taxpayers, the IRS and the courts. This 

legislation would hel p restore balance to taxpayers' dealings with the IRS. We will discuss each 

of these provisions in turn. 

1. Statutory Right to an Appeal: 

As the hearing notice correctly points out, the IRS Restructuring and Reform Act of 1998 

mandated that the IRS provide an independent Appeals function and make an Appeal Officer 

available in each state. However, the circumstances under which a taxpayer may take advantage 

of such an independent Appeals function remain a matter of administrative grace. We believe 

the IRS Office of Appeals serves and important flmction and helps whittle down disputes to 

those cases where the IRS and the taxpayer truly either cannot agree or are unable to compromise 

and the dispute must be adjudicated by either the Tax Court in a deficiency proceeding or by a 

federal judge in a refund civil action. We believe it is important to clarify that taxpayers 

generally have the right to have a Revenue Agent's determination reviewed by an Appeals 

Officer before being forced into costly and time consuming litigation, which is inefficient for 

taxpayers and the IRS. To balance the taxpayer's right to an independent Appeal while not 

prejudicing the IRS' ability to ensure the taxpayer pays the appropriate amount of tax, the bill 

requires the taxpayer to extend the statute of limitation by 12 months. 

We are aware of cases where the fRS has issued statutory notices of deficiency to 

taxpayers, which starts the time running for fil ing a petition with the Tax Court, without first 

allowing such taxpayers the opportunity to have their cases heard by an independent Appeals 

Officer. Such circumstances deprive these taxpayers of the ability to have its case heard by an 

independent and seasoned Appeals Officer who might take a different view of the facts of the 

case, the applicable law, or both, than the Revenue Agent. Appeals officers have the ability to 

consider so-called "hazards of litigation" in ascertaining the relative strength or weakness of the 

Revenue Agent's determination, something Revenue Agents are unable to take into account. 

Depriving a taxpayer of an independent Appeal either forces the taxpayer to concede or 

undertake the burden an expense of a Tax Court proceeding, which is time consuming, 

expensive, and inefficient for the taxpayer, the IRS and the courts. Forcing cases into court that 

could have been settled at the Office of Appeals is wasteful of both taxpayer and government 

resources. H.R. 3320 would ensh.rine in statute a taxpayer's rigbt to an independent Appeal. 

2. Limitations on the Statutory Right to an Appeal: 

While SoFTEC strongly believes the right of taxpayers to have disputes heard by an 

independent Appeals Office within the IRS, we do not advocate that such a right be unlimited. 

There likely are circumstances where a taxpayer may seek an Appeal for the purpose of delay or 

in an attempt to secure a different result than other similarly situated taxpayers. For instance, 

taxpayers involved in abusive tax shelters known as " listed transactions" may try to delay 

administrative proceedings by moving them tO the Office of Appeals. In the case of listed 
92 


Insert 33617A.066

transactions, the IRS has an obvious interest in equal treatment of similarly situated taxpayers 

and a taxpayers should be on notice that they can't use the Appeals process to obtain a better 

result than other participants in a given tax shelter. 

3. l ndependence of the Office of Appeals: 

One of the key features of the IRS Office of Appeals is its independence from the 

Revenue Agents that conducted the audit. Historically, once a case was transferred to the Office 

of Appeals, there was no contact between the Appeals Officer banding the case and the Revenue 

Agent who conducted the audit. However, this independence is under siege. 

To the dismay of tax practitioners, there is a new IRS initiative that allows Revenue 

Agents to be actively involved in discussions with the Appeals Officers after cases are 

transferred to the Office of Appeals. The risk that the Revenue Agent that conducted the audit 

will be involved in the consideration of the case by the Office of Appeals is causing some 

taxpayers to skip an Appeal altogether and going straight to time consuming and expensive Tax 

Court. 

One of the benefits of the Office of Appeals is the opporrunit:y it affords taxpayers to 

have a fresh set of eyes look at cases untainted by entrenched positions taken by the Revenue 

Agents. Having the Revenue Agent in the room risks bringing in whatever poisoned atmosphere 

might have clouded the audit and prevented resolution at the lower level. 

We believe any legislation that impacts the IRS Office of Appeals should include a 

provision erecting a wall between that Office and the field team that conducted the examination 

of the return preventing their involvement in consideration of the case at the Appeals level. 

While such a provision was not included in the Preserving Taxpayers Rights Act, SoFTEC 

believes it should be considered. 

4. Limitation on the Ability of the IR S to Issue a "Designated Summons: " 

Generally, the IRS has three years from the filing of a tax return to conduct an audit of 

the return and propose a deficiency in tax. This three-year statute of limitations is designed to 

afford the IRS ample time to conduct the audit and protect taxpayers and the IRS from lengthy 

audits that prolong uncertainty. This three-year statute of limitations can be, and often is, 

extended with the agreement of the taxpayer to provide sufficient time to resolve an audit. 

There is an exception to this three-year statute of limitations for instances where the IRS 

serves upon the taxpayer a so-called "designated summons" under I.R.C. Sec. 6503U). Service 

of a designated summons tolls the three-year statute of limitation during the pendency of a 

summons enforcement action in a District Court. This statute gives the IRS the unilateral and 

unfettered authority to negate the statute of limitation and prolong a taxpayer's audit umil it 

informs a court that it is satisfied the taxpayer has produced all relevaot books and records. 

The legislative history of the designated summons provision reveals its purpose was to 

protect the fisc from uncooperative taxpayers who might stall an audit and try to run out the 
93 

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Insert 33617A.067

clock on the three-year statute of limitations. Its purpose was not to give the IRS an unfettered 

ability to extend the statute of limitations when the taxpayer has been cooperative and any delay 

on the conduct of the audit is the fault of the IRS. Giving the IRS this designated summons 

authority negates all of the purposes of the statute of limitations and provides an incentive for the 

IRS to be dilatory in the conduct of audits. The use of a designated summons was imended to be 

so extraordinary, tbat Congress required the IRS to annually inform the House and Senate tax 

writing committees of the number of designated summons that have been in the year. 

The Preserving Taxpayers Rights Act restores the purposes of the statute of I imitations by 

limiting the IRS's use of designated summons to situations where the IRS establishes that the 

taxpayer "did not reasonably cooperate with reasonable requests" for information. SoFTEC 

supports these provisions. 

5. Use of Outside Contractors in the Conduct of an Audit: 

Recently, the IRS has taken rhe unprecedented step of hiring outside contractors to assist 

in conducting and taking testimony in an audit. Specifically, these outside contractors are 

outside lawyers and have been retained for the specific purposes of assisting in the examination 

of the taxpayer's books and records and in the questioning of potential witnesses. The hiring of 

outside lawyers to assist and take testimony in the conduct of an audit signals to the taxpayer that 

the exam is not directed towards ascertaining the correctness of the retum but is instead directed 

towards preparation of the case for litigation. And, because these outside attorneys' contracts 

contemplate tbeir assistance at trial with an hourly billing rate, they have an incentive to inflate 

deficiencies and proffer umested and/or dubious legal theories. 

In addition, hiring outside lawyers to participate and take testimony in a tax audit is a 

waste of government resources. 

The Preserving Taxpayers Rights Act contains a provision that would prohibit the use of 

omside contractors for the purpose of examining taxpayers' books and record and the 

questioning of witnesses. SoFTEC supports these provisions. 

6. Conclusion: 

SoFTEC appreciates the opportunity to provide these comments and ask that they be 

made a pan of the record of the Subcommittee's upcoming hearing. I may be reached at (202) 

486-3725 or mnebergal!@softwarefinance.org with any questions. 

Respectfully submitted, 

Mark E. Nebergall 

President 

Software Finance and Tax Executives Council 
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Insert 33617A.068

Testimony of Chief Judge L. Paige Marvel 

United States Tax Court 

Subcommittee on Oversight of the Committee on Ways and Means 

United States House of Representatives 

Hearing on Reforming How the IRS Resolves Taxpayer Disputes 

September 13,2017 

Chairman Buchanan, Ranking Member Lewis, and Members of the Subcommittee, thank 

you for the opportunity to provide testimony. 

The United States Tax Court (Tax Court) is an independent court of record established by 

Congress under Article I of the Constitution. The Tax Court's mission is to provide a national 

fonam for the resolution of disputes between taxpayers and the Internal Revenue Service {IRS), 

to resolve tax cases expeditiously while giving careful consideration to the merits of each case, 

and to provide a consistent body of case law interpreting the Internal Revenue Code. The Tax 

Court's status as a court of law, exercising exclusively judicial powers, has been confinned by 

the Supreme Court1 An understanding of the Tax Court's status and its practices and procedures 

(particularly as they relate to self-represented taxpayers) is instructive in evaluating proposed 

changes to administrative procedures affecting taxpayer interactions with the IRS.

2 

Evolution of the Status of the Tax Couq 

Before its designation as a court of record under Article I, the Tax Court was established 

by statute as an independent agency within the Executive Branch known as the Board of Tax 

Appeals {the Board). Congress created the Board in 1924 to address inadequacies with the 

Committee on Appeals and Review (the Committee), which bad been established by the postWorld War I Bureau of Internal Revenue (now the IRS). There were two primary criticisms of 

the Committee. The first criticism of the Committee was the lack of a readily available review 

that was independent of the Bureau. The second criticism was that the Committee's proceedings 

"were not adversarial, they were not public, they did not pem1it the introduction of new 

evidence, and they were not conducted pursuant to traditional judicial standards of practice and 

procedure. "3 

'Freytag v. Commissioner, 501 U.S. 868 (1991). 2 ~Haro d Dubroff & Bran1 J. Hellwig. The United Slates Tax Court: An Historical Analysis (2d. ed., 

Government Publishing Office, 2014) (1979), https://Mvw.ustaxcourt.govlbook!Dubroff_ Hcllwig.pdf. 

(hereinafter Dubrofl). 

' ll!.at46. 
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Insert 33617A.069

Congress evenntally concluded that it was anomalous that one executive agency would sit 

in j udgment of the actions of another (the IRS). This concern led Congress, in I 969, to establish 

the Tax Court as an Article I court of law to ensure its independence from the Executive Branch4 

As an Article I court of law, tl1e Tax Court is not affiliated with the lRS. 

The Tax Court's jurisdiction is statutorily based. lt is one of three Federal courts in 

which taxpayers, including individuals and business entities, may obtain judicial review of a 

dispute with the lRS.

5 It is the only Federal court in which the taxpayer can obtain review before 

having to pay the disputed taxes in advance. Tax Court jurisdiction is broad and includes 

income, estate, gift, and certain excise tax deficiencies, declaratory judgment authority, TEFRA 

partnership proceedings, interest abatement actions, collection due process cases, review of 

awards under the IRS whistleblower pro&>ram, and claims for spousal relief from joint and 

several liability. Decisions by the Tax Court are reviewable by the United States Courts of 

Appeals and, if ceniorari is granted, by the Supreme Court.6 

The Tax Court is authorized by statute to have 19 judges who are appointed to 15-year 

terms by the President, with the advice and consent of the Senate-' The Court's cases are also 

heard by senior judges (presidentially appointed judges whose terms have expired and are 

recalled by the Chief Judge of the Tax Court) and by special trial judges who are appointed by 

the Chief Judge. To make the Tax Court accessible to the public nationwide, Tax Court j udges 

conduct trial sessions in 74 cities. This is consistent with the Court's statutory mandate to 

establish places of trial with a view to securing reasonable opportunity for taxpayers to appear 

before the Tax Court with as little inconvenience and expense as is practicable.

8 

The Court's caseload depends upon the scope of jurisdiction provided by Congress, the 

level of audit and enforcement activity by the IRS, and the choice of forum by taxpayers. The 

Court strives to resolve cases quickly while giving careful consideration to tl1e merits of each 

case. To achieve this goal, the Court schedules cases for trial promptly after the pleadings are 

complete, usually within one year even in the cities with the fewest cases. O ver tbe last several 

years, most active judges were assigned from 6 to I 2 trial sessions per year, with each session 

typically including I 00 to 150 cases. Although the majority of cases are closed as a result of 

settlement between the parties, many of those settlements require the active involvemem of a 

judge in pretrial matters and for the management of settlement discussions. The disposition of a 

tried case by written opinion normally occurs within one year of trial. Since Fiscal Year 2009, 

the number of cases the Court has closed has exceeded the number of new cases filed each fiscal 

year. 

Tax Court Programs Promoting Access to Justice for Self-Represented Taxpayers 

More than 70 percent of all Tax Court petitioners are self-represented. Self-represented 

taxpayers receive significant support from the cooperative and coordinated efforts of the Tax 

Court with low-income taxpayer clinics (LITCs) and Bar-sponsored calendar call programs. 

• S. Rep. No. 9 1-552 (1969). 5 The other Federal courts available arc the U.S. Coun of Federal Claims and the U.S. District Courts. 

• I.R.C. sees. 744 1, 7443, and 7482. 

' I.R.C. sees. 7441, 7443, and 7444(c). 8 I.R.C. sec. 7446. 

2 
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Insert 33617A.070

LITCs are recognized by the IRS's Taxpayer Advocate Service and are either a stand-alone nonprofit organization or affiliated with a law school. Bar-sponsored calendar call programs must 

be organized by a Bar association, integrated Bar, or similar professional organization whose 

members provide pro bono legal assistance to self-represented taxpayers before the Court. 

The Tax Court has adopted a program to encourage LITCs and Bar-sponsored calendar 

call programs to participate in Court trial sessions in order to assist otherwise unrepresented 

taxpayers. Currently, taxpayers have access to legal assistance in each of the Court's 74 trial 

cities through 132 LITC programs as well as calendar call programs operated by volunteers 

working through the tax section of state and local bar associations in 16 cities. 

The Tax Court provides every self-represented taxpayer who fi les a petition with the 

Court with contact information for local LITCs. This information is provided to taxpayers when 

the petition is filed, when the case is set for trial, and again 30 days before the trial session. At 

the calendar call at the beginning of a trial session, Tax Court judges announce the availability of 

LITC or Bar-sponsored practitioners who are u1 the courtroom to provide assistance to selfrepresented taxpayers. The Court also provides meeting space for LITC or Bar-sponsored 

representatives to meet with their clients on the day of calendar calls. The LITCs and calendar 

call programs annually report to the Court that hundreds of petitioners have received assistance. 

The Tax Court provides significant institutional support to LITCs and Bar-sponsored 

programs as an integral component of the Court's commitment to expand access to justice for all 

self-represented taxpayers by ensuring the opportunity to consult with counsel. 

Sma II Case Procedures 

ln addition to the LITC program, taxpayers with relatively modest amounts in dispute 

may take advantage of special procedures authorized in Internal Revenue Code section 7463 and 

outl.u1ed in the Tax Court Rules of Practice and Procedure.

9 When Congress designated the Tax 

Court as an Article I court of law in the Tax Reform Act of 1969, it also addressed concerns that 

taxpayers who had relatively small tax deficiencies did not have ready access to impartial review 

of IRS determinations. 10 To remedy this problem, Congress authorized a simplified and inforn1al 

procedure for small cases. At the time, Internal Revenue Code section 7463 limited small case 

See Rules 170-174, Tax Court Rules of Practice and Procedure. 10 Dubroff, at 883. 

3 
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Insert 33617A.071