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Will the IRS’s new compliance strategy of “campaigns”—with a concentrated focus on specific issues—throw a wrench into existing audits?
That issue is a sharp concern, tax practitioners from both law and accounting firms told Bloomberg BNA March 27, on the eve of an event where agency officials will be answering questions.
The Internal Revenue Service announced 13 campaigns in January, in an approach that involves cracking down on issues with a coordinated group of agency resources that go beyond traditional audit teams.
That approach leaves a huge question mark for companies already under examination, practitioners said the day before the IRS hosts the second in a series of webcasts and will take queries from the tax community.
“If I’m in the middle of an audit and, to date, the team has not raised a particular issue that is the subject of a campaign, is it going to be mandatory that they do so?” Kevin Brown, U.S. tax controversy leader at PricewaterhouseCoopers LLP, told Bloomberg BNA. “Am I going to get an information document request?”
Brown, a former acting IRS commissioner, said this concern isn’t limited to the audit itself. Even if the agency has already proposed an adjustment, “we know things aren’t over till they’re over,” he said. It isn’t clear whether campaign-related issues could be raised even at that point.
The question of how the audit team will interact with those officials working in the campaign context remains a mystery, Brown and other practitioners said.
Edward Froelich, a partner with Morrison & Foerster LLP, said one big concern is whether that team will have any discretion over the outcome of the case. “Are the decisions as to the pace and the content of the audit, the final adjustment, are all of those at a different level or a different office?” Froelich said March 27. “At this point no one knows.”
Other questions, he said, include whether campaigns will change the timing for finishing an existing audit plan, whether taxpayers will still get risk assessments from the IRS, and whether they would be able to use alternative methods for getting to a resolution, such as the fast-track approach.
Heather Maloy, tax controversy leader for Ernst & Young LLP and former IRS Large and Mid-Size Business Division commissioner, said there is still concern that the campaign approach carries some similarity to the IRS’s failed “tiered,” issue-focused audit program.
That program required agents to look at issues the agency considered problematic. Maloy said March 27 that despite recent statements by IRS officials that the new strategy isn’t intended to operate like the tiered approach, the idea that the government is targeting specific issues isn’t calming any nerves.
“Taxpayers are still worried that if they are selected for a campaign, the result is inevitable,” Maloy said.
Gregory Kidder, a partner with Steptoe & Johnson LLP, said he is concerned that in these cases, the outcome might be settled before a taxpayer gets to have a say.
“No one wants an audit team beginning an audit with its mind made up because they’ve seen it three or four times in the campaign,” he said.
“A lot of people, including me, are still in a wait-and-see mode,” Kidder said.
One big concern is the channels of communication between the official who decides the direction of a case and the agents actually conducting the audit, he said. It is essential for a taxpayer’s facts to remain intact as they travel back and forth, Kidder said, and right now it just isn’t clear how that might work.
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