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Internal Revenue Service Advisory Council 2009 Public Report: Small Business/Self-Employed Subgroup

INTRODUCTION/EXECUTIVE SUMMARY

The IRSAC Small Business/Self-Employed Subgroup (hereafter “Subgroup”) is made up of nine tax professionals.  The members of the Subgroup offer the IRS Advisory Council a variety of experiences, ranging from the representation of individuals and small business to large corporations.  The Subgroup is honored to use this depth and breadth of knowledge to assist the SB/SE Division of the IRS (hereafter “SB/SE”) in any way possible.  

The Subgroup enjoys a close working relationship with the professionals within SB/SE.  This relationship has granted the Subgroup the opportunity to consult with SB/SE on many issues outside of the regularly scheduled meetings.  Some of the subjects discussed during these consultations required immediate feedback and are therefore outside the scope of this report.   The Subgroup and SB/SE consulted both formally and informally on the issues contained in this report.  We respectfully recommend the following:

  1. Enhancing Voluntary Compliance Through Civil Tax Penalty Reform - Civil tax penalties encourage voluntary compliance. In 1954, there were 14 civil penalties set forth within the Internal Revenue Code. Today, there are more than 130. Penalties must be designed to encourage voluntary compliance and discourage intentional or reckless noncompliance. Inadvertent or excusable error should not be punished to the same degree, if at all, as willful misconduct.
  2. Increase Circular 230 Practitioners’ Knowledge of Taxpayer Representation Processes - In today’s economy, more taxpayers may need effective representation by Circular 230 practitioners.  With this in mind, we recommend the IRS take several actions to ensure the highest level of tax practitioner competency, with an emphasis on collection procedures.  These include, but are not limited to:  adding more representation questions on the enrolled agent (EA) examination, also known as the Special Enrollment Examination (SEE); emphasizing collection procedures in the EA continuing professional education (CPE) requirements; increasing awareness of existing brochures for tax practitioners on collection practices; and working with stakeholder groups to increase attorney and CPA proficiency in collection procedures.
  3. Develop Lien Processes to Promote Process Efficiency and Effectiveness - Many taxpayers have experienced problems with the lien process and lien release procedures and are stymied by the complexity of the current system.  The IRS should consider the following:  1) Creating forms for the subrogation, subordination, release, discharge, and withdrawal of liens.  The forms should be made available in print or electronic form that is accessible through the IRS website.  2) Implementing an enhanced process that is capable of expediting the lien release process.  3) Adding a tab to e-Services that allows the practitioner the ability to check the status of the filing, subrogation, subordination, discharge, release, and withdrawal of a lien.  4) Re-evaluating the administration process by which it considers notices of release and withdrawal of the Federal tax lien.
  4. Offer in Compromise Refinements - There has been a continuing decline in the number of offer in compromise (OIC) submissions and acceptances.   During that time, very few effective tax administration offers have been accepted.  IRS policies currently discourage the submission of offers in compromise.  Effective tax administration offers are rarely accepted because of stringent IRS guidelines.  The IRS should undertake a program to refine its offer program to encourage the submission of offers and to assist taxpayers in reaching the goal of an acceptable offer.  It should revise its offer processing to allow taxpayers more time to support unperfected offers and train its employees to provide more assistance to offer proponents.  Collection standards should be revised to account for regional differences in the cost of food, clothing and other items.  IRS should emphasize and publicize the availability of installment offers in compromise and assist taxpayers in perfecting such offers.  IRS should also refine its process for effective tax administration offers.
  5. Field Specialists Training, Credentials, and Contact with External Stakeholders - Field Specialists support the examination function by conducting efficient, fair, and timely examinations .  There are five specialty areas: Computer Audit, LMSB Employment Tax, Economists, Engineers and Financial Products and Transactions.  Field Specialists would benefit from exchanges with external stakeholders.  IRS should establish External Stakeholder Councils in each specialty area so as to have a systematic dialogue with external stakeholders so as to maintain and enhance the Field Specialist’s core competency in each specialty.

ISSUE ONE: ENHANCING VOLUNTARY COMPLIANCE THROUGH CIVIL TAX PENALTY REFORM

Executive Summary

Civil tax penalties encourage voluntary compliance.  In 1954 there were 14 civil penalties set forth within the Internal Revenue Code.  Today, there are more than 130.  Penalties must be designed to encourage voluntary compliance and discourage intentional or reckless noncompliance.  Inadvertent or excusable error should not be punished to the same degree, if at all, as willful misconduct.

Background

In November 1987, the Commissioner of Internal Revenue established a task force to study civil tax penalties.  The task force, composed of representatives from the Service and the Department of Treasury (Treasury), published a final report in February 1989 advocating that: (1) civil tax penalties be designed to encourage voluntary compliance (2) compliance and non-compliance be measured by clear standards of behavior, and (3) penalties be administered for the purpose of encouraging voluntary compliance and penalizing only knowing failures to comply [Report on Civil Tax Penalties, Commissioner’s Executive Task Force on Civil Penalties, Internal Revenue Service (February 22, 1989)].

The Improved Penalty Administration and Compliance Tax Act of 1989 [IMPACT; P.L. 101-239, 101st Cong., 1st Sess. (1989); Subtitle G of the Omnibus Budget Reconciliation Act of 1989 contained the Improved Penalty Administration and Compliance Tax Act of 1989] completely revised the various penalty provisions relating to the accuracy of tax returns, and established a new penalty “structure that operates to eliminate any stacking of the penalties” [H.R. Conf. Rep. 101-386, 101st Cong., 1st. Sess. (1989) at 194].  There has been no comprehensive reform of the civil tax penalty provisions within the Internal Revenue Code since 1989. 

In July 1999, the Joint Committee on Taxation (JCT) published a study on penalty and interest provisions reaffirming the principles underlying IMPACT [Joint Committee on Taxation, Study of Present-Law Penalty and Interest Provisions as Required by Section 3801 of the Internal Revenue Service Restructuring and Reform Act of 1998, JCS-3-99, (July 22, 1999)]. This report concluded that civil tax penalties “should (1) encourage voluntary compliance, (2) operate fairly, (3) deter improper behavior, and (4) be designed in a manner that promotes efficient and effective administration of the provisions by the IRS.”

In July 2009, in response to a congressional request, the GAO released a Report “IRS Should Evaluate Penalties and Develop a Plan to Focus Its Efforts” [GAO Report; GAO-09-567 (July 6, 2009)] studying, in part, whether the Service is evaluating penalties in a manner that supports sound penalty administration and voluntary compliance and, if not, how the Service may be able to do so.  Responsibility within the Service for administering penalty programs, collecting information to evaluate penalties and determining the effectiveness of penalties in promoting voluntary compliance falls upon the SB/SE Office of Service-wide Penalties (OSP). The GAO Report determined that OSP is unable to fulfill these responsibilities since OSP is constrained by resource limitations, methodological barriers, and limitations in available databases between the various operating divisions of the Service.  Further, the GAO report concluded that OSP analysts focus on short-term issues, such as sudden spikes in assessments or abatements.

The National Taxpayer Advocate has recommended that Congress direct the Service to: (1) collect and analyze more detailed penalty data on a regular basis, and (2) conduct an empirical study to quantify the effect of each penalty on voluntary compliance noting that Congress should appropriate additional funds for this research, as necessary.  Various stakeholder groups have made recommendations regarding civil tax penalty reform to promote and enhance voluntary compliance, including:

  1. Implementation of systems to avoid automatic assessments of accuracy-related penalties without considering all of the facts and circumstances;
  2. Clearly defining the behavior intended to be penalized;
  3. Clear, transparent and detailed guidance by the Service on the interpretation of penalties and penalty administration;
  4. Penalties should only be imposed which are in proportion to the misconduct;
  5. Retention of reasonable cause and good faith defenses for all penalties;
  6. Encouraging compliance through greater disclosure and more enforcement rather than relying on the chilling effect of vague, overly broad, and confusing penalties; 
  7. Penalties should not be enacted for the purpose of raising revenue or offsetting the costs of tax benefits nor merely to punish behavior without also promoting compliance;
  8. Mere foot faults should not be penalized where substantial compliance is demonstrated; and
  9. A single act should only be penalized once.

We support the following recommendations as a foundation for future civil tax penalty reform intended to promote and enhance voluntary compliance.

Recommendations

  1. The OSP should be relocated from the SB/SE to a system-wide office having fully functional access to all databases across all operating divisions within the Service.
  2. The OSP should be appropriately funded and staffed to enable it to effectively evaluate the administration of penalties and their impact on encouraging voluntary compliance.
  3. The Service should establish a task force comprised of government representatives and stakeholders to analyze the possibility of updated comprehensive civil tax penalty reform as a method of encouraging voluntary compliance. 

ISSUE TWO:  INCREASE CIRCULAR 230 PRACTITIONERS’ KNOWLEDGE OF TAXPAYER REPRESENTATION PROCESSES

Executive Summary

Especially in a downturn economy, more taxpayers may need effective representation by Circular 230 practitioners.  With this in mind, we recommend the IRS take several actions to ensure the highest level of tax practitioner competency, with an emphasis on collection procedures.  These include, but are not limited to:  adding more representation questions on the enrolled agent (EA) examination, also known as the Special Enrollment Examination (SEE); emphasizing collection procedures in the EA continuing professional education (CPE) requirements; increasing awareness of existing brochures for tax practitioners on collection practices; and working with stakeholder groups to increase attorney and CPA proficiency in collection procedures.

Background

Circular 230 practitioners are eligible to represent taxpayers in dealings in the examination, collection and appeals units of the IRS.  The area of collections is often problematic for Circular 230 tax practitioners and is the focus of much of this report.  The Office of Professional Responsibility (OPR) enforces the regulations governing the practice of attorneys, certified public accountants (CPAs), enrolled agents (EAs), enrolled actuaries, enrolled retirement plan agents and appraisers before the IRS as set forth in Treasury Department Circular 230.  The IRS also has jurisdiction over the SEE and licensing of EAs. 

The Subgroup reviewed a sampling of questions from the IRS SEE.  It should be noted that the IRS has contracted with an outside firm to create and administer the SEE. The Subgroup made several observations:

  • There were too few questions regarding collections;
  • Many questions appeared to merely test rote memorization; and
  • Some questions and available answers contained technical errors.

We believe that improvements are needed in this area of the SEE.

Circular 230 practitioners are required to obtain continuing professional education (CPE).   The Subgroup realizes that the Service is prohibited by law from licensing CPAs and attorneys, but the possibility exists that some of these Circular 230 tax practitioners may not be as proficient as they should be in the representation of clients.  Therefore, the Service should do more to increase the awareness of existing brochures and materials already produced by stakeholder groups on best practices for tax practitioners on collection procedures covering such issues as offers in compromise.  These publications could be used in tandem with Publication 594 “The IRS Collection Process,” in which the Service explains to taxpayers the steps the IRS may take to collect a balance due.

The IRS should consider modifying its CPE requirements for EAs to reflect an increased focus on CPE hours dealing with representation topics with emphasis on collections.  The current CPE requirements for EAs are found in Circular 230 §10.7(e).

(i) Requirements for enrollment cycle. A minimum of 72 hours of continuing education credit must be completed during each enrollment cycle.
(ii) Requirements for enrollment year. A minimum of 16 hours of continuing education credit, including two hours of ethics or professional conduct, must be completed during each enrollment year of an enrollment cycle.

A minimum number of CPE hours could be required on representation topics in a manner similar to the mandated hours of ethics.

Recommendations

  1. The Service should include more questions on collection procedures in its SEE.
  2. The Service should reevaluate the amount of rote memory questions in the SEE and request the test vendor to include more questions that test a candidate’s applicable knowledge of tax issues.
  3. OPR staff should take a more active role in the initial drafting process of the questions by tax practitioners and the outside firm that creates and administers the SEE in an effort to eliminate technical errors contained in EA exam questions.
  4. The Service should mandate completion of a minimum number of CPE hours in representation topics during each enrollment cycle.
  5. The Service should work with stakeholder groups to increase attorney and CPA proficiency in collection procedures and their awareness of publications on best practices related to representation and collection procedures.

ISSUE THREE:  DEVELOP LIEN PROCESSES TO PROMOTE PROCESS EFFICIENCY AND EFFECTIVENESS

Executive Summary

With the economic downturn, many taxpayers have experienced problems with the lien process and lien release procedures and are stymied by the complexity of the current system.  The IRS should consider the following: 1) Creating forms for the subrogation, subordination, release, discharge, and withdrawal of liens.  The forms should be made available in print or electronic form that is accessible through the IRS web site; 2) Implementing an enhanced process that is capable of expediting the lien release process; 3) Adding a tab to e-services that allows the practitioner to check the status of the filing, subrogation, subordination, discharge, release, and withdrawal of a lien; 4) Re-evaluating the administration process by which it considers notices of release and withdrawal of the Federal tax lien.

Background  

Given the current economic situation, the current system creates inefficiencies for the subordination, subrogation, discharge, release, and withdrawal of liens. Historically there has not been an official form for the subrogation, subordination (Publication 784 “Certificate of Subordination of Federal Tax Lien”), release (Publication 1450 “Certificate of Release of Federal Tax Lien”) and discharge (Publication 783 “Certificate of Discharge of Property from Federal Tax Lien”).  We have been made aware of this issue and commend the Service for beginning an initiative of creating forms for the Certificate of Subordination of Federal Tax Lien and Certificate of Discharge of Property from Federal Tax Lien.  Creating online forms will maximize the efficiency of the lien processes and will be more cost effective to do electronically.  The normal timeframe to process a lien release is 30 days; however, due to the economic downturn and an influx of liens releases to be processed, the timeframe has gone from 30 days to 60 to 90 days, or longer. 

Adopting the proposed forms for the release, discharge, subordination, subrogation, and withdrawal will greatly standardize the lien process as well as increase the efficiency of the review and processing of liens. 

The economic downturn has not only created the need for the proposed forms, but has created the need for the Service to re-evaluate its current process regarding the withdrawals of liens.  Over the past few years, the Service increased its usage of Notice of Filing Federal Tax Liens, but has opted not to utilize the withdrawal of liens that are filed, thus creating serious consequences for the taxpayer as well as lessening the taxpayer’s credit worthiness (1).

Recommendations

  1. Create online forms for the following:
    a. Certificate of Discharge of Property from Federal Tax Lien
    b. Certificate of Subordination of Federal Tax Lien
    c. Certificate of Release of Federal Tax Lien
    d. Subrogation of Filed Lien
  2. Decentralize the process of lien release, withdrawals, discharges, subordination, and subrogation to the local Collection Advisory Groups.  This will help to increase the turnaround time in the process because the local offices are more familiar with the requirements of their local government in the filing and releasing of liens.
  3. To maximize the current lien process as well as be cost effective and efficient,  the Service should enhance the e-services webpage to include a tab that allows the practitioners access to check the status of a lien to determine if a lien has been filed, discharged, released, subrogated, subordinated, or withdrawn.
  4. In addition to the current process of faxing the lien information to the Collection Advisory Group, the Service should enhance e-services to create an upload function that allows the practitioner to upload the proposed lien forms to the IRS web site to be sent to the designated Collection Advisory Group.
  5. Reevaluate the policy for the withdrawal of liens versus the release of liens to accommodate the taxpayer whose credit report could be negatively affected if a lien is released opposed to withdrawn. 

ISSUE FOUR:  OFFER IN COMPROMISE REFINEMENTS

Executive Summary

There has been a continuing decline in the number of offer in compromise (OIC) submissions and acceptances over the last nine years.  During that time, very few effective tax administration offers have been accepted.  IRS policies currently discourage the submission of offers in compromise.  Effective tax administration offers are rarely accepted because of stringent IRS guidelines.  The IRS should undertake a program to refine its offer program to encourage the submission of offers and to assist taxpayers in reaching the goal of an acceptable offer.  It should revise its offer processing to allow taxpayers more time to support unperfected offers and train its employees to provide more assistance to offer proponents.  Collection standards should be revised to account for regional differences in the cost of food, clothing and other items.  IRS should emphasize and publicize the availability of installment offers in compromise and assist taxpayers in perfecting such offers.  IRS should also refine its process for effective tax administration offers.

Background

The total number of proposed offers has decreased from 125,390 in FY 2001 to 43,969 in FY 2008.  The number of OICs accepted declined from 38,643 (or 34%) in FY 2001, to 11,618 (or 24%) in FY 2007, and to 10,677 (or 24%) in FY 2008.  That trend has continued during the first 11 months of FY 2009 with 46,653 offers submitted and 9,624 accepted through September.  The IRS has made it so difficult to secure an offer in compromise that many taxpayers and their representatives no longer choose to propose a compromise. 

The reductions in submitted and accepted offers are functions of several factors including:

  • Strict initial payment rules imposed by TIPRA, (Tax Increase Prevention Reconciliation Act of 2005).
  • Stringent review of offers by IRS staff in Holtsville and Memphis offices.
  • Requirements that taxpayer submit extensive documentation prior to any substantive consideration by the IRS.
  • Strict standards imposed upon effective tax administration offer proponents.
  • Strict collection standards that fail to reflect regional variances for the costs of food, clothing and other items and to reflect the requirements of IRC §7122(d)(2)(B).

Many offers that could be perfected are returned to the taxpayer by centralized processing without any attempt to assist the taxpayer in correcting problems and the default position of processors is to deny an offer.  IRS employees are not trained and encouraged to assist taxpayers in submitting successful offers.  Many times offer reviewers fail to assist taxpayers in perfecting offers.  Offers are routinely returned to taxpayers based upon failure to provide adequate documentation.  A better process would be to base initial reviews upon the Form 433-A “Collection Information Statement for Wage Earners and Self-Employed Individuals,” and if some documentation is missing, allow the taxpayer adequate time to supply it.  For those offers that do not appear to be adequate, taxpayers are not given adequate opportunity to modify them and/or supplement documentation supporting the offered amount.  Offer reviewers fail to consider IRC §7122(d)(2)(B) which provides:

“Use of Schedules – the guidelines shall provide that officers and employees of the Internal Revenue Service shall determine, on the basis of the facts and circumstances of each taxpayer, whether the use of the schedules published under subparagraph (A) is appropriate and shall not use the schedules to the extent such use would result in the taxpayer not having adequate means to provide for basic living expenses.”

Reviewers fail to make every effort to make the offer processable, but instead look for defects which might render it non-processable.

Some practitioners have been informed by Holtsville reviewers that the mail box rule does not apply to submissions to that unit.  That advice does not conform to §7502 which provides as follows:

(a) General rule.—
(1) Date of delivery.—If any return, claim, statement, or other document required to be filed, or any payment required to be made, within a prescribed period or on or before a prescribed date under authority of any provision of the internal revenue laws is, after such period or such date, delivered by United States mail to the agency, officer, or office with which such return, claim, statement, or other document is required to be filed, or to which such payment is required to be made, the date of the United States postmark stamped on the cover in which such return, claim, statement, or other document, or payment, is mailed shall be deemed to be the date of delivery or the date of payment, as the case may be.

Collection Standards

The IRS has created three separate schedules for collection standards, pursuant to IRC §7122 (d)(2)(B), namely: (1) food, clothing and other items; (2) local standards: transportation and (3) local standards: housing and utilities.  Both transportation and housing standards are adjusted based upon local costs.  Only food, clothing and other items impose a national standard.  It is undeniable, however, that food and clothing cost more in high cost areas such as New York City, Alaska and Hawaii than in low cost areas like Mississippi, Iowa and Nebraska.  By imposing a national standard for food, clothing and other items, the IRS has failed to meet the standard set forth in IRC §7122(d)(2)(A) which provides:

“In General – in prescribing guidelines under paragraph (1), the secretary shall develop and publish schedules of national and local allowances designed to provide for basic living expenses.”

By failing to recognize the variances in basic living costs in various locals, the current national one-size-fits-all approach fails to provide basic living expenses for taxpayers residing in high cost areas.

TIPRA (Tax Increase Prevention Reconciliation Act of 2005)

TIPRA provided that effective July 16, 2006, a new federal law will change the way the OIC program operates and its role in the Internal Revenue Service collection process.  In general, this means that:

  • Taxpayers submitting lump-sum offers must make a 20% nonrefundable, up-front payment to the IRS, and
  • Taxpayers submitting a periodic-payment OIC must make a nonrefundable, up-front payment, plus any other proposed payments that may be due, while the IRS is evaluating the offer.

As a result of the TIPRA changes, many taxpayers have not been submitting offers based upon the belief that a 20% non-refundable down payment must accompany such submission.  Many taxpayers must borrow the funds for an offer and the potential loss of this down payment prevents the submission of viable offers.  The IRS has not successfully publicized the availability of installment offers with a balloon payment. More taxpayers would pursue offers if they did not face the loss of their initial down payment, but rather faced the loss of reasonable installment payments upon rejection of their offers.

Effective Tax Administration

As part of the IRS Restructuring and Reform Act of 1998 (RRA 98), Congress added section 7122(c) to the Internal Revenue Code.  That section provides that the Service shall set forth guidelines for determining when an offer in compromise should be accepted. Congress explained that these guidelines should allow the Service to consider:

  • Hardship,
  • Public policy, and
  • Equity

Treasury Regulation 301.7122-1 authorizes the Service to consider offers raising these issues.  These offers are called Effective Tax Administration (ETA) offers.
The availability of an ETA offer encourages taxpayers to comply with the tax laws because taxpayers will:

  • Believe the laws are fair and equitable, and
  • Gain confidence that the laws will be applied to everyone in the same manner.

The ETA offer allows for situations where tax liabilities should not be collected even though:

  • The tax is legally owed, and
  • The taxpayer has the ability to pay it in full

Although the effective tax administration option has been available since the passage of RRA 98, few taxpayers have been able to qualify under these provisions.  In applying the Code and Regulations, the IRS has imposed very strict standards which are not appropriate for many taxpayers.  The IRS has also not created sufficient examples of ETA offers to allow offer proponents to determine their eligibility for this option.

Recommendations

  1. Processing Changes - The IRS should implement the following processing changes to encourage offers in compromise and to assist offer proponents in reaching an acceptable offer.
    • When processing offers, IRS should promote an attitude among offer reviewers to assist taxpayers in perfecting offers;
    • First review the offer for its potential for acceptance based upon the 433A and without regard to whether all documentation accompanies the offer;
    • For those offers that have the potential for acceptance, give the taxpayer a notice allowing 45 days to supplement supporting documents;
    • For those offers that do not appear to be adequate, notify the taxpayer of that fact and allow them to modify the offer and/or supplement documentation supporting the offered amount;
    • The IRS should apply the mailbox rule set forth in §7502 to all correspondence regarding offers in compromise;
    • In performing preliminary offer reviews, Compliance Center personnel must be trained to give due consideration to IRC §7122(d)(2)(B) with respect to allowable expenses; and
    • The goal of each review should be to make every effort to make the offer processable instead of looking for defects which might render it non-processable.
  2. Allowable Expense Standards –The IRS should adopt local standards for food, clothing and other items as it has for transportation and housing.
  3. Installment Offers - IRS should emphasize and publicize the installment option. The option should be emphasized and highlighted in the instructions for Form 656 “Offer in Compromise.”  Taxpayers should be apprised of the option to make smaller installments with a lump sum final installment due in the 24th month of the installment period.  Many taxpayers would be relieved of the need to borrow a down payment.  IRS employees should be trained to encourage taxpayers to seek installment offers with relatively low initial payments and a final balloon payment.
  4. Effective Tax Administration Offers - The IRS should revisit its regulations and provide more examples and situations which qualify for effective tax administration consideration.  The IRS should revise its regulations and procedures to allow taxpayers of advanced age and/or severe health problems to more easily qualify for effective tax administration offers. 

ISSUE FIVE:  FIELD SPECIALIST TRAINING, CREDENTIALS, AND CONTACT WITH EXTERNAL STAKEHOLDERS

Executive Summary

Field Specialists support the examination function by conducting efficient, fair, and timely examinations.   There are five specialty areas: Computer Audit, LMSB Employment Tax, Economists, Engineers and Financial Products and Transactions.  Field Specialists would benefit from exchanges with external stakeholders.  IRS should establish External Stakeholder Councils in each specialty area so as to have a systematic dialogue with external stakeholders so as to maintain and enhance the Field Specialist’s core competency in each specialty.

Background

In addition to revenue agents and team managers, Field Specialists often participate in the examination process.  Field Specialists have received training in certain targeted specialties so as to provide technical support during the examination process.  For example, Engineers are usually involved in valuation issues dealing with both tangible and intangible property.  Economists can also be involved in valuation issues. Given that these two particular specialties are at the vortex of recent regulations concerning 6695A penalties, Field Specialists and external stakeholders would benefit from a systematic exchange of information.

Specifically, an August 18, 2009, IRS “Memorandum For all Examiners, Estate and Gift Attorneys and Appellate Officers” establishes interim guidance to ensure that relevant IRS personnel are aware of the procedures for assertion of IRC section 6695A penalties for substantial and gross valuation misstatements.  These valuation misstatement procedures and requirements apply to all tax-related valuations.  Under this procedure examiners are encouraged to submit referrals to LMSB Field Specialist Engineers for assistance and consultation.  Further additional Engineer support may be warranted to fully develop the penalty case (2).

Accordingly at a time when IRS is appropriately holding external appraisers more accountable for their opinions, it is essential that the Field Specialist Engineers and Economists be equally well trained and properly credentialed.  Field Specialist training and credentials should be comparable to those of their external counterparts including relevant CPE as well as professional designations. 

More importantly, because of the dynamic nature of each specialty, both Field Specialists and external stakeholders would benefit from systematic regular dialogue.  Continuing with our example, these exchanges would be similar to ones that were held periodically with the now defunct Valuation Policy Council.

From a stakeholder point of view, the Valuation Policy Council was a successful endeavor as external stakeholders and IRS personnel exchanged technical information that allowed IRS personnel to stay up to date with changes in the body of knowledge and understand the practical issues facing external stakeholders.  External stakeholders benefit from a deeper understanding of IRS policies thereby hopefully being better able to address IRS concerns, at worst and enhancing taxpayer compliance, at best.

Recommendations

  1. IRS should establish a Field Specialist External Stakeholder Council (ESC) that would be a forum for the exchange of information. As each of the five specialties covered under the Field Specialist program is distinct, the ESC should set up subgroups to address the changing body of knowledge in each area.
  2. It is important that IRS encourage the continued credentialing of its Field Specialists so as to maintain a high level of knowledge in their ever-changing specialties.
  3. Field Specialists should be encouraged to participate in external stakeholder outreach so as to continue dialogue with external stakeholders.


(1) National Taxpayer Advocate, Report to Congress Fiscal Year 2010 Objectives, June 30, 2009.
(2) “Memorandum for All Examiners, Estate and Gift Attorneys Appellate Officers” August 18, 2009.

Page Last Reviewed or Updated: 06-Jan-2014