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tv   Hearing Focuses on Taxpayer Dispute Resolution  CSPAN  September 13, 2017 7:03pm-8:01pm EDT

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nd the process is failing. individuals and small businesses should not have to weigh the cost of hiring outside help against paying the assessment. the only interaction with the i.r.s. is when they file their taxes. when the taxpayers don't find themselves in a dispute and fair and prompt process. i look forward to working with the ranking member and to the hearing from our witnesses as we continue to examine reforms. i yield to the distinguished ranking member, mr. lewis, for the purpose of an opening statement.
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mr. lewis: thank you, mr. chairman for holding this aring involving taxpayers' dispute. i welcome you back to washington, mr. chairman and on behalf of the citizens of georgia and especially the citizens of the 5th district, we are able to welcome hundreds and thousands of people from florida. i went into a parking lot in andtown atlanta on saturday there were so many cars from florida and people were walking their dogs in the parks. we're neighbors. ms. wilsonto welcome
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. i have relatives that live in fort lauderdale. and only thing we have had happened in our district 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 stepped my condolences to you and the millions of americans that were impacted. as you know the hurricane damaged homes, downed trees, losed roads and left one million residents without power in my home state. our people are beginning the difficult process of rebuilding their homes, their communities and their lives. and i hope this community will work together to do all we can
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to assist the recovery efforts. mr. chairman, i have said it before and will say it geb, we must improved the i.r.s. with a great deal of care and thoughtfulness. i hope we will take our care to develop bipartisan interests of both taxpayers and the agency. get any years, we cannot blood from a turnip. government cut the budget since 2010. and over the last three years, the appeal office dropped 11%. and there are about 24% few here fierce. and these deep budget cuts to resolve dispute with taxpayers. our citizens expect and deserve
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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 a subcommittee fourth hearing to explore how we can improve the i.r.s. we remain bipartisan and explore a good governance path to examine how the i.r.s. operates. i hope and pray that our work product will be a model for our colleagues. this afternoon, we will explore how to improve what can be a long and complicated appeal process to get together, we will listen and learn. some suggest that a number of
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states that have permanent hearing officers ensuring the conferences and align taxpayers to have face-to-face conferences. i hope he 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 the expansion of the agency. again, mr. chairman, i thank you, my friend, for holding this hearing. >> i look forward to working with you. without objection, members' oh
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opening statements. today's witnesses include four experts, director of the i.r.s. practice and procedures at the alliance group. president of the national taxpayers' union. and we are excited to have his wife, founder and managing partner and i think he has 35 years of dealing with dispute valuation. and principal with the national tax office from orlando. a.c.p.a.mber of the i. and your written statements will be made. you have five minutes.
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>> the appeals process. before heading to court the final administrative step to contest is through appeals. appeals is important for so many businesses seeking a fair review of their tax issues without having to incur additional court. they attend their appeals conference. and indicating they may not be
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depranted an in-person meeting. and first option for an appeal only granting in person conferences. we believe that not granting conferences to have an in-person meeting would be restrict the ability to adequately judge the credibility and make the conference more difficult in situations where the appeal is highly technical. while we have seen appeals officers flexible we peeve taxpayers should have a fem right. this inperson conference may be the only way the taxpayer has a resolution with the full understanding of the facts involved. another issue is the increased involvement of employees in appeals meetings. this change has created a perception they may not get an
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independent hearing. we believe the only involvement they should have is in a pre-conference mighting. the originating function can present their views. the taxpayers' protest and assessment of litigating hazards. and in a pre-conference setting, examine would leave it, rather than leaving, examine has been invited to stay for the presentation. when this happens, the entire appeals atmosphere and there are opportunities for this to turn into an examination into the examination. he independence is hinnered. a representative described the situation where it became clear that examine had not examined
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the team. after hearing the taxpayer present their position, the team ade another 24-page to attempt further support taking an alternative approach. it is unfair that they continue to their process when it is asigned to it. we disagree with appeals over exam participation and taxpayers who feel they have been through a grueling process should be able to have the peace of mind that their case is giving ar pressure look. today's comments on the issues of alternative issue dispute resolution. this is an expedited resolution process with an appeals process. the use of fast track has the potential to be a effective tool
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when both parties come to the table. taxpayers and their representatives welcome the portunity to resolve as many options. this same of urgency. i commend the committee for ensuring that taxpayers receive and service from the i.r.s. look to further tax administration and i will be glad to take your questions. >> mr. chairman, mr. ranking member and members of the committee, a number of my predecessors have testified in this very room ol taxpayers' rights issues and i'm horpped that you would ask me to follow in their footsteps and we need to follow in developing ar bipartisan solution to many of the problems that have cropped
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up since enactment of the i.r.s. restructuring and reform act of 1998. one of my predecessors called it taxpayers triage. what you need are 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 simply file the tax system and they know going into the process of interacting with e i.r.s. and problems can be esolved. what we have now is the appeals rocess and the alternative resolution process. we are going to hear from the witnesses about some of the
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malfunctioning systems with appeals and especially with the recent evolution and 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 relatively flat usage here in the united states actually declining at the appeals level suggests that we need very serious reforms if we are going to make that process workable in the future. the third level is intensive care. that's when taxpayers and the i.r.s. have to legitimate an issue and the it is highly problematic. everything from the
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anti-injunction act to the az-balart tower relief act prevents taxpayers from the choices are confined to legitimating for damages after the acts have been committed by the agency that have deprived the taxpayer of his or her income. post-op h level is observation, oversight. current plans in the tax reform operations would do away with the oversight board. there are flaws. but i would urge this committee to very carefully consider alternatives to the current oversight board which is essentially paralyzed due to a lack of quorum.
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we need to maintain that oversight in some manner. specifically, i would make a few recommendations and we can discuss these in detail. the foundation for another taxpayer rights' package ought to be based on the preserving taxpayers' rights act. it is a bipartisan bill. and codifies the right to appeal and business life like and taxpayers. this will apply to large businesses, small businesses, individuals can across the board. section 3 of that bill which essentially directs the secretary to begin developing more dispute resolution would pave the way for more effective use of a.d.r. there are many other suggestions that i could make that we should like, and just introduced in the
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senate yesterday. h.r. 2901 which would expand the assistance and the volunteer income assistance program, expanding low-income taxpayer clinics, all of these things need to work together to enhance the progress we have made in taxpayer bill of rights 1, -26r7b. and this is the committee where it all starts. every single piece of important i.r.s. legislation began with members of this committee, your predecessors and you now with the respect act that just passed coming together in a bipartisan fashion to do better for taxpayers. we can do it and must do it. i thank you for your leadership. >> thank you. thank you for the
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opportunities to discuss how dispute. resolving i have seen a lot of change. >> can you spee up more. >> our pib should be taxpayer service first, improve tone with access, consistent controls and require fast track steps. unique perspective as i have been involved in the florida's c.p.a., probable cause panel for well over a decade. and they work hard to get it right. there are a handful of taxpayers that try to push the envelope.
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and grants the rights for administrative hearing and appeals and that also breaks their taxpayer bill of rights. >> pursue additional revenue, follow the rules or lose the adjustment. we should require fast track to
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prevent the circumstances that are existing today. i want toll speak about field exams. and enforcement tone. 38 years, we reached a new low regarding the rifpks -- with respect to the taxpayers and their professionals have with the service. it is with the taxpayers have to prove the i.r.s. wrong. and doing audits and tend to tart and stop. > and brought the process to a chaos. talk about the call centers and local office access.
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and lastly, i would like tore answer to you congress to assist the national taxpayer in the business structure and processes. thank you very much. >> ms. wilson, you're
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recognized. >> thank you for the opportunity to testify. the aicpa applauds your efforts to the resolving taxpayer dispute in a cost-effective manner. i would like to share our thoughts on the independence and efficiency within the i.r.s. dispute resolution process and the importance of the i.r.s. to understand the taxpayers' perspective and deliver customer focus. upon receipt of an i.r.s. notice, taxpayers or their representatives may determine a reporting error was made. if the taxpayer made an effort, the taxpayer may request relief from penalties. frequently, the initial response
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is a routine denial. this process is currently hand lt and independently within each of the divisions. we recommend that the i.r.s. undertake a review of this process across the agency to identify necessary training to appeals.consistent appeals. their mission to is to revolve on a fair and impartial basis. we appreciate them holding conferences which provide unique opportunities for taxpayers to present their position. in october of 2016, appeals made several changes to its conference changes which impacted the ability to independently and objectively help taxpayers. we recommend that one, the i.r.s. limit settlement
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conferences to personnel and they provide options with a face-to-face conference. in one conference, the appeals officer asked openly asked the exam team what they thought was a fair settlement. my client asked how is it possible when they are seeking he opinions. >> we suggest that once the taxpayers' presentation begins, they should limit the participants to the personnel ap the taxpayer. in another appeals case, payroll obligations were not met until my client discovered the error.
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it took them five minutes to determine there was not a reasonable cause. in this particular situation, a face-to face conference was considered unnecessary from his perspective. he was not heard. he was unfairly denied the right to present his case. we think it is important that xpayers have the option of a face-to-face conference. case rger cases, they are leader who has designated authority. urge the i.r.s. to have authority and eliminate the approval process that was ecently added.
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you indicate the in your
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written testimony, you indicated in your written testimony that there were procedures in place by the i.r.s. 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 that something that the i.r.s. is doing as a result of the code or an arbitrary kind of application of the rules? >> with regards to that, in my testimony, in the large business and international division, they have put out procedures in the publication and indicated that when you are issuing document requests to taxpayers, you have a discussion, you identify what the issue is and talk about what documents. so the taxpayer has an opportunity to have a discussion
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with the agent and say, maybe i don't have those kind of records. but they understand what the i.r.s. is looking at and where they are going with their examination. and small business division does president happen. you'll get a letter age you are under exam. nd everything on the initial document request. and have a discussion and saying it's complete or not complete and ongoing discussion, small business, you are more likely than not going to find the results of their review at the end of the examination which is way too late for a taxpayer to understand what issues are under dispute.
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>> begs the question, why are they treated differently? and is this the result of the code or something that the i.r.s. is doing at their discretion? >> it is an administrative process. it's not required by code. although that procedure, it's a drastic change and different rom that supported by small to medium-sized businesses. >> you all have done this before. why are small businesses treated differently than large businesses in this area? >> i don't see a reason why they could not integrate some of those procedures into their processes. having the discussion up front that meets it to know what's
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going on, i don't see why it could not become a part of their work processes. >> i would agree that it should. there have been negative feedback even from folks that e r.d.i. requests are poorly focused. this is a problem with not only mall businesses.
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>> and under the current rules they could invite exam to be on the phone as well. that's a real concern, who is on the phone. you have so many parties, you don't know who is speaking. pa is there a problem with ex rmp te? >> the taxpayer is invited to attend the conference and it is not a violation. >> i get that in practice and theory, but in practice, it seems it would be an absolute reoccurring problem. > it could be.
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>> i now recognize the ranking member, mr. lewis from georgia. mr. lewis: thank you very much. ms. wilson, thank you for being here today . i understand you are the head of the national tax office at your firm. what type of issues of taxpayers trying to resolve when they come to your firm snr small issue, big issues, global issues?
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>> that is the unique thing about our firm. they run from small 1,000 penalty issues to large exams. so we have a unique client base and target mid-sized business and we have a range of issues. the significant issues that i see are around penalties and penalty appeal. we have a lot of clients in our base that have been on slauted with information return penalties and we try to help them manage through that process. mr. lewis: in your experience, what are the biggest challenges you and your clients involving ax issues? >> that's a good question. i think the largest issue is
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just being heard, making sure -- mr. lewis: do you have a difficult time and sometimes just being heard and getting a face-to-face meeting? >> appeals as we discussed, discussed in my testimony is dramatically changed this press. i have been doing that. mr. lewis: many, many years. was t face-to-face -- that the one time you sat down and face the i.r.s. and talk about the issues and from a clients' perspective and felt they were being heard and sat across the table and could see them and could see the head nodding and even if it didn't come in their favor, they felt they were being
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heard. and the telephone conferences are the standard practice, you remove that. and they question whether my clients do are even listening because you get to the end of s are taxpayers feeling they are being heard because this is their last. their last option.
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maybe the dollar amount isn't high enough or going to go to tax court. mr. lewis: are you suggesting to we need to do more humanize the i.r.s. and not make it this agency -- how do we go about doing that? what are your suggestions? >> that's why i got so choked up. by doing it in person. the people that can go to a c.p.a. but there are a lot of taxpayers 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
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having that face to face humanizes the you feel what's going on. and we all understand that there are some states that don't have an appeal officer in them. and they have to come from out of state. alabama and mississippi, they are coming from out of state. we have a staffing issue. but having that conversation with an appeals officer is a real opportunity to solve. and having the process. the process with the small awed its.
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and there is a place for those who are deliberately but so many of us are caught up. so i have questions about trying to get your questions.
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so much of it is tied to a personal relationship and someone is listening to me and resolve this thing while we're here. one question, and i think it was ou, that there were or ms. wilson, according my notes, that there were recording errors where there would be appeals and it was getting to be routine notes. now, when i was a prosecutor and a had a case, you might do declaration or a prosecution memo, but whenever there was a decision point, even though it was internal, should we be requiring if there is an original inquiry and a note sent out there is a justification that someone can analyze the file and say there is a reason
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why we are saying no right now? >> i would absolutely agree with you there should be a requirement to document what the justification for dem was. d again, you know, there are many of times that they reviewed it. >> you are comfortable with that. >> but this instances where it wasn't read because they articulated and maybe another witness can speak to that. they have model paragraphs they can pull from a system to do a notice to a specific taxpayer and it has been obvious they pulled those paragraphs and dumped into this letter and very irrelevant. mr. kelly: what is the effect on the taxpayer? have penalties and fines been
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whaved or further regulation during the time you are appealing this process? >> interest continues to accrue while we are going through this process. mr. kelly: against the person who is appealing. >> that's the discussion you have to have. but there are instances where you know your client says do i pay now, because i don't want the accrual of the interest. but you have to file a different form and it's a different process and there are a lot of considerations to take in when you are counseling clients and what path to go down. going back to your point, the impact it has on my clients, we are built on a voluntary compliance system. and what i have seep recently is
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that clients have become very discouraged because they thought they were come plipet and they get this notice that they weren't looked at. it can be very discouraging. once we get to the appeals process, a lot of times we do have success there. but the routine, when you make the initial request. mr. kelly: that would be presuming we get to that point and now you're talking, but i am intrigued by the concept that you were talking about where you believe the presence of the examiner also at the appeal was creating a piling on and yet i wonder to the extent if you are trying to get to a resolution, should there be some capacityity to the person who knows the
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facts. the i.r.s. person is supposed to be independent. if i was doing an appeal, i would want it to have it at my availability to the person who knows the record. >> my experience has been the appeals officers have been experienced and pgable and if they weren't, they would be finding another person. and that file is transferred transferred. they get to see the file. kill kell explain to me the difference why is it not preferable not to have the person who knows the record? >> maybe for another time. >> thank you all for being with us today.
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i wanted to follow up on comments you made earlier and talking about the challenges that small businesses face and the inconsistent 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 recommendations on what you think you could do what would work for small businesses? >> some of the things could be implemented administratively. i think we had talked about the process and it isn't perfect, but those are things from a quality perspective they could take a look at and want to change those processes and indicate that we are developing the facts and it is important to put the human element on it and have a discussion about the
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taxpayer of the information. although that is not expect and still have contentious exams, it could be implemented by rolling out new procedures and how they sbrl act with taxpayers on a routine basis. we have talkt about appeals. so initial fact fact finding is critical to a taxpayer that they had the opportunity to present what is and be open it is they are looking at and the treatment they are going to i.r.s. could say, commission of small business and i was there, was one of the things i looked at and glee,
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make re ways we could em feel better about the voluntary compliance system. that is the coalition not only of large business groups but taxpayer advocacy groups, but some of the trends in the audits are leaking across to each other
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and we are going to have aweding procedures are taking the worst elements to be used against taxpayers across the spectrum. designateing certain cases for litigation where they have presidential value even though there isn't a large number of taxpayers that might be affected. the summons which is an i.r.s. ower and that is being increasingly used where the taxpayers are being cooperative and the use of third-party ounsel to work auditing and do things that approach opposing witnesses. but all of this matters to taxpayers, because as everyone
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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 not happening and i see it in case after case. and small business ownerships 90-day etting the letter, they think it's a demand to pay tax and don't realize that the report would allow them to take an appeal to tax court. they don't understand the basic nature of the process because they are so intimidated and we approach h.r. 3220 as a pack age that address these things. >> you are recognized. >> thanks for holding this
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hearing. obviously, we don't hear from our constituents interactions with i.r.s. unless they are negative and i appreciate the committee to enhance this experience. i'm concerned about what i think is a new diversionary tactic to keep taxpayers from assessing administrative appeals. so we all know that cases that are docketted are transferred to appeals for consideration. are not typically docketted unless they are death designated for designation and it has come o our attention that in some cases that are docketted in tax court. and the case i'm aware of was not designated for litigation
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nor referred to appeals. the two-standard op shops. d the case was kept in a status under the justification of sound tax and that's the tirm they used and those are the only option available was litigation. so my question and i'm going to ask you to respond and then the panel, in your experience as a practitioner have you or our clients experienced something analogous to this? >> i'm not a practitioner but people have come to us and there have 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
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receive a notice of audit and a request for documents and suddenly they'll find in the mail yet another determination that they haven't had a chance to respond to the first on and the way of intimidating taxpayer that is death pri mental to them. > we have seen this in a foreign policies in foreign reporting and seen it numerous times, that's why i make the comment they need to follow the rules or needs to be a repercussion to the service. you lose it or follow your opportunity. we have to follow them accountable. that's why you have a taxpayer bill of rights. >> congressman, i'm not sure of
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all the specification, in the revenues procedures, if they filed a tax court petition they can get their case heard by appeals if they have not already been to appeals. i don't remember the revenue procedure, so there are provisions. up, the term that shows sound tax add administration,ion what that means, but in regards to that, they don't have to dispute ernative resolution. so i think there is sound tax cases tration to treat than the normal tax strare. what the answer is to that, i
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don't know, but the use of sound tax administration is a leeway. >> you want to add anything to that? with ust want to, i agree her, that she is spot on with the issue and you see my head going back and forth and i couldn't agree with that more. >> tomorrow the senate attorney relations committee holds a hearing. we'll have live coverage beginning at 10:00 a.m. on c-span 3, c-span dorgan c-span radio app.
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a group of republican senators discusses the health care proposal. senator bernie sanders put forward his medicare for all health care bill. president trump spoke with members of congress at the white house. economic sections against north korea. >> a group of republican senators has come up with their own health care proposal that would end many subsidies and mandates in the affordable care act, and create grants for much of federal health care spending. president trump has endorsed a plan. cassidy, andbill ron johnson unveiled their proposal in a capitol hill press briefing.

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