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For the last several years, the Internal Revenue Service has been increasing the number of "correspondence" audits that it conducts. There seems to be an assumption that it costs less and requires less manpower than field or in-person audits, and that assumption is doubtless true. However, there is a real question about the quality of such examinations and in particular IRS follow-up.
Since no later than 2007, various groups have been complaining to the IRS that correspondence audits were not being administered professionally. The principal complaint was that the IRS was issuing follow-up notices too quickly; other complaints pinpointed the IRS sometimes losing taxpayers' responses, or—almost as bad-- claiming never to have received them, according to the National Association of Enrolled Agents.
In 2008, a report was conducted at the request of the IRS Oversight Board, where many practitioners complained to the IRS about an increasing number of such audits, and the significant amount of time necessary to complete them. The Treasury Inspector General for Tax Administration performed a study, and issued a report at the end of March. Not surprisingly, it notes that taxpayers continue to claim about errors in conduct by IRS employees performing these "audits." TIGTA concluded the IRS has made some improvements, but that the examiners are not following all procedures and considering all information the taxpayers provide. In fact, one concern noted by TIGTA involved IRS recordkeeping that did not insure a timely response to a taxpayer’s inquiry or submission.
It is always expensive to be involved in an IRS examination, and the growing trend of correspondence audits, where one deals with a faceless person whose name and employee "id" number are all that is known, is a reality. There is not much taxpayers can do other than to continue to cooperate, but to take steps to insure that they have proof of responses when they make them. This Practitioner makes a point of submitting his responses by certified mail with return receipt requested cards to ensure that he has proof that the IRS received what he sent, and the date on which they received it. On more than one occasion, he has seen situations where the IRS personnel claimed that nothing was received until that certified mail evidence was produced, following which the submitted information mysteriously has appeared.
The other thing professionals must counsel their clients about is the reality that mistakes are made, and documents are lost, and it is simply a matter of having the patience to deal with the IRS system until one reaches someone who can and will consider the evidence. This is not an ideal system, but it’s the one we're stuck with. As for the question which began this discussion, remember that Santa never asks us to send him letters, and does not always do what we ask, but at least he doesn't send us bills.
George Connelly is recognized as one of the leading federal tax litigators in the United States. His practice focuses on IRS audit, collection and criminal matters including civil and criminal tax litigation matters, for clients ...