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Tax Blawg

Tax Talk for Tax Pros

Introduction

Welcome to TaxBlawg, a resource from Chamberlain Hrdlicka for news and analysis of current legal issues facing tax practitioners. Although blawg.com identifies nearly 1,400 active “blawgs,” including 20+ blawgs related to taxation and estate planning, the needs of tax professionals have received surprisingly little attention.

The Wall Street Journal's Tax Blog gives “tips and advice for filers,” and Paul Caron’s legendary TaxProf Blog is an excellent clearinghouse for academic and policy-oriented news. Yet, tax practitioners still lack a dedicated resource to call their own. For those intrepid souls, we offer TaxBlawg, a forum of tax talk for tax pros.

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Who Audits TIGTA? An Update

The Inspector General for Tax Administration, TIGTA, is in the news regularly.  In addition to tracking down misbehaving IRS employees and misbehaving representatives, an important role of this organization seems to be examining every aspect of the operation of the Internal Revenue Service about which it can publish a critical report.  Lately, it seems that TIGTA has been publishing an average of one a week, virtually all of which have been critical of the performance of the Internal Revenue Service.  Two of my favorites, however, deserve some close examination and cause this writer to wonder if TIGTA may not have crossed the line of objectivity. 

The first is not recent, but alleged that the IRS is not properly pursuing return preparers who have made mistakes in preparing returns where the earned income tax credit (EITC) has been claimed.  Anyone familiar with the EITC knows there are several reasons why this criticism rings hollow.  The first is a dirty little secret:  EITC is an acronym for “welfare,” and has no place in the Internal Revenue Code.  If our executive and legislative branches had any courage at all, they never would have put it there, but they recognize that parts of the American public view welfare as a “four letter word,” so it’s been tucked away in the Internal Revenue Code and dumped on the IRS to administer.

The second reason is well known to anyone who has attempted to navigate the labyrinth of rules relating to the application of the law and eligibility for this credit.  It is like a scene out of an old Marx Brothers movie.  As well-meaning and professional as most TIGTA agents I have come to know may be, I would defy any of them to pass an EITC exam—applying it to several fact situations—without making an error. 

The third point very simply is that the IRS does not set its own budget, but rather Congress does, and Congress has simply not allotted enough funds for each and every one of the functions that TIGTA examines.  The ideal solution—removing the EITC from the Internal Revenue Code, and charging some other agency with properly administering it, seems lost upon TIGTA, and as noted above seems to be an example of criticizing an already overburdened and embattled agency.

The second study was to the effect that the IRS is misinterpreting the law in such a manner that it “misses” penalties that should be applied to erroneous refund claims, tax returns, and other matters.  Anyone who has represented people before the Internal Revenue Service or prepared returns will find this a mindboggling announcement in light of the fact that penalties seem to be applied during audits for little more than that sake of applying penalties.  According to the IRS Data Book for 2018, $1.8 Billion of accuracy penalties under I.R.C. § 6662 were asserted last year and only $272 Million were abated.  The reality exists that some penalties are not sustained at Appeals or in litigation, and TIGTA does not seem to take that element of the process into account. 

The point of the foregoing is not to suggest that there is not a proper place for TIGTA.  Large companies seriously need annual audits of their operations, and even accounting firms need “peer reviews.”  But those examinations are conducted by trained people who have familiarity with what the organization under examination is supposed to be doing.  The two examples above suggest to me that the people conducting the examinations for TIGTA are not as intimately familiar with the operations of the specific parts of the IRS as they need to be.  Of course, this will require Congress to give someone more money to do the job properly, and we know what that means.

Hopefully, TIGTA has not interpreted its role to be critic in residence rather than a source of constructive solutions for addressing the problems which exist in the IRS.  It plays an indispensable role as monitor of the IRS, but this writer believes it’s falling short when it omits important elements from its reports.

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    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 ...