Regulatory Review

Article excerpt

National Research Program Audits

In mid-January, the IRS unveiled a new compliance study known as the National Research Program, to "help ensure that taxpayers are paying their fair share of taxes, while providing the IRS with the necessary tools to measure compliance." The IRS states that the no-change rate on individual audits has been increasing; they think this means they are wasting resources auditing compliant taxpayers which does nothing to improve overall compliance.

The IRS plans to use data from the NRP to update the formulas ("DIF" scores) used to select returns for audit. The NRP supposedly will measure three different types of compliance:

* Filing compliance based on data from the Census Bureau

* Payment compliance based on information available to the IRS

* Reporting compliance based on an analysis of a sample of tax returns

Initially, the program will only target individual income taxes but will later expand to other taxes and other types of taxpayers.

The NRP will study compliance by targeting a sample of up to 50,000 taxpayers for review at various levels of intensity. This breaks down (roughly) as:

* 8,000 taxpayers to receive "no contact" reviews

* 9,000 taxpayers to undergo correspondence audits

* 30,000 taxpayers to receive a limited scope audit

* 2,000 taxpayers to receive a line-by-line audit with reasonable substantiation.

The 2000 line-by-line audits are for "calibration" purposes to validate data obtained in the program. The IRS states that the NRP process will not place an additional burden on taxpayers because it will build on data already collected.

NSA Weighs In

Many NSA members are skeptical of the IRS claim that the program would be less intrusive and burdensome on taxpayers than previous compliance studies. To NSA, the NRP harkens back to the days of the old Taxpayer Compliance Measurement Program audits, the scars of which are still very fresh. No one questions the need for the IRS to audit returns or compile statistics to improve the audit process. The issue boils down to the propriety of subjecting even 2,000 presumably compliant taxpayers to a detailed line-by-line audit and protecting these taxpayers from over zealous auditors.

To voice practitioner concerns, NSA Executive Vice President John Ams fired off a strongly worded letter to IRS Commissioner Rossotti. The letter called the program seriously flawed and argued that its introduction marks a return to the heavy-handed compliance mentality that the IRS was so rightly criticized for in the past. Ams went on to say, "Although the IRS maintains that the program will be less intrusive and burdensome, we have strong doubts as to the ultimate manner in which the program will be administered." NSA called on the IRS to find a better way to collect the information it needs. The letter resulted in a frank and candid meeting with the Commissioner.

In essence, we agreed to disagree: NSA reiterated its concerns and the Commissioner defended the program. To address our concerns about the intrusiveness of the NRP audits, the Commissioner offered to have IRS personnel in charge of the program meet with NSA to get NSA's comments and suggestions on the procedures and training for agents assigned to the program. NSA accepted the Commissioner's invitation. Will this be sufficient to allay NSA's concerns? Time will tell. Just in case, NSA is making its concerns with the NPR known to the Congressional tax writing Committees and other groups.

NSA Takes To The Hill

On January 28, NSA introduced our first Congressional Briefing program focusing on the recently released IRS National Taxpayer Advocate's 2001 report to Congress. Bryan Gates gave staffers tips on how to better utilize the Taxpayer Advocate Office to resolve constituent tax casework. Bill Stevenson and Rick Oelerich walked attendees through the Advocate's report from the perspective of the tax practitioner community, touching on problem areas and legislative recommendations set out in the document. …