Magazine article The CPA Journal

Three Steps toward Improved IRS Collection Procedures

Magazine article The CPA Journal

Three Steps toward Improved IRS Collection Procedures

Article excerpt

Congressional hearings have recently focused the spotlight on problems with our tax system. Taxpayers and their representatives before the IRS hope that Congress will enact meaningful reforms of the IRS's audit and collection procedures. Congress heard about problems with the IRS computer systems and its failure so far to update them. But the discussion of problems at the collection division was both compelling and anecdotal. This is regrettable, given that the collection division can have a devastating effect on delinquent taxpayers.

Three simple changes to procedures would help those representing taxpayers before the collection division, as well as delinquent taxpayers themselves. They aim at keeping taxpayers informed and allowing them to present their cases before the IRS. They are simple and easy to implement, at little or no additional cost to the IRS. Based on my experience before the collection division, I do not believe they would unduly impede the IRS in fulfilling its mission of collecting delinquent taxes.

Suggestion 1: Notify responsible parties. When a corporation does not pay Federal employment taxes, the IRS conducts an investigation to determine who in the corporation was personally responsible for unpaid corporate taxes withheld from employees. The revenue officer conducts the investigation through interviews with various parties and examination of checking accounts and other documents. Upon completing the investigation, the revenue officer completes a report on IRS Form 4183, which names the persons responsible and the reasons for the determination, as well as naming those officers of the corporation who are not found to be responsible persons. But despite these formalities, no person named in the report receives a copy of the report from the revenue officer.

I suggest that the revenue officer furnish a copy of IRS Form 4183 to each person found responsible, and that investigated persons not found to be responsible also be notified of that determination. Furthermore, under current procedures there is no provision to notify a responsible corporate officer whether there are any other responsible persons involved in the collection matter. In the interest of fairness, this procedural gap should also be closed.

The revised procedures I am proposing would give potentially responsible persons an opportunity to determine whether the revenue officer's report is complete and accurate, and with it, a chance to bring alleged inaccuracies to the attention of the revenue officer. Under better and fairer notification procedures, a potentially responsible person could make a more reasoned decision whether to agree or disagree with the revenue officer's findings.

And, in the event of disagreement, that person would be able to prepare an appeal that specifically addresses the arguments in the revenue officer's report.

Suggestion 2: Nonparties of potential Federal tax liens. The IRS sometimes makes use of a procedure whereby it files a Federal tax lien against a party who is not the taxpayer under administrative procedures for determining alter ego, nominee status, or transferee proceedings. A revenue officer conducts an investigation and reports the findings and recommendations to file the lien against the party who is not the taxpayer. No formal procedures exist for notifying a person that he or she is the target of such an investigation. …

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