Transcripts For CSPAN2 Hearing Focuses On Taxpayer Dispute Resolution 20170919

Subcommittee hearing on irs reform resolving taxpayer disputes. Before it began my official statement i would like to recognize the extraordinary effort of two of our Witnesses Today that made it appear from florida. I think you drove from orlando, so thats pretty impressive. Both mr. Shinn and ms. Wilson came from the great state of florida. Thank you very much for your determination to be here. I know it wasnt easy. Let me pause for a moment to thank all our first responders, local government officials and Community Members who stepped up and respond to the Hurricane Irma in my home state of florida. It is impressive to see everyone working together. Im confident we will continue to Work Together in the aftermath of the storm as well. Todays hearing is another important step in the process of considering reforms to the irs. As i have stated previously, i do not view this effort as an opportunity to degrade or discredit the good work being done by irs employees. However, i am a big believer in continuous improvement. Thats my philosophy in business. Business. We can always get better. In government, like in business, we should always be looking for ways to improve. In a system of voluntary tax compliance, even with the simplest of tax codes, and ours is currently not one of those, there are bound to be disputes between taxpayers and the irs. What we hope to learn today is about the experience of those taxpayers, folks have been in the trenches work with a loveless taxpayers involve involving disputes with the irs and whether there ways to improve the current process. I believe there will be. Nearly 20 years ago, the last time significant reforms were made to the irs, one of the key legislative priorities for congress was the creation of an independent appeals function. As recently as two years ago, congress reaffirmed the importance of an independent forum when the right to appeal to such a forum was included in the taxpayer bill of rights and codified as a responsibility of the commissioner. Ensuring the independence and availability of the administrative review process for taxpayer disputes remains a top priority of this subcommittee. In addition to being independent, dispute Resolution Options need to be accessible and efficient. The process is failing if only Large Businesses with deep pockets feel equipped to dispute a determination made by the irs. Individuals and Small Businesses should not have to weigh the cost of hiring outside help against paying the assessment. For most taxpayers, their only interactions with the irs is when they file their taxes once a year. But when taxpayers do find themselves in a dispute with the agency, they deserve a fair and prompt process. I look forward to working with the Ranking Member on these issues and to hearing from our witnesses as we continue our efforts to examine reforms to the irs. I now yield to the distinguished Ranking Member from georgia, mr. Lewis, for the purposes of an opening statement. Thank you, mr. Chairman. Thank you, mr. Chairman. For holding this hearing, for resolving taxpayers disputes, with the Internal Revenue service. And i welcome you back to washington, mr. Chairman. And on behalf of the citizens of georgia and a special of the the fifth district, we were able to welcome hundreds and thousands of people from florida. I went into a parking lot in downtown atlanta on saturday, and there were so many cars from florida, and people had their dogs, walking their dogs to the parks from florida. We are neighbors, and i want you in particular welcome ms. Wilson and mr. Shinn. I have relatives that live in fort lauderdale, and the only thing we had happened in my district was some, for the most part, pine trees coming down. I want to thank you for being here today. Before we begin, mr, mr. Chairmi would like to take a moment to extend my condolences to you and the millions of americans who are impacted by the recent hurricanes in the caribbean and the southern states. As you know, the hurricane damaged homes, downed trees, closed roads, and left about 1 million residents without power in my home state of georgia. Now our citizens, our people making the difficult process of rebuilding their homes, their communities and their lives. Add out this committee will Work Together to do all we can to assist, the recovery efforts. Mr. Chairman, i have said it before and ill say it again. We must approach this effort to reform and improve the irs with a great deal of care and resourcefulness. I hope we will take our time to develop Bipartisan Solutions that serve the best interest of both taxpayers and the agency. For many years i have cautioned that we cannot get blood from a turnip. As you know, congress have the irs budget by almost 1 billion since 2010. Over the last three years the budget for the irs Appeals Office dropped 11 , and there are about 24 fewer here in offices. Today we will learn more about how these deep budget cuts have expected the building of a tax agency to resolve disputes with taxpayers. Our citizens expect and deserve 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 for steering to explore how we can approve the irs. We have remained bipartisan and explore a Good Governance path to examine how the irs operates and to identify possible improvements. I hope and pray that our work product will be a model for our colleagues. This afternoon we will also explore how to improve what can be a long and complicated appeal process. To get together, we will listen and learn about possible remedies. Some may suggest expanding the number of states that have permanent hearing officers, ensuring the independence of taxpayer conferences, and align taxpayers to have facetoface conferences throughout the appeals process. Above all, mr. Chairman, i hope you continue to Work Together as we have all year to explore and address the issues. In closing, mr. Chairman, i look forward to hearing from our witnesses and learning more about their expatriate agency. Again, mr. Chairman, i want to thank you, my friend for holding this hearing. Thank you, mr. Lewis. And what to thank you for your thoughts and prayers, and we do have a lot of our family and people that went to georgia and other states, and i appreciate your thoughts on that. You know youve got my commitment to Work Together in a by person basis. We want to put this together. Theres a lot of work to be desolate for to working with you. Thank you, mr. Chairman. Without objection of the members Opening Statements will be made part of the record. Todays witnesses for this panel and cleared for experts. Kathy petronchak, director of the alliance group, present at the National Taxpayers union. Byron shinn in our district, where such of him, his lovely wife are today. Hes founder and edgy partner at shinn and company, you think is probably got 35 years of dealing with dispute resolution with the irs so i know cathy wilson the principle of the National Tax Office of Clifton Larson allen from orlando, and a member of the aicpa pizza subcommittee is little, will receive a statement so theyll be made part of the record. Formal record. Each of your five minutes to deliver your all remarks. We will begin with ms. Petronchak. You may begin when youre ready. Chairman buchanan, Ranking Member lewis, and members of the subcommittee, thank you for inviting me to testify if it is an honor to provide comments today. I interact with small and mediumsize businesses in their work with the line crew. I also spent 299 years at the irs and so this could be a unique perspective into the examination and appeals process. My testimony focuses on charges that taxpayers face when to do with the irs and what irs can do to improve the examination and appeals process. I raise six issues in my written testimony at a like to highlight two of those issues. The first issue is the appeals process. Before heading to court the final administrative step attacks that can take to contest an adverse determination or revenue agent is through appeals. Appeals is important for so many businesses seeking a fair review of their tax issues without having to incur additional costs the opportunity to attend the appeals conference in person. They are not thrilled about the recent change by appeals indicating they may not be granted and in person meeting. Appeals as may telephone and virtual conferences First Options for an appeal only granting in person conferences and limited circumstances. We believe not granting taxpayers an opportunity to have an in person meeting would be highly prejudicial to taxpayers can restrict the ability of Appeals Officers to adequately the credibility of witnesses and make the conference more difficult in situations where the appeal is highly technical and im evidentiary focus cases. While were seeing Appeals Officers flexible and granting inperson conferences, we believe that taxpayers should have a fundamental right to meet appeals facetoface. This in person conference may be the only way a taxpayer believes there is an impartial resolution with a full understanding of the facts involved. Another issue emerging in appeals is the increased involvement of irs compliance employs in appeals meetings. This change has created a perception for taxpayers that they may not get an independent hearing and decision as afforded by the taxpayer bill of rights. We believe the own involvement exams or debit appeals is in a preconference meeting. At a preconference of the originate function cant attend and appeals conference to present their views on the issues, attacks that protest, and assessment of litigating hazards and accords with ex partake communication rules. In a preconference setting, exam would leave after the presentation but as of late, rather than leav leaving at this point, exam has been invited by appeals to stay for the taxpayers presentation. When this happens the entire appeals atmosphere is altered and there are opportunities for this to turn into an extension of the examination process for a taxpayer. The independence of appeals is hindered when exam place too to greater role in the appeals process. A representative recently described a situation where in a preconference it became clear that exam had to address the position the taxpayer had brought forward in his response to the exam team. Anchoring the taxpayer orally present their position, the exam team made another 24 page submission to appeals to attempt for the support for their position on the issue, taking an alternative approach. It seems patently unfair exam can attempt to continue their process when the case is assigned to an independent forum to make a decision. We disagree with appeals have unilateral decisionmaking over exam participation in a conference. Taxpayers of those if theyve already been through a grueling process with exam should have the peace of mind that the case was being given a fresh look by appeals and that the examination is over. Two days, the issue of alternate dispute resolution focus on irs fast tracks of the program. This program was great to provide an expedited dispute resolution option for taxpayers, to mediate the dispute during an examination with an appeals official acting as a mediator. The use of fast track has the potential to be highly effective tool when both parties come to the table pulling to reach an agreement. Taxpayers and the representatives welcomed the opportunity to resolve this man issues as possible at the lowest level in a cooperative manner. This same sense of urgency should be felt by the irs. In closing i commend the committee for its work and oversight in ensuring that taxpayers receive fair treatment and good service on the irs. A light group looks for to working with the committee to further improve Tax Administration and i would be glad to take your questions. Thank you. Mr. Sepp, you are recognized. Mr. Chairman, mr. Ranking member, members of the committee, a number of my predecessors have actually testified in this very room on taxpayer rights issues, so im particularly honored that you ask me here to follow in their footsteps. We need to follow in the footsteps of all of our predecessors in developing a bipartisan solution to many of the problems that have cropped up since enactment of the irs restructuring and reform act of 1998. One of my predecessors, bob, put it this way. He called it taxpayers triage. What you need a number of steps, 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 pickwick semper fi attack system. We can educate taxpayers about the rights and advance so they know going into the process of interacting with the irs what to expect and perhaps problems can be resolved at that level. The preconference level, for example. Then theres basic care. What we have now of course is the appeals process, and a very nation alternate dispute resolution process nation. We will hear from the Witnesses Today about some of the malfunctioning systems within 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 is relatively flat usage here in the United States actually declining at the appeals level right now suggests that we need very serious reforms if were going to make that process workable in the future. Third level of triage really is intensive care. Thats when taxpayers and the irs have to litigate an issue. Taxpayers access to the courts beyond the tax court level is still highly problematic. Everything from the antiinjunction act to the deck lid story relief act, essentially prevents taxpayers from enforcing the rights in court in a meaningful manner largely their choices are confined to litigating for damages after the acts of artie been committed by the agency that is deprived the taxpayer of his or her income, the right to earn. The fourth level is essentially post op observation, as i would call it, oversight. Now, current plans in several of the tax reform options being discussed would do away with the irs Oversight Board. There are flaws in the Oversight Board certainly, but i would urge this committee to very carefully consider alternatives to the current irs Oversight Board, which is essentially paralyzed due to a lack of quorum. We really need to establish and maintain that kind of consistent oversight in some manner. Specifically, i would make a few recommendations, and again we can discuss these in detail. The foundation for another taxpayer rights package really ought to be based on h. R. 3220, the preserving taxpayers rights act, a bipartisan bill. It codifies the right to appeal and it establishes a more businesslike working relationship between the irs and taxpayers. This will apply to Large Businesses, Small Businesses, individuals across the board. Section three of that bill, which essentially directs the secretary to begin developing more dispute resolution procedures that appeals would pave the way for more effective use of adr in a number of situations. There are many, many of the suggestions i could make that we should look at, the taxpayers bill of rights enhancement act just introduced in the senate yesterday, h. R. 2901 which would expand some of the assistance and the volunteer Income Tax Assistance Program, expanding low income taxpayer clinics. All of these things need to be put into a package to Work Together to enhance the progress we have made in taxpayer bill of rights and the irs restructuring and reform act, and this is the committee where it all starts. You are recognized. Thank you, Ranking Member lewis and members of the subcommittee, you for discussing how the irs files text their disputes which is a practicing accountant for 38 years i have seen a lot of change. Can you speak up a little bit . In my opinion our focus should be Taxpayer Service first, improved tone with access, consistent controls and require fast track steps. I have a unique perspective as i have been involved in oversight over the probable cause panel for over a decade. Most practitioners work hard to get it right. These are the practitioners and taxpayers that need to be reviewed but i would like to discuss correspondence, have been expanded in lieu of exams for many individual returns. These require responses in a specific period of time. It takes more time than taxpayers given these exams have high probability of no change once the irs receipt is submitted, and the taxpayers rights have been ignored by the 15 day letters and shortly thereafter 90 day notice of the efficiency thereby ignoring the 30 day letter, which grants the rights of the taxpayer for an administrative hearing and appeals and that also breaks the taxpayer bill of rights and prevents fasttrack settlement opportunity. A standard should exist the process must be maintained and service when it jumps over process should lose the right to pursue additional revenue, follow rules or lose the adjustment. The circumstances that are existing today. I am next to talk about field exams, the process has been tax they are friendly with an enforcement tone. Over 38 years we have reached a new low, the respect the taxpayers and professionals have with service is that if taxpayers have to prove the irs wrong, doing several audits at the same time and tend to start and stop during the audit, many taking more months, this is not right. We have new rules that are also killing the system. An example is partnership exam rules that brought the process to a state of total chaos. In order to close issues and reduce the time necessary, we talk about call centers in local office access. The wait time is extremely long. Overall my experience is once you get to a qualified person, this shows how the Service Needs to open up access. Service should increase Call Center Available hours between earlier, later and on weekendss. The service has a good process but this is reduced through budget cuts. At the expanded broader sense. The local offices no longer allow walk ins. This is just not it is not taxpayer right. It is not taxpayer first. They need to have reasonable access. Another area is disclosure in exams, a situation growing with foreign assets, bank accounts, going to appeals and they feel they cannot settle to offshore technical advisors, all or nothing. We need to get guidance on settlement. This has created opportunities for debate, the code in its current debate faces the service and taxpayers. Since most of our career has been with small and Medium Business i can talk about the challenges and compliance. Identity, many id thefts were in florida, i was a victim. We should require all taxpayers to have been numbers. My information was stolen through eservices on a data dump and shouldnt happen. If we had all taxpayers with pens that wouldnt happen and lastly i would like to recommend a separate task force to answer to congress to assist the National Taxpayer advocate developing change in Business Structure and processes. Thank you very much. Thank you, ms. Wilson, you are recognized. Chairman buchanan, Ranking Member lewis and other members of the subcommittee, you for the opportunity to testify. We applaud your efforts to address the importance of the irs regarding taxpayer disputes in a timely, efficient and costeffective manner. Today i would like to share our thoughts on the independence and efficiency with the irs dispute resolution process. I would like to address the importance of the irs to understand the taxpayers perspective and deliver customer focus. First i would like to start with penalties. Upon receipt of an irs notice taxpayers or their representative may determine a reporting error was made. However, if the taxpayer made the effort to comply with the reporting requirements, the taxpayer may request relief from penalties. Frequently the initial irs response is routine denial, this process is currently handled independently with each division. We recommend the irs undertake a review of this process across the agency to identify necessary training to ensure a consistent, fair treatment of taxpayer disputes. Next, lets discuss appeals. Appealed is the primary form for taxpayer dispute. Their mission is to resolve tax controversies without litigation on a fair and impartial basis. We appreciate them holding conferences which provide meaningful and unique opportunities for taxpayers to present their position. In october 2016, appeals made several changes to its conference procedures which arguably impact the ability or perception to independently and objectively help taxpayers lose we recommend the irs limit settlement conferences to the appropriate personnel and provide taxpayers with the option of a facetoface conference. In one settlement conference the Appeals Officer asked, openly asked the exam team what they thought was a fair settlement. My client asked how is it possible for appeals to maintain their independence when they are seeking the opinions of the same irs employee who examined them. Although in reality, irs employees may or may not have influence over the appeals process, it is hard to view them as objective when other irs employees are involved. We suggest once taxpayers presentation to appeals begins, they should limit participants to the appropriate appeals personnel and the taxpayer. In another appeals case, payroll was not met and told my client discovered the error. The Appeals Officer said it took a whole five minutes to determine there was no reasonable cause and ask not to discuss it and in this particular situation a conversation, much less facetoface conference was considered unnecessary from his perspective but from the clients perspective he was unfairly denied the right to present his case. It is possible to resolve some issues over the telephone it is important taxpayers have the option of a facetoface conference. For larger tax dispute cases are assigned a team of irs Appeals Officers and kays leader designated Settlement Authority. We urge the irs to provide independent Settlement Authority to these case leaders and eliminate the approval process that was recently added. Finally the Customer Service approach should extend to all irs services to reduce disputes in the first place. We should have a Practitioner Services unit that would centralize and modernize its approach. With the mindset of understanding taxpayers perspective the service will enhance voluntary compliance and increase confidence in the integrity of the service. I will be happy to answer any questions. Thank you for your excellent testimony. In keeping with my past and present i will hold my question until the end. I recognize the gentleman from michigan, mister bishop. Thank you for your time and expertise, appreciate it, lots of questions. Kathy petronchak, close . Good. You indicate in your written testimony you didnt have much time but you indicated in your written testimony, during an audit, giving larger businesses an advantage over smaller businesses, having to do with transparency, can you elaborate on that and tell us is this something the irs is doing as a result of the code or is this an arbitrary application of the rules . With regards to that in my testimony, in the Large Business and International Division they put out procedures in the publication and indicated that when you issue information document request to taxpayers, you identify what the issue is and talk about what documents you will request so there is an opportunity to have a discussion with the agent and say i dont have those records, these might be more pertinent but they understand what the irs is looking at and where they plan on going with the examination. The Small Business division, that doesnt happen. What happens is you get a letter that you are under exam and heres a four page document request with everything but the kitchen think on the initial document request. And then, instead of when that response is made to that document request, they would review that response and have a discussion with the taxpayers that we is complete or not complete and is an ongoing discussion. Small business, you are more likely than not going to find out the results of their review at the end of an examination which is too late for taxpayer understanding what issues are in dispute and have the opportunity to use alternative dispute resolutions. It begs the question why they are treated differently and is this a result of the code or something the irs is doing independently at his discretion . In administrative practice and Large Business position, not required by code but that procedure could be improved, a drastic change different from that afforded to small and mediumsized businesses. I dont understand why. You all have done this before. Does anybody understand why Small Businesses are treated differently than Large Businesses in this area . I dont see why they cannot integrate those procedures into their examination practices. Having the discussion up front meets the taxpayer bill of rights to be informed and know what is going on, i dont see why it could not be part of their work process. I would agree that it should, although i would say there has been some negative feedback even from folks who experienced audits that the idr requests are focused, this might be a problem not only with Small Businesses but the procedural latitude given to the irs. You indicated the nonin person exam for for the appeal, is the expert for the irs in the room with the examiner . It is an appeals meeting, moved to virtual conferences in some instances, the Appeals Officer is in the room, they may have a technical specialist and under the current rules, they invite the exam to be on the phone as well so that is a real concern, you have so many parties, dont know who is speaking or whose perspective you are hearing. Inhouse . That does not violate communications, in the conference. It is not a violation of that. It seems that would be an absolute reoccurring problem. It could be. Is the appeal process a continuing process, does it take up the entire, all the evidence, do they consider everything orally that which was considered in the previous review . They should consider the information developed and presented to them by exam as well as what the taxpayer submitted and making an independent decision. Ms. Wilson reference ernst the irs change, we will not hear new evidence but only what is in the file and make our decision so it should be exactly what is in front of them. Thank you, mister chair. I recognize mister lewis from georgia. Thank you, mister chairman, ms. Wilson, thank you for being here today. I understand you are head of the National Tax Office, what type of issues trying to resolve when they come to your firm . Small issue, big issues, global issues . That is the unique thing about the firm, they run the gamut all the way from small, thousand dollar penalty issues to very large exams, we have a unique client base, we target midsize business, a range of issues we see. The significant issues, the penalty appeal, have never been for information return penalties and we tried to help them manage through that process. One of the Biggest Challenges you experience in resolving tax issues. A good question, the largest issue is being heard. A difficult time sometimes being heard, a facetoface meeting. Dramatically changed the process. And for many years. Face to face, the one time you face the irs. They felt like they were being heard, they sat across from the Appeals Office. And see the head nodding. They felt they were being heard. When you hear these telephone conferences which are standard practice, you remove that. They are even listening. And it does work well. The client walks away and says i dont think they were listening. I heard keystrokes on the computer. And that is one of our recommendations, you need to look at this new procedure, what are we doing to Taxpayer Service, taxpayers feel they are being heard. The next option is litigation, and my client base, 90 will not take it to litigation, the dollar amount isnt high enough that they are frightened by having to go to tax . Are you suggesting or recommending we need to do more to humanize that and not make it so unbelievable agencies. And what about the recommendation, that is why i got so choked up. Doing it in person, the people who go to an enrollment, theres a lot of taxpayers. And having the opportunity, at the local agent office levels, and you actually feel, they dont have an appeal officer in some, appeal officers come out of state like alabama, and we have a staffing issue. There is a real opportunity to solve. And the process you talked about, the Small Business audits. It is behind the dark curtain and a scary proposition. When those taxpayers get those letters and the four page requests it is intense and a scary moment and we dont get the chance with a Large Business in his team and we have situations where you will go on hold for over an hour and at the end of the day, put it back down again and restart the next day. That is not taxpayer friendly. You are recognized. I think you for your service and dedication because it is clear you are here as voices for people who feel if they are not abiding by the rules they wonder sometimes what is the technicality, they are not people trying to skirt the rules. For those who are deliberately recalcitrant but so many others are caught in the malaise so i have questions about trying to get your interpretations to make this better, seems so much is tied to a personal relationship, someone actually listening to me and lets resolve this while we are here. And it was you, you were saying there were ms. Wilson it with you, according to my notes, there were recording errors and penalty situations where there would be appeals and routine notes. When i was a prosecutor and you had a case, you might do a declination or prosecution memo. It is justifiable even though it is internal, should he be requiring if there is an original inquiry or return a justification that somebody analyzed the file and said theres a reason we are saying no right now . I would agree with you that there should be a requirement to document what the justification for denial was. There are many times we will get the denial and it does appear someone has reviewed it because we put specific facts in. But comfortable with that, you know you can count on a client. There have been instances it wasnt read, they articulated, and you can speak to that. And model paragraphs, to a specific taxpayer. And spooled those paragraphs. It is very irrelevant to what was discussed. Penalties and fines in that period, or is there a further accumulation in that period where you are appealing this process . Interest continues to accrue in this process. Against the person who is appealing. That is a discussion you have to have with your clients. There are instances where a client will come to you and say do i pay now, or accrual of the interest . And the process you file in different form to make a refund claim and it is a different process, you end up in the same place but theres a lot of consideration to take and when you are counseling clients of what have to go down. Back to your point, the impact it has on my clients, we are built on a voluntary compliance system and recently, clients become very discouraged because they thought they were being compliant and when this notice that they were not even really looked at it can be very discouraging to them. The positive note i will say is once we get to the appeals process in the penalty arena a lot of times we have success but there is that routine, when you make your initial request that appeals process presuming we get to that point, now you are talking, i am intrigued by the concept, you believe that the presence of the examiner and the appeal was creating kind of a piling on, yet i wonder to the extent you are trying to get to a resolution, should there be some capacity for the person that knows the facts to present it, i know the irs person is supposed to be independent so to speak but if i was doing an appeal i would want to have at my availability the person who knows the record. My experience has been the Appeals Officers are extremely experienced and knowledgeable, and find another person. Based on the facts presented, that is transferred. You dont have the benefit, why is it preferable, who knows the record . May be for another time, we benefited from it. You are recognized. Kathy petronchak, i want to follow up on the challenges Small Businesses face and the inconsistency, Small Businesses versus Large Businesses, what do you think we should do to address these issues and what would you like to see or do you have recommendations that would work for Small Businesses . Some of these things could be implemented administratively. Pete talked about the process that is perfect by any means from a quality perspective, and the taxpayers. When developing the facts it is important to put the human element, the discretion of the taxpayer with the information, and have contingency, it is an administrative process that would be implemented by rolling out new procedures for their agents and how they interact with taxpayers on a routine basis. They are developing the facts come a we have all spoken to the independence issue and appeals, that initial factfinding, document request, is critical, that they have the opportunity to present their position and be heard by someone who will be open about what it is they are looking at, the treatment they will decide on a particular tax issue. I dont know that anything needs to be mandated by the irs, looking at their procedures could say, when i was there when i left was one of the things i could have looked at and said there are ways we can interact on a much better basis with our taxpayers to make him feel better about voluntary compliance. Current procedures for Small Business leave room for improvement and you talked about that in your testimony. You also pointed out larger businesses have some challenges when it comes to the right to appeal. I wondered, and why organizations, facing challenges with the irs, why do you think those are happening . The efficient and effective Tax Administrations, a coalition not only of Large Business groups and taxpayer advocacy groups some of the trends in Small Business and selfemployed divisions, but lbi, leaking across to each other and we have auditing procedures taking the worst elements in both divisions against taxpayers across the spectrum and some of the problems we are facing designating certain cases for litigation where they have president ial value, even though there isnt a clear convention for president ial value or large numbers of taxpayers might be affected which a designated summons which is an extraordinary irs power for getting information out of uncooperative taxpayers being increasingly used where taxpayers are being cooperative. There is the use of thirdparty counsel to work auditing situations, not to advise but approach deposing witnesses. All of this really matters to taxpayers across the board, as everyone has testified here, on paper there is a directive to the secretary to provide procedures for fair and independent audit appeals but in reality it is just not happening. I see this in case after case, even Small Business owners getting things like the 90 day letter if they are lucky enough to have gotten a 30 day letter in the first place, they think it is demand to pay tax, they dont even realize the revenue officer is report that would allow them to take an appeal to tax court. They dont understand the basic nature of the process because they are so intimidated by it. It is a start of a package that could begin addressing things. I yield back. You are recognized. Thanks for holding this hearing. Constituents interactions with the irs, i appreciate the committees to enhance this experience. I am concerned about what i is a new diversionary tactic by the irs to keep taxpayers from accessing administrative appeals. We all know the cases that are documented in the tax court are transferred to appeals for consideration are not typically documented unless they are designated for litigation and it has come to my attention, restricting taxpayer access to appeals in some cases that are in tax court and the case i am aware of was not designated for litigation referring to appeals, two standard options for making not in dispute and instead the case, purgatory type status waiting for litigation, sound Tax Administration, the term that was used, the only option available to the text there was litigation. I would like to ask you to respond to the panel, your experience, something analogous to this . Im not a practitioner but people in the Small Business community, other taxpayers come to us, that sort of experience related to us and there are other experiences such as a speed up situation where a tax may or may receive a notice of audit and request for documents and suddenly they will find in the mail another determination they havent had a chance to respond to the first one and it is a way of intimidating the taxpayer into taking a position that is detrimental to them. Standing on your head. We have seen this in a similar fashion with penalties on reporting, i mention it in my verbal and written response, seen it numerous times. That is why i make comment they need to follow the rules or their needs to be a repercussion to the service. You follow it or lose your opportunity. Somehow we have to hold them accountable to the process which is why you have a taxpayer bill of rights. Congressman, not sure of all the specifics around it but in the revenue procedures addressing cases, if a taxpayer filed a Tax Court Decision taken generally get their case heard by appeals before they end up in tax court if they have not already been to appeals. I dont remember the revenue procedure that covers it. There are the provisions but using the term that shows up in several of the revenue procedures, found Tax Administration, i dont know what that means, but in regard to sound Tax Administrations they dont have to offer alternative dispute resolutions, the fasttrack process i talked about in my testimony. There is sound Tax Administration, a way they can choose to treat cases differently and we should see as the normal treatment of a taxpayer and how their case would move through the system. What the answer is to that i dont know but the use of the sound Tax Administration they are using is the way to many Different Things in a taxpayers case. You want to add anything to that . No, i just want to 100 agree she is spot on on the issue and that is why you see my head going back and forth violently because i cant agree with her more on that issue. I yield back. The gentleman from oregon, you are recognized. Thank you, mister chairman. I find the conversation fascinating but in the backdrop of my experience, when i visit local irs offices and when i have meetings with tax practitioners, tax attorneys, accountants, part of this strikes me that it would be easier to resolve some of this if the irs with equipped to operate in a modern economy if it didnt have a Computer System that is so far out of date they delve into the archives, find somebody encased in amber, when i have meetings with people who work at the irs and have them break into tears because they dont have any time to talk to people on the phone, to maybe help guide a little bit. People who dont fully understand the rules and regulations, opportunities in the agency and the training budget. I hear from people in the agency and the practitioners, who interestingly are not hostile to the irs, they are frustrated, they tell clients youve got a good point, we can Work Together, we can resolve it and get your 3700 back but it will cost you more to work with me to get it. I just wonder what you think is attributed to the fact that we have slashed the budget, we have slashed the workforce, congress, each year that i have been here makes the tax code more complicated and in some cases it is a rush to get this stuff out in time and sometimes we miss the deadline. At what point is Congress Complicit in this by not taking the largest tax collecting system in the world which relies heavily on voluntary compliance and treats our employees and taxpayers with respect and put the resources behind, any of you have thoughts on it . In sarasota, florida, the number of people, the whole area set for walk ins is gone. The number of agents has been reduced. I will be the first to stand up and say it will take more resources. If we are going to say we will provide more appellate officers that take dollars. If we need more access through the internet to broaden eservices which we are all knotting our head we need to use technology to give access and phone calls extending hours, all of that takes money and that is why we are here today. Will that be helpful for all these things, extended hours if there were people or training in the Computer System . Additional funding would be useful. Iris can do things administratively but you mentioned training. The Small Business unit in 2008, for me to have adequate training for my revenue agents who do the exam and the collection officers, it was a really high focused training for one of those groups next year but couldnt afford to have highly focused training, even back in 2008. Imagine how this plays out in terms of taxpayers and petitioners, we feel we have to try to educate the revenue agents on the issues because they cant get the training they need within the service and working issues on exams they have never seen before so they tend to go to somebody for advice but you talk to three people, how much gets translated as it goes down the line and forms a final conclusion . I make a quick plea for funding in another area lose the volunteer Income Tax Assistance Program and low income tax plan. Right now i think eligibility is 250 of poverty level, 60,000 for a household of four, that is not going to capture that many Small Business clients who might desperately need assistance and could get it through a Nonprofit Organization like that. Thank you for your patience. I hope at some point, when passion is clear, look at how we treat our accounts receivable and being able to think through the resource, training, computer, shouldnt be politicized. The evidence is that will pay for itself many times over and relieve Blood Pressure medication. Thank you. I hear what you are saying. The computer back from the 70s and 80s, cant imagine the testimony, the gentlelady from indiana. Thanks to the witnesses for being here and lending your expertise to us. This is a fascinating conversation and has been a conversation listening to your expertise and the questions we have, so much unanimous response talking about these same issues was one of the rights enshrined in a taxpayer bill of rights is the right to pay no more than the correct amount of tax. I was struck that less than 5 of Small Business taxpayers appeal their audit determinations and good reason for this as taxpayers believe it is cheaper to give up and pay the irs rather than appeal. That is disheartening. Of the taxpayer thinks they are paying more taxes than they should my advice is absolutely fight it. Instead their perception seems to be appealing it isnt worth the time or money. We need to change the perception as well as actual time and money, but i want to address this to kathy petronchak, you discuss dispute resolution and options, lower cost for taxpayers, noted the irs these fasttrack dispute resolutions. Can you explain how these procedures work and assist taxpayers in resolving cases quickly . My followup question is, is there a way we in congress can do something about that or is it irs authority . The options, what can we do . Fasttrack settlement is an option where im examined by the irs and i have a dispute over travel expenses. They said what their position is, i said what my position is. The taxpayer and iris can agree a fasttrack settlement with use of an appeal mediator would be beneficial to all parties to come to resolution on the issue but getting to your other question, quicker resolution, taxpayers having to get this resolved at least cost so they dont have to go on to formal appeals, much less go to tax court which not only costs but many small and medium taxpayers dont want their laundry aired. What can we do, mr. Sepp . Base of my limited study of other countries, practices and what the Taxpayer Advocate has said, there seem to be several problems. One, we have to restore the independence of the adr process. In almost every case from australia to uk, portugal, all around the world where adr is much more common and hundreds of thousands of cases will get resolved in this way, have to keep the mediator or arbitrator function well insulated away from the tax authority. Way may not be able to use private accredited mediator share much in way that appears in the Small Business taxpayer bill of rights that was introduced in the last congress, but we could have a situation where there is an office of mediations with specially trained people, rather than plucking people from appeals who havhad some training in mediatin and arbitration. You can even house that beer somewhere in the treasury so that it has further independence. The other important thing i think is to instruct the irs where mediation and arbitration can be used. The agency will often exclude socalled campus collection cases and other types of matters for adr from the start. We have to resolve those kinds of issues as well. I appreciate it. Mr. Shinn, did you want to add anything quickly . In response, thats why think especially in Small Business needs the requirement of the stats so that we people are not afraid of it feels. Its part of the process. The fast track as her and as part of sinus. Thank you, mr. Chairman. I yield back. I want to thank everybody for the opportunity but let me run through, so the question to all of us. Were trying to simplify the dispute resolution, trying to improve on the process. I want all you today commit on that. Before i do i want to say a couple of things. I do agree with big corporations. Doesnt mean theres network to be done in dispute resolution. Ive been in the world and your cfos, plenty of tax assets, cash, you got to go to court you go to court but you dont want to. They got resources. What im concerned about is individuals, what ive read, 62 of americans, uses a lot but it is stunning to me, dont have 1000 in the bank. So if you get a letter from the irs that you owe 2000, where are you going to go to resolve that . Cpa, account, its going to be a couple, three, 4000. You probably just say youre ready off dried chick, get on a payment plan, just agree with the irs and move on. Small businesses, i dispute resolution if you think about going to court, you can be talking hundred thousand dollars, 50,000. Do you say you are in a law firm . Okay. Cpa firm. When you hand it off to the tax lawyer, you are talking big money and usually you just gave and say lets make the best deal and get down the road even i dont think, thats happened to me and others. Ive heard of it where the dont think they owe the money but at the end of the day the ten or 20,000, the 50,005,000, the 30,000, it costs you more with accounts of lawyers to try to resolve a the question i have for the individual taxpayer, the 62 who dont have 1000 in the bank, how do we simplify this dispute resolution where people can have their day in court but it doesnt take six months, here because as that meter is running theres a way you can afford to go to court or arbitration or work with someone to try to resolve that. Mr. Shinn, ill give you the first opportunity from the standpoint. I know youve dealt with it, but thats just my sentiment and thats what ive heard over the years. Thats why i said we have to have the opportunity to have access through phone calls and walkins. Also when the irs, when the taxpayer doesnt follow the deadlines, there are repercussions. When the irs doesnt follow their protocol, there needs to be repercussions. Because to the taxpayer, its hard and fast. I can give you one quick analogy that really struck me, is i help an employee, a 90yearold person of color who could not write. He was a nightwatchman at a packing house, worked several years there. Prior to that he worked at another packing house where he was treated as an independent contractor, and he got billed. He did know what to do. He went all the way to collections and they garnished his wages. He ended up with pancreatic cancer, and the employer asked me to step in. I try to get the collection officer to settle, and the employer was going to settle. They wouldnt take a dime less, and he passed away two and half weeks later. I called the collection officer. I sent him a copy of the death certificate and i said, that isnt in the taxpayers best interest. That thats what we are dealing with and its so sad. Ms. Wilson . You know, i now work in an Accounting Firm but it was a local Taxpayer Advocate and work with nina olson. This is near and dear to my heart, as exactly what youre talking about, chairman buchanan let me just say with you and all, were looking to do irs reform and this is one of the biggest areas i think we got to find a way that people can get these dispute settled. Thats what were looking for, but go ahead. I think we need to settle by the process. I think its intimidating and i think because its intimidating, taxpayers feel guilty way theyre going to resolve it and when is if they engage help. And as your point, most taxpayers dont even have 1000 in their account. So i think, you know, we need to find a way to settle by the process. We need to find a way to make it less intimidating for the taxpayers. And we need to focus on that, that bill of rights essay she shouldnt have to pay more tax than you actually owe. Mr. Sepp . Weve got to find a way to institutionalize alternative dispute resolution mechanisms. Weve got to learn from the experiences in other countries where millions of individuals have utilized the process making it less formal but more actionable with fewer delays, applying to a larger number of cases, with a more independent arbiter involved. If we do those things and h. R. 1828 from the last congress is only a starting point for this, if we do that i think we will dramatically increase the access to justice that taxpayers need. Add to that things like the low income taxpayer clinics, add to that more resources for the Taxpayer Advocates office, and you have the beginning of a court of principles that will get to this point of giving taxpayers that justice that they need, and they still need it. You get the last word. Okay, chairman. So fast track sentiment i agree should be available for all taxpayers. Just give little history, Large Business International Developed this process 20022003. It doesnt become final and actual institutionalize for Small Business consultant for taxpayers in till 2015. When ive commented on a couple process i think could make things more transparent and easy for taxpayers there are some things they have. Fasttrack isnt the answer to everything because you may have reluctant irs folks to use it. Pete mentioned, i am written testimony, hiring an outside media for 100015 adults is cheaper dollars cheaper than taking son to appeals or tax court. Have thought about the concept of a mediator group, summer in treasure somewhere that serves an independent speed is the probleprobably is if you owe 25r 2000 you can pay 1500 because you send going to go ahead and write the check. Forgot how to write it. Go ahead. Irs hasnt shown they are extreme interest in this alternative resolution. I would caution against saying we mandate you use alternative dispute resolution consisted of come the table one to saddle and fasttrack their degree or the walkway and the taxpayer has their appeal rights. Somehow maybe look at some of the other systems come up with whats that the median and how this can be changed . Its there, taxpayers will abuse it. Individual taxpayers need to be able to use it which now its available really to businesses small and large but it needs to expand and made available and at least cost and be successful, once it is used. Well, i would appreciate all of you get your thoughts and ideas to our committee. We want to Work Together, the ranking of and myself, on a bipartisan basis because this is an important issue. Ive been in the world where larger organizations have the resources. Im concerned about the person that gets 1000, 1500, 2000, Small Business or individual tax bill, how do we resolve that without putting them into bankruptcy or putting it in a bad situation. I agree with you. A lot of times you get the notice from the irs. I have gotten a lot of my fair share. A lot of us have. Its frightening to a lot of people and this is an area we need to work on and get your thoughts and your ideas. In closing i would like to thank our witnesses for appearing before us today. Please be advised members have two weeks to submit written questions to be answered later in writing. Those questions in your answers will be made part of the formal hearing record. With that the subcommittee stands adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] this morning President Trump speaks to the annual gathering of the United Nations general assembly. Live coverage on cspan at 10 3. Later today the democratic policy and Communications Committee holds a hearing on President Trumps Election Commission and concerns its rays of a potential privacy violations and Voter Suppression or live coverage beginning at 3 p. M. Eastern o on cspan, one at cspan. Org or on the free cspan radio app. They use senate is about to gavel in this tuesday morning. Comment up at 11 eastern they will vote vote to limit debate on the nomination of Knoll Francisco to be solicitor general and if that is approved the confirmation vote wil withie scheduled for 12 15 p. M. Vice president pence will be lunching with republican senators reportedly to talk about the latest Republican Health care plan authored by senator Lindsey Graham and bill cassidy. Tomorrow Senate Lawmakers plan to do with the nomination of the National Labor Relations Board and then they will adjourn for the rest of the week for a state work. The coverage of use senate here on cspan2. The presiding officer the senate will come to order. The chaplain dr. Barry black will lead the senate in prayer. The chaplain let us pray. Almighty god, by whose providence