Cspans q and a. A former irs commissioner and Taxpayer Advocates discuss shortcomings in the appeals system. This is an hour and 15 minutes. Welcome to the ways and means subcommittee hearing on irs reform resolving taxpayer disputes. Before i begin my official statement, i would like to recognize the extraordinary effort of two of our Witnesses Today that made it up here from florida. I think you drove from orlando, so thats pretty impressive. Both mr. Shin 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. We stepd up and responded to the hurricane irmaane 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. I have stated previously i do not view this as an opportunities to degrave or discredit the good work done by irs employees. However, im a big believer in continued improvement. Thats my philosophy in business. We can always get better. In a system of voluntary tax compliant, dealing with the simplest of tax codes and ours is currently not one of those, theres bound to be disputes between tax pays and the irs. What we hope to learn today is the experience of those taxpayers. These are folks that have been in the trenches working with those taxpayers and whether there are ways to inprove the current process, i believe there will be. Near le20 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 a right to appeal such a form was appealed and counted as the responsibility of the commissioner. It remains a top priority of this subcommittee. It needs to be assessable and efficient. The process st. Failing if only Large Businesses with deep pockets feel equipped to dispute a determination made by the irs. Individuals and Small Businessed should not have to weigh the cost of hiring outside help against paying the assessment. For most taxpayers their only interaction with the irs is when they file their taxes once a year. But when the taxpayers 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 hearing from the witnesses a we continue our effort to Economic Reforms to the irs. I now yield to the distinguished Ranking Member, mr. Lewis, for purpose of an opening statement. Thank you, mr. Chairman, for holding this hearing to taxpayers disputes for the Internal Revenue service. I welcome you back to washington, mr. Chairman. And on behalf of the citizens of georgia and especially the citizens of the fifth district, we were able to welcome hundreds of thousands of people from florida. I went into a parking lot in downtown atlanta on saturday, and there was no many cars from florida. And people had their dogs, walking their dogs through the parks from florida. Were neighbors. And i want to in particular welcome ms. Wilson and mr. Shin and relatives that live over in fort lauderdale. And only thing that we had happen in my district for the most part, pine trees coming down. I want to thank you for being here today. Before we begin, mr. Chairman, i would like to take a moment to extend my condolences to you and millions of americans who were impacted by the recent hurricanes in the caribbeans and the southern states. As kbrrow know the hurricane damaged homes, downed trees, closed roads and about 1 million residents without power in my home state of georgia. And i now our citizens and people begin the difficult process of rebuilding their homes, communities and their lives. And hope this committee will Work Together to do all we can to assist the recovery efforts. Mr. Chairman, ive said it before and i will say it again, we must approach this effort to reform and improve the irs with a great deal of care and thoughtfulness. I hope we will take our time to develop bipartisan solution to serve the best interest of both taxpayers and agency. For many years i caution we cannot get blood from as you know congress dut the irs by almost 1 billion since 2010. Over the last three years the budget for the Appeals Office dropped 11 . And there are about 24 fewer offices. Today we learn more about how these budget cuts have affected the tax agency to resolve disputes with taxpayers. Our citizens expect and deserve timely and efficient serves. Simply said, mr. Chairman, taxpayers will not get the level of service they expect and deserve until we provide Adequate Funding to this agency. As you know, this is the subcommittee fourth hearing to explore how we can improve the irs. We remain bipartisan and explore a Good Government path to explore how the irs operates and identify possible improvement. I hope and pray our 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, and allowing taxpayers to request facetoface conferences throughout the appeal process. Above all, mr. Chairman, i hope we will continue to Work Together as we have all year to explore and address these issues. In closing, mr. Chairman, i look forward to hearing from our witnesses and learning more about the experiences with the agency. Again, mr. Chairman, i want to thank you, my friend, for holding this hearing. Thank you, mr. Lewis. And i want 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. And you know youve got my commitment to Work Together on a bipartisan basis. We want to improve this together, so i look forward to working on this with you. Todays witnesses Witness Panel includes four experts. Cathy, the director of the irs practice and procedures of the iliance group. Pete, from the taxpayers union. Also a founder and managing partner. And i think hes got 35 years with dealing with dispute resolution at the irs. And a principle at the National Tax Office from orlando, and a member of the aicpa. The subcommittee will receive your witness statement so they will be made part of the record. Each of you have five minutes to deliver your oral remarks. You may begin when youre ready. Chairman buchanan, Ranking Member lewis, and members of the subcommittee, thank you for inviting me to testify. It is an honor to provide comments today. I interact with small and medium size businesses in my work with aliant group. I also spent 29 years at the irs, and gives me a unique perspective in the examination and appeals program. My focus is on challenges that pax payers face when dealing with the irs and what the irs can do to improve the process. Id like to highlight two issues. The first issue is the appeals process. Before heading to court, the final administrative step a taxpayer can take is through appeals. Appeals is important for so many businesses seeking a fair review of their tax issues without having to incur additional costs to go to court. Taxpayers are appreciative of the opportunity to attend the appeals conference in person. They are not thrilled about the recent change by appeals indicating they may not be granlted an in person meeting. First options for appeal only granting in person conferences and limited circumstances. We believe that not granting tax pay rszers an opportunity to have an inperson meeting would be highly prej dishal to taxpayers and make the conference more difficult in situations where the appeal is of highly technical and highly evidentiary focused cases. While we have seen appeal officers flexible in granting inperson conferences, we believe taxpayers have the right to meet a person facetoface. Another issue emerge in appeals is the increased involvement of irs compliance employees in appeals meetings. This change has created a perception for taxpayers they may not get an independent hearing and decision as afforded by the taxpayer bill of rights. We believe the only involvement economic should have at ameals is a preconference meeting. They can present their issues, the taxpayer process and litigating hazards. In a preconference setting, economic would leave after their presentation. But as of late rather than leaving at this point economic has been invited by appeals to stay for the taxpayers presentation. When this happen, 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 economic place too great of a role in the appeals process. A representative recently described a situation where in preconference it became clear economic had not fully addressed an issue the taxpayer had brought forward. After hearing, the exam team made another 24page issue to the appeals. It seems unfair economic can continue their process when the case is asiped to an independent forum to make the decision. We disagree with appeals. Taxpayers who feel theyve already been through a grueling process with exam should be able to have the peace of mind their case is being given a fresh look by appeals and that the examination is over. Todays comments on the issue of alternative dispute resolution focus on the irs fast track settlement program. It was created to provide an expedited option for taxpayers to mediate their disputes with an peals position act as a mediator. Taxpayers and their representatives welcome the opportunity to resolve as many issues as possible at the lowest manner in a cooperative manner. In closing, i commend the committee in ensuring taxpayers receive good treatment from the irs. Alliance looks forward to working with the committee. And ill be glad to take your questions. Youre recognized. Mr. Chairman, Ranking Member and members of the committee, a number of my predecessors have actually testified in this very room on taxpayer rights issues. So im particularly honored you asked me here to follow. And we need to follow in the footsteps of all our predecessors in developing a bipartisan solution of many of the problems that have cropped up since the structuring reform act of 1998. One of my predecessors, bob cammen, put it this way. He called it taxpayers treaug. What you need is a number of steps and options in resolving problems between the agency and taxpayers that provide a range of responses. 1 of them is prevention, of course. We can simplify the tax system. We can educate taxpayers about their rights in 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 ve very alternative appeals process. Were going to hear a lot from the Witnesses Today about the malfunction of appeals and especially with the recent evolution in 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 its relatively flat usage here in the United States actually declining at the appeals level right now, suggeststhality 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. And their, taxpayers access to the courts beyond the tax court level is still highly problematic. Everything from the antiinjunction act to the deck la tory relief act, essentially prevents taxpayers from enforcing their rights in court. Largely, they are limited to seeking damages after the acts have been committed by the agency that have deprived a taxpayer of his or her income or right to earn. The fourth level is essentially postop observation, oversight. Now current plans in several of the tax reperfoform options bei discussed would do away with the oversight board. There are flaws in the oversight board, certainly, but i would urge this committee to very carefully consider alternatives to the current oversight board, which is essentially paralyzed due to a lack of a 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 hr3220, the preserving taxpayers rights act. 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 again developing more dispute resolution procedures and appeals would pave the way for more effective use of ach dr in a number of situations. There are many, many other suggestions i could make that we should look at, the taxpayers bill of rights enhancement act just introduced in the senate yesterday. Hr2901, which would expand some of the assistance and volunteer 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 one, t2 and the irs restructuring and reform act. And this is the committee where it all starts. Every single piece of important irs legislation began with members of this committee, your predecessors and you now, such as with the respect act that just passed, coming together in a bipartisan fashion to do better for taxpayers. We can do it. We must do it. I thank you for your leadership. Thank you. Mr. Shinn, youre recognized. Thank you, chairman buchanan, Ranking Member lewis and mens of the subcommittee. Thank you for the opportunity to discuss reforming how the irs dissolves taxpayer disputes. Ive seen a lot of change. Can you speak up a little bit more in the mic. In my opinion, our focus should be Taxpayer Service first. Improve tone with access. Consistent controls and require fasttrack steps. Ive i have a unique perspective. Ive been part of the probable cause panel for well over a decade. And most practitioners work hard to get it right. Theres a handful of marginal practitioners and taxpayers that try to push the envelope. These are the ones that should be reviewed. First id like to address correspondence audits. They require responses in a spefx period of team. However, the irs responses are take considerably more time than the taxpayer is given. These exams have a high probability of no change. Once the irs receives the submitted responses. In several instances, the taxpayers rights have been ignored by the issuance of 15dahlers and shortly there after 90day notices of deefficiencies there by ignoring the 30dahler and which grants the rights of a taxpayer for hearing in appeal the and that breaks their taxpayer bill of rights. This also prevents the fasttrack settlement opportunity. Therefore, i believe a standard that it should exist, that the p process must be maintained and the service, when it jumps over process should lose the right to pursue additional revenue. Follow the rules or lose the adjustment. We also should require fasttrack to prevent the circumstances that are existing today. I next want to speak about feel exands. The process has been very taxpayer unfriendly with a la tinl just and enforcement tone. We have reached a new low, regarding the respect that the taxpayers and their professionals have with the service. It is as if the taxpayer is guilty and has it to prove the i wrong. The agents are doing several audits at the same time and they tend to start and stop during the audit. Many of them taking much more than 12 months. This just is not right. We have new rules that are also killing the system. An example is partnership exam rules. Theyve brought the process to a state of total chaos. In order to close issues and reduce the time necessary, we talk about the call centers and the local office access. Unfortunately, the wait time on the call centers is extremely wrong. Overall, my experience has been good once you get to a qualified person. The service should increase the Call Center Available hours, making them earlier, later and on weekends. The service has a very good eservice process. However, this has been reduced due to budget cuts. This needs to be expanded back in a much broader sense. The local offices no longer allow walkins. This is just not sorry. Its not taxpayer right. Its just not taxpayer first. They need to have reasonable access. Another area of concern is foreign disclosure exams. Were seeing a situation growing with the disclosure of Bank Accounts going to appeals and the Appeals Officers feel that they cannot settle. So the issue goes to offshore technical advisers and it ends up all or nothing. We need to give them guidance on settlement. It has created opportunities for debate. The code in its current state remains the number one problem facing both the service and the taxpayer. Since most of our experience has been with small and mediumsized businesses,ki talk about the problems in compliance. Identity theft. Since many were in florida, i was also a victim. We should require all taxpayers to have pin numbers. My information was stolen through eservices on a data dump. And that shouldnt have happened. If we had all taxpayers with pins that wouldnt have happened. And lastly, id like a separate task force that answer to you, congress. Thank you very much. Thank you. Ms. Wilson, youre recognized. Chairman buchanan, Ranking Member lewis and other members of the subcommittee. Thank you for the opportunity to testify. The aicpa applauds your importance of resolving disputes in a timely, efficient and costefficient manner. Today id like to share our thoughts and refining the independence and efficiency within the irs dispute resolution process. I will also address the importance of the irs to understand the taxpayers perspective and deliver customerfocussed service. First, lets start with penalties. Upon receipt of an irs notice, taxpayers or their representatives 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 a routine denial. This process is currently handled independently within each of the primary irs divisions. We recommend that the irs undertake a review of this process across the agency to identify necessary training to ensure a consistent and fair treatment of taxpayer disputes. Next, lets discuss appeals. Appeals is the primary form for taxpayers disputes. Their mission is to resolve tax controversies without litigation on a fair and yes, maam partial basis. We appreciate them holding conferences which provide a meaningful and unique opportunity for taxpayers to present their positions. In october of 2016, appeals made several changes to its conference procedures, which arguably impact the ability or perception to independently and objectively help taxpayers. We recommend that one, the irs limit settlement conferences to the appropriate appeals personnel and two, it they 3r0e6 taxpayers with the option of a facetoface conference. In one settlement conference, the Appeals Officer asked openly, 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 theyre seeking the opinion of the same irs employee who examined them . Although, in reality, irs employees may or hey not have influence over the appeals process, it is hard it to view them as objective when other irs employees are involved. We suggest that once the taxpayers presentation to appeals begins, they should limb the meeting participants to the appropriate appeals personnel and the taxpayer. In another appeals case, payroll obligations were not met until my client discovered the error. The Appeals Officer said it took him a whole five minutes to determine there was no reasonable cause and asked not to discuss it. In this particular situation, a conversation much less a facetoface conference was considered unnecessary from his perspective. However, from the clients perspective, he was not heard. He was unfairly denied the right to present hess cais case. While its possible to resolve some issues over the telephone, we think it is important that taxpayers have the option of a facetoface conference. For larger tax disputes, cases are assigned a team of irs Appeals Officers and a case leader designated Settlement Authority. In these situations we urge the irs to provide truly independent Settlement Authority to theet case leaders and eliminate the approval process that was recently added. Finally, a Customer Service focus approach should extend to all irs services. It will help reduce disputes in the first place. For example, the irs should create a new dedicated executive level practice tioner services t that would modernize its approach. With a mind set of understanding the taxpayers perspective, the service will enhance voluntary kpliens and increase the publics confidence in the integrity of the service. We appreciate the opportunity to testify. Ill be happy to answer any questions. Thank i, ayou, all of you, f your excellent testimony. And i will hold my question until the end. I now recognize the gentleman from michigan, mr. Bishop. Thank you, mr. Chairman and thank i you to the panel for yo time and expertise. Lots of questions. So little time. Is it ms. Petronchak . Pretty good . You indicated in your written testimony that there were procedures in place by the irs during an audit that would give larger businesses an advantage over smaller businesses. Specifically having to do with transparency, can you elaborate on that, and can you tell us, is this something that the irs is doing as a result of the code . Or is this an arbitrary kind of application of the rules . So with regards to that, congressman, in my testimony, in the Large Business and International Division, they have put out procedures in the publication and indicated that when you are issuing information document request to taxpayers that you have a discussion, you identify what the issue is. And you talk about what documents youre going to request so that the taxpayer has an opportunity to have a discussion with the agent and say, well, maybe i dont have those kind of records, these might be more pertinent, but they understand what the irs is looking at and where they plan on going with their examination. A Small Business division that just doesnt happen. What happens is, youll get a letter saying youre under exam and heres a fourpage document request with everything but the kitchen sink pretty much on the initial document request. And then instead of as in Large Business division, when that response is made to that document request, its expected in Large Business that they would review that response and then have a discussion with the taxpayer to say, we think its complete or its not complete. And its an ongoing discussion. A Small Business, youre more likely than not going to find out the results of their review at the end of an examination. Which is way too late for a taxpayer to be understanding what issues are in dispute, and even have the opportunity to use alternative dispute resolution. It begs the question, then, why are they treated differently, and is this, again, a result of the code . Or is this something that the irs is doing independently at its discretion . Yes. Its an administrative practice in the Large Business division. Its not required by code, but certainly, although that procedure, some would argue could be improved, its a doctors te drastic change and different than that afforded to small and mediumsized businesses. I dont understand. You all have done this before. Does anybody understand why Small Businesses are treated differently than Large Businesses in this area . It just seems like i personally dont see a reason why they could not integrate some of those procedures into their examination practices. Its a, having a discussion up front that meets the taxpayer bill of rights to be informed and know whats going on, so i certainly dont see why it could not become a part of their work processes. I would agree that it should, although i would say there has been some negative feedback, even from folks who have experienced audits in lb i that the idr requests are often poorly focussed. So this might be a problem thats not only with Small Businesses but with the procedural latitude given to the irs. I have a, you indicated that the noninperson exam, or the appeal, is the expert for the irs in the room . With, with the examiner . So when the, its actually an appeals meeting. And its a telephone or theyve moved to virtual conferences in some instance. The Appeals Officer is in the room. They may have a technical specialist. And under the current rules, they could invite exam to be on the phone as well. So thats a real concern, is that well, whos on the phone . Youve got so many parties. You dont know whos speaking. Whose perspective are you hearing . Is there a problem with ex parte communication, too, inhouse . That does not violate ex parte communications. That way that work, if the taxpayer is invited, its not a violation of ex parte. I get that. In theory, youre 100 right. But in practice, it seems that would be an absolute, recurring problem. It could be. And one thing if i might, mr. Chair, is the appeal process de novo . Or is it a continuing process that, is your appeal, does it take up the entire evidence, all the evidence . Do they consider everything or only that which was considered in the briprevious review . In appeals, they should go over everything that was presented them in exam and making an independent decision. Ms. Wilson referenced the irm change. They said were not going to hear new facts, new evidence and appeals. Were only going to rely on whats in the file to make our decision. So it should be exactly whats in front of them. Thank you very much. Thank you, mr. Chair. Thank you, i now recognize the Ranking Member, mr. Lewis from georgia. Thank you very much, mr. Chairman. Ms. Wilson, thank you for being here today. I understand that youre the head of the National Tax Office at your firm. What type of issues are taxpayers trying to resolve when they come to your firm . Great questions. Small issue . Big issues . Global issues . That is the unique thing about our firm. I would say they run the gamut. So theyre all the way from small, 1,000 penalty issues up to very large exams. We have a very unique client base. And we target midsized business, which, by the nature of that we have all range of issues that we see. Recently, the significant issues i see are around penalties and penalty appeal. We have a lot of clients or clients in our base that have been onslaughted with information return penalties. And so we try to help them manage through that process. In your experience, what are the Biggest Challenges you and your clients experience in resolving tax issues with the agency . Thats a good question. You know, i think the largest issue is just being heard. Making sure that you do you have a hard time, difficult time sometimes just being heard, just getting facetoface meeting . Exactly. Exactly. And appeals, as we discussed, as i discussed in my testimony has dramatically changed that process. Ive been doing this for many, many years where i youre too young to be doing it for many, many years now, dont but, you know, facetoface was the, that was the one time you got to sit down and face the irs and really talk about the issues. And from a clients perspective, they felt like they were being heart, because they sat across the table from that Appeals Officer. And they could see them listening. They could see the head nodding. So even if it didnt come in their favor, they felt like they were being heard. When you turn to these telephone conferences which are now the standard practice, you know, you remove that. And they question whether the Appeals Officer, my clients do, are even listening, because you get to the end of the conference, and it, you know, and im not saying in every case, because a lot of times this process does work well, but in some cases, the client just walks away and says i dont even think they were listening. In fact, i heard keystrokes on the computer. Mmhm. So i think from the aicpa thats one of our recommendations. You really need to look at this procedure. Its administrative, but you need to look at it and say what are we doing to Taxpayer Service here. Are our taxpayers really feeling like theyre being heard . Because this is their last opportunity, Ranking Member, when they get to appeals their next option is litigation. And i can tell you in my client base, 99 of them are not going to want to take it to litigation because again, maybe the dollar amount isnt high enough or theyre frightened by the whole concept of having to go to tax court. Are you suggesting or recommending that we need to do more to humanize the irs . And not make it so distant . Unbelievable agency someplace . That, how do we go about doing that . What are your recommendations . What are you suggesting . Yes, mr. Shinn . Ranking member, thats why i got so choked up. By doing it in person, you know, the people that can afford to go to aingent or cpa, but theres lot of taxpayers out there that dont have that access and having the opportunity to walk in and talk to the local agent office level is so important. And having that facetoface humanizes the circumstances and the facts and situation and you actually feel whats going on. And granted, we all understand that there are some states that dont even have an appeal officer in them. So appeal officers have to come from out of state. Like in alabama, mess miississi theyre coming from out of state just to deal with it. So we have a staffing issue. But having that conversation with an Appeals Officer is a real opportunity to solve and have in the process, the process that you talked about with the Small Business audits . It is very much behind a dark curtain, and its a very scary proposition. When those taxpayers get those letters and those long fourpage requests, its intense. And a very scary moment. And we dont get the chance like with a Large Business audit to have a facetoface with the team, and then not being able to peck up t pick up the phone and call. We have situations where well be on hold for an hour, and if were at 4 30, theyll pick up the phone and set it down again. Thats not taxpayer friendly. Thank you, the gentleman from pennsylvania. Thank you, mr. Chairman, and i thank each you for your service and dedication. Its clear that you are here as voices for people who feel that if theyre not abiding by the rules they wonder sometimes whats the technicality. Theyre not people out there deliberately trying to skirt the rules or beat the system. So, you know, there is a place for those who are deliberately recalcitrant, but so many of us are caught in the malaise. So i have some questions about trying to get your interpretations to make this a little better. Because it seem so much of it is tied to a personal relationship, a sense that somebodys actually listening to me, and lets just resolve this thing while were here. So i have couple of questions. Mr. Shinn, i think it was you that was saying that there were, or ms. Wellsoilson, it was you according to my notes. There were recording errors, they were getting to be routine nos. Now when i was a prosecutor and you had a case, you might do a declination, or you would do a prosecution memo, but whenever there was a decision point, its just filed. Even though it was all internal in the should we be requiring that if there is an original inquiry and theres a routine no sent out that theres a justification that you can know that somebodys actually analyzed the file and a reason that were just saying no right now . I would absolutely agree with you that there should be a requirement to, you know, document what the justification for denial was. And, again, you know, theres many a times where we do get the denial, and it does appear somebodys reviewed it, because they put specific facts in there. But youre comfortable with that, because at least you know you can counsel your client. Right, but there have been instances where it clearly wasnt read because theyve articulated you know the way and maybe ms. Paran chak can talk to this. Theyve got modeled paragraphs that they can pull from a system to do a notice to a specific tax pay ir, and its been obvious that theyve just pulled those paragraphs and dumped them into this letter. Forma. And its very irrelevant to what was discussed. So whats the effect on the taxpayer . It draw it is out even further. Have penalties and fines been waived during this period . Or is there an accumulation during the time you are appealing this process . So yeah. Interest continues to accrue. So the clocks ticking against the person appealing. Yes. Thats a discussion you have to have with your clients. But then, you know, theres been instances where you know your client will come to you and say, do i pay now . Because, you know, i dont want the accrual of the interest. But theres a different process. You have to file a different form, the form 843 to make a refund claim. But theres a lot of considerations to take in when youre counseling clients what path to go down, but back to your point, i think the impact it has on my clients is that we are built on a voluntary compliance system. Clients become very discouraged, because they truly thought they were being compliant. Then when they get this notice that looks like they werent even really looked at right. It can be very discouraging to them. Now the positive note i will say is, that once we get to the appeals process and the penalty arena, a lot of times we do have success there. But its that routine, just seems to be when you make your initial request, its just the routine and that appeals process, that would be presuming we get to that point where we actually have somebody and now youre talking. But i am intrigued bit concept, mr. Shinn, you were talking about it, where you believed that the presence of the examiner also at the appeal was creating a kind of a pilingon. And yet, i wonder to the extent that if youre trying to get to a resolution, should there be some capacity for the person that knows the facts to be able to present it to, i know that the irs persons supposed to be independent, so to speak, but i would, would believe that if i was doing an appeal, i would want to have at my availablebility, the person who knows the record. My experience has been the Appeals Officers are extremely experienced and knowledgeable on the issues and if they wouldnt theyd assign another person. And so they can come to their own conclusions based on the facts as presented that came up. And that file is transferred. They get to see the file. The file, but you dont, but you dont have the benefit, so just explain to me the difference. Why is it preferable not to have that person in the room that knows the record . Maybe for another time. Maybe if you have a thought that youd want to share with us in written testimony or otherwise wed benefit from it, thank you so much. Thank you for being here with us today. Ms. Petronchak, i wanted to follow up on comes you made earlier where you were talking about the challenges that Small Businesses face and the inconsistency that we see for Small Businesses versus Large Businesses. What did yo you think we should . Do you have recommendation on what you think we could do that would work for smail businesses . So some of the things could be implemented administratively. I think pete had talked about the idr process and lb i arent perfect by any means. But i think they could take a look at and decide that they want to change those processes for taxpayers and indicate that, gee, when were developing the facts, it is important to put the Human Element on it and actually having a discussion with the taxpayer about the information. And although thats not perfect and youll still have disagreements and still have contingent exams, it is an administrative process that could be implemented by rolling out new procedures for their agents and how they interact with tax payers on a routine basis. Theyre developing the facts. Weve all spoken to the independence issue in appeals. So that initial factfinding, that document request is critical to a taxpayer feeling like theyve had the opportunity to present their position and be heard by someone at the service whos going to be open about what it is theyre looking at, and the treatment theyre going to decide on a particular tax issue. So i dont know that anything needs to be mandated or, but the irs, and looking at their procedures, could say, i was commissioner of Small Business, and yes, when i was there back when i left, it was one of those things i could have looked at and said, gee, there are ways we could be yents acting on a much better basis with our tax payers to make them feel better about the voluntary compliance system. Thank you, mr. Sepp, it seems that current procedures for Small Business leave room for improvement, and i know you talked about that in your testimony as well. You also pointed out in your testimony that larger businesses also have challenges when it comes to the right to appeal. And i wondered if you could talk a little bit about your assessment of why organizations like members of the seta coalition are dealing with the challenges in dealing with the irs that you outlined . Thats coalition for efficient and effective Tax Administration. Its a coalition of not only Large Business groups but tax pay iradvocacy groups, because we are concerned that some of the trends both in Small Business and selfemployed division toward audits but lb i are leaking across to each other, and were going to have auditing procedures that are taking the worst developments in both divisions to be used against taxpayers across the spectrum. Some of the factors were facing, theres the designated summons, which is a rather extraordinary irs power for getting information out of uncooperative taxpayers thats being increasingly used in cases where the taxpayers really are being cooperative. And of course theres the use of thirdparty counsel to work auditing situations, not to advise, but rather to do things that approach deposing witnesses. But all of this really matters to taxpayers across the board, because again, as everyone has testified here, there is, on paper, a direct testiive to the secretary to provide procedures for fair and independent audit appeals but in reality, its just not happening. And i see this in case after case. Even Small Business owners who are getting things like the 90dahle 90day letter if theyre lucky enough to ever have gotten the 30day letter in the first place, they think its a demand to pay tax. They dont realize its the opportunity to take an appeal to tax court. They dont even understand the basic nature of the process, because theyre so intimidated by it. Again, this is why we support hr3220 as the start of a package that could begin addressing these things. Thank you very much. I yield back, mr. Chairman. Thank you, mr. Holding, youre recognized. Thank you, mr. Chairman. Thank you for holding this hearing. Obviously, we dont usually hear from our constituents interaction with the irs unless theyre negative. And appreciate the committee looking into wrays to enhance this experience. So im concerned about what i that i is a new diversionary tactic being used by the irs, to keep taxpayers from accessing administrative appeals. So we all know that cases that are docketed in the tax court are typically transferred to appeals for consideration. Or not typically docketed necessary theyre designated for litigation. And its come to my attention that the irs may be restricting access to appeals in some cases that are docketed in tax court. And the case that im aware of was not designated for litigation. Nor referred to appeals. The two standard options for making an audit dispute. Instead, the case was kept in a purgatoryit ty purgatorytype status, waiting for litigation under the justification of sound Tax Administration. I put that in quotes, because thats the term they used. And that was the only option available of the the only option available to the taxpayer was litigation. So my question, and im going to ask mr. Sepp to respond first and then the panel. In your experience as a practitioner, have you or any of your clients experienced something analogous to this . I should state, im not a practitioner, but people in the Small Business community, other taxpayers have come to us and there has been a that sort of experience relayed to us. And there are other experiences such as what are called speedup situations, where a taxpayer may receive a notice of audit and a request for documents and suddenly, theyll find in the mail yet another determination that they havent even had a chance to respond to the first one on. And its, its a way of intimidating the taxpayer into taking a position thats debt rimal to them. Mr. Shinn, youre nodding your head there. Yes, sir. Weve seen this in a very similar fashion with foreign penalties on foreign reporting. I mention it in my verbal and my written response. Weve seen it numerous times. Thats why i make the comment that they need to follow the rules or there needs to be a repercussion to the service. You follow it or you lose your opportunity. Somehow we have to hold them accountable to the process. Thats why you have a taxpayer bill of rights. Ms. Petronchak . Im not sure of all the specifics around it, but in the revenue procedure that addresses cases, so if a taxpayer has filed a tax court petition, they generally can get their case heard by appeals before they actually end up in tax court if they have not already been to appeals. I dont remember the revenue procedure that covers this. So there is a provision. However, you used a term that shows up in several of the revenue procedures. Sound Tax Administration. I dont know what that means. But in regards to sound Tax Administration, they dont have to offer alternative dispute resolution, the fasttrack process that i talked about in my testimony. So i think there is sound Tax Administration as a way that they can choose to treat cases differently than what we would see as should be 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 i think the use of sound Tax Administration, theyre using as leeway to do many Different Things with a taxpayers case. Thank you. Ms. Wilson, you want to add anything to that in the final few seconds . No. I just want to 100 agree with her that, you know, shes spoton on the issue. Thats why you see my head going back and forth violently, because i couldnt agree with her more on that issue. Thank you. Mr. , the gentleman from oregon, mr. Blumenauer, youre recognized. Thank you, mr. Chairman. I find the conversation fascinating. But, in the backdrop of my experience, when i visit our local irs offices, and when i have meetings, which i do routinely, with tax practitioners, tax attorneys, accountants, it, part of this strikes me that it would be easier to resolve some of this if the irs was equipped to operate in a modern economy, if it didnt have a Computer System that is so far out of date that they have to delve into the archives, find somebody encased in amber that can figure out fourtran programming, 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 be able to maybe help guide a little bit. Theyre people who dont fully understand the rules and regulations and opportunities within the agency and the training budget. I hear from both people in the agency and from the practitioners who, interestingly, are, are not hostile to the irs. Theyre frustrated. Theyre frustrated that 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. And i, i just wonder what you think is attributed to the fact that we have slashed the budget, slashed the workforce. Congress each year that ive been here makes the tax code more complicated. And, in some cases, its a rush to actually be able to get the stuff out in time and sometimes we miss the deadline. So at what point does 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 our taxpayers with respect and put the resources behind it to make it a, any of you have any thoughts on that, mr. Shinn . Yes. In sarasota at our office there in sarasota, florida, the number of people in there, the whole area that was set for walkins is gone. The number of agents has been reduced. Ill be the first one to stand up and say, its going to take more resources. If were going to stand here and say were going to provide more appellate officers, that takes dollars. If we need more access through the internet and to broaden our eservices, which obviously, were all nodding our head, we need to use technology to give access and in those phone calls, extending the hours, all that takes money. And thats why were here today. But, would that be helpful for some of these things if there were extended hours, if there were more people, more training, a modern Computer System . So, i would say additional funding would be useful. I mean irs can do some thing administratively, but you mentioned training. I was commissioner of the Small Business unit in 2008. And for me to have adequate training for my revenue agents who do the exams and my officers, it was a really highfocussed training for one of those groups each year, but i couldnt afford to have a real highlyfocussed training for each of those groups even back in 2008, so you can imagine, well, how this plays out in terms of taxpayers and practitioners. We feel like were having to try to educate the revenue agent on the issues, because they cant get the training they need within the service. And theyre working issues on exams that theyve never seen before and so then they tend to go to somebody for advice, but, you know how it is, you talk to three different people, how much gets translated as it goes down the line and really comes to form a final conclusion . Id also make a quick plea for funding in another area. The volunteer Income Tax Assistance Program and the lowincome tax clinics. Right now i think eligibility for the litc program is 250 of poverty level. Thats about 60,000 for a household of four. Thats not going to capture all that many Small Business clients, for example, who might desperately need assistance and could get it through a Nonprofit Organization like that. Thank you for your patience, mr. Chairman. I just hope at some point, when passions cool, to look at how we treat our accounts receivable and in being able to think through the resource, the training, the computer that i hope shouldnt be plit sidoliti. But i think the evidence is that will pay for itself many times ever and relieve Blood Pressure medication. I hear what youre saying. Some of the computers are back from the 70s,80s and 6 0s. Gentle woman from indiana . Thank you for lending juyour expertise to us. This has been a fascinating conversation, listening to your expertise and questions that we have. So much unanimous response that we have. Were all talking about the same issues. One of the rights enshrined in the taxpayer bill of rights is the right to pay no more than the correct apartmem of tax. Mr. Sepp, i was surprised that less than 5 of taxpayers appeal their audit determine agents and a big reason for this is taxpayers believe its cheaper to give up and pay the irs rather than appeal. That, to me, its incredibly disheartening. If the taxpayer thinks theyre paying more taxes than they should, my advice is absolutely, the tools are there to fight it. Instead, the perception seems to be that appealing is not worth the time or the money. We need to change that. But i just want to address this to mr. Sepp and ms. Petronchak. You both discussed dispute resolution and options that would be less formal, lower cost for taxpayers. You also noted that the irrelevant has failed to expand its use of the fasttrack dispute resolution. Ms. Petronchak can you explain how these fasttrack dispute resolutions work . Im going to tell you, my followup question to both you mr. Sepp as well, is there a way that we in congress can do something about that . Or is it purely irs authority . Id like to hear about the options and then, you know, what can we do . And fasttrack settlement, its an option where, eveyou kn im being examined by the irs and we have a dispute over travel expenses. Theyve said what their position is, ive said what my position is. So the tax ppayer and irrelevas agree it would be better to come to resolution. It brings resolution, less cost, so they dont have to go on to formal appeals, much less go to tax court which not only is cost, but many small and medium Business Owners dont want their laundry aired out in court. They dont want their neighbors talking about their issues with irs. And so fasttrack, you know, we used to see a lot of them. We dont see as many anymore. But the procedures i talked about that Small Business is using for their exams, when they wait to the end of the process to have a discussion doesnt lend itself to having a dispute resolution. What can we do about it, mr. Sepp . Based on my limited study of other countries, 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 this way, they have to keep the mediator or arbitrator function well insulated away from the tax authority. We may not be able to use private, accredited mediators here much in the 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 mediation with speciallytrained people rather than plucking people from appeals, who have some training in mediation and arbitration. You can even house that bureau somewhere in the treasury, so that it has further independence of 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. And we have to resolve those kiensd kinds of issues as well. I appreciate. Mr. Shinn, did you want to add anything quickly . Yes, in response, thats why i think especially in Small Business it needs to be a requirement of the steps so that way people arent afraid of the appeal appeals. Its part of the process. Thank you. Mr. Chairman, i yield back. I want to thank everybody for the opportunity, but let me run through, and this will be a question to all of us. Were trying to simplify the dispute resolution, trying to improve upon the process, and i want all of you to take a moment on that. But before i do, i want to say a couple things. I do agree with big corporations doesnt mean that theres not work to be done in dispute resolution. But ive been in that world. And youve got cfos, plenty of access cash. You want to go to court, you dont want to. But theyve got resources. What im concerned about personally is individuals i read in usa today, 62 of americans, i use this a tlot. Dont have a 1,000 in the bank. So if you get a letter from the irs that you owe 2,000, where are you going to resolve that . Cpa . Accountant . Its going to be a couple, 3,000, 4,000. Youre probably better off to write a check or get on a payment plan, just agree with the irs and move on. Sma Small Businesses . A dispute resolution, if you ever think about going to court, you could be talking over 100,000. 50,000. Did you say, ms. Wilson, youre in a law firm . Cpa firm. You know when you hand it off to the tax lawyer youre talking big money, usually you cave and say lets make the best deal and get do you know t get down the road even though thats happened to me and others. At the end of the day, 5,000, the 20,000, 30,000, it costs you more with lawyers to resolve it. So the question i have for the individual taxpayer, the 62 that dont have 1,000 in the bang, how bank, how do we simplify it . As that meters running theres no way you can afford to go to court or arbitration or work with someone to resolve that. Mr. Shinn, ill give you the first opportunity in that standpoint. I know youve dealt with it, but thats just my sentiment. 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 and also when the irs, when the tax taxpayer doesnt f the timelines there are repercussion. When the irs doesnt follow the timeline, they should have guidelines. I can give you one analogy that really is struck me. I helped an employee, 90yearold person of color who could not write. He was a night watchman at a packinghouse, worked several years there. Prior to that, he worked at another packinghouse where they treat them as an independent contractor. And he got billed. And he didnt know what to do. And 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 tried 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 a half weeks later. I called that collection officer, sent him a copy of the death certificate. And i said that isnt in the taxpayers best interest. And that, thats what were dealing with, and its so sad. Ms. Wilson . You know, i now work in an accounting firm, but i was a local Taxpayer Advocate and worked with nina olson, so this is near and dear to my heart, exactly what youre talking about chairman buchanan in the sense that let me just say, were looking to do irs reform. And this is one of the biggest areas weve got to find a way that people can, you know, get these disputes settled. So thats what were looking for, but go alet. Yeah, and i think we need to simplify the process. Its intimidating. And because its intimidating, taxpayers feel the only way theyre going to resolve it and win is if they engage help. And as your point, most taxpayers dont even have 1,000 in their account. So i think we need to find a way to simplify the process. We need to find a way to make it less intimidating for the taxpayers. And we need toe to focus on that bill of rights that says you dont have to pay more than you owe. We have to find a way to learn from the experiences and 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 hr1828 from the last congress is only a starting point for this. We do that, i think well dramatically increase the access to justice that taxpayers need. Add to that things like the lowincome taxpayer clinics, add to that more resources for the Taxpayer Advocates office. And you have the beginning of a core evof principles that will t to this point of giving taxpayers the justice that they need, and they still need it. You get the last word. Okay, chairman. So fasttrack settlement, i agree shaud agree should be available. It didnt become final and institutionalized for Small Business and selfemployed tax payers until 2015. So when ive commented on a couple processes i think could make things more transparent and easy for tax payers, there are some things there. Now fast track isnt the answer to everything. You may have reluctant irs folks to use it. To them, hiring an outside mediator for 1,000, 1500, is cheaper than taking it on to appeals and tax court. I havent thought about mediator group somewhere in treasury. The problem is if you owe 2500 or 2,000, you cant pay 1500. Because you say im just going to write the check or figure out a way to write it. Go ahead. Irs hasnt shown that theyre extremely interested in this alternative dispute resolution. I would caution against saying, well, we mandate you to use alternative dispute resolution, because if they dont come to the table willing to settle and fast track, the taxpayer and irs have to agree or they walk away and the taxpayer still has their appeal rights. Whats the happy medium here and how this could be changed, its there, taxpayers would love to use it. Individual taxpayers need to be able to use it which now its available really to businesses small and large, but it needs to be expanded and made available and at least cost and be successful once its used. Well, i would appreciate all of you, get your thoughts and your ideas to our committee. We want to Work Together of the Ranking Member and high semysel bipartisan basis. Because this is an important issue. Ive been thin that world where larger organizations have the resources. Im concerned about the person who gets 1,000, 1500, 2,000 tax bill, how do we resolve them without putting them into bankruptcy or a bad situation. 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 ideas. In closing, i would like to thank our witnesses for appearing before us today. Please be advised that members have two weeks to submit written questions. Those will be made part of the formal hearing record. With that, the subcommittee stands adjourned. Thank you, mr. Chairman. Sir. Thank you. This is something we can work on. Because, you know, 62 of americans. Im worried about them. This weekend, on American History tv on cspan 3. Saturday at 6 00 p. M. Eastern on the several war. The people military maneuvers that led to general robert e. Lees surrender. All the skirmishing, highbridge. All these dramatic fights all the way to the last morning, a breakout attempt, theyre full of high drama. And emotions are uning verunnin high. The union, theyre out for blood. They sense this is the end game. Lee just will not quit, and longstreet also does not want to quit. But the army is crumbling around them. Then at 8 00 p. M. , on lectures in history on the ludlow coal miners strike and massacre. On the morning, its questions of what happened but an exchange of gunfire. Both sides think the other side are the ones who shot of the National Guard hwill attack the camp. The National Guard in order to stop the fighting decide to pour kerosene on the tent colony and light a fire. The american treasures exhibit at the National Constitution center. Wilson, who had served in the continental congress, saw that the articles of confederation wanted a stronger strogovernmen insisted that we are sovereign. American history tv, all weekend, every weekend, only on cspan 3. Sunday on book tv, live coverage of the brooklyn book festival, starting at 10 00 a. M. Eastern, msnbc host chris hayes discussing his book a colony in a nation. Law professor sheryll cashin. Jalawny cobb talks about free speech. Kathy oneill. Watch our live coverage of the brooklyn book festival on sunday, starting at 10 00 a. M. Eastern on cspan 2s book tv. Two economists presented their research on Retirement Savings at an event hosted by the American Enterprise institute in washington, d. C. They looked at irs and Social Security data to determine how Many Americans will be ready for retirement. This is two hours. Thank you very much for coming today. I think well get started. Welcome to all the