Individual Asks IRSAC to Press for Appeals Transparency
Individual Asks IRSAC to Press for Appeals Transparency
- AuthorsDesai, Anand
- Subject Area/Tax Topics
- Jurisdictions
- Tax Analysts Document Number2019-44071
- Tax Analysts Electronic Citation2019 TNTF 226-29
Another Inspector General report of tiny big-business settlements,
Taxpayer Advocate wasteful-audit concerns, and the President's fairness
order demand IRS Appeals transparency
Dear Internal Revenue Service Advisory Council:
As a fellow member of the taxpaying public — and speaking only for myself — I again ask you to join me in urging the IRS to regularly lay out how its Independent Office of Appeals settles audits. (Last year, I focused on a 2016 report from the Treasury Inspector General for Tax Administration, the government's main IRS watchdog, about pennies-on-the-dollar results on Service's most important international tax issue, and on its 2017 report about Appeals' reasoning often not adding up.)i
This May, TIGTA revealed “Few Accuracy-Related Penalties Are Proposed in Large Business Examinations, and They Are Generally Not Sustained on Appeal.”ii How few? 6% of recent years' large business exams, versus 25% of small business exams. And how generally are they not sustained? Taxpayers took most of the large-business penalties up to Appeals, which had written off $765 million of the $773 million — 99 percent! — in the cases it had finished. An “accuracy-related” penalty generally would apply to a tax understatement that is large or due to a listed problem issue, at the rate of 20 to 40 percent of the incremental tax. And it generally has a built-in “reasonable cause” exception which the report says taxpayers can and do ask Exam itself to apply. So a much smaller number post-Appeals doesn't just reflect that a good-faith mistake can warrant a break, but indicates a troubling disconnect between how the IRS announces our tax rules work and how insiders might work the rules.
This summer, Taxpayer Advocate, another “independent” office in the IRS, followed up on its recommendation to track and report Appeals trends in order to spare taxpayers from ineffectual audits by observing that this could also identify issues needing clearer rules.iii If a problem's worth writing up and fighting, isn't it worth a notice to nip in the bud? The bureau wouldn't bite: “the resulting adjustments or outcomes are uniquely drawn from the facts and circumstances. . . . therefore, tracking the results in the aggregate would not be informative.” But that's the point of statistics! Congress already directs the the IRS to publish statistics about “any . . . facts deemed . . . valuable” to “the operations of the internal revenue laws”, and compile statistics to help the Advocate find, prioritize and solve difficulties facing taxpayers and the Service.iv And the IRS combines data analysis with employee suggestions to develop issue campaigns.v In other words, numbers also need classification, clarification and analysis.
And just this October, the President himself ordered agencies to “act fairly and transparently with respect to all affected parties . . . in civil enforcement or adjudication,” and give “public notice of . . . the legal standards applicable.”vi While there's an exception about “settlement negotiations,” it's only to the party's right to be heard — already happening in the negotiations themselves — not to publicity of the standards.vii Mr. Trump specifically called out inapplicable penalty demands.viii And fairness to small business, which is no small issue for the IRS: the Financial Times reported that more than a third of cross-border “investments” by their multinational competitors are just tax dodging. ix Seems to me that for an agency to regularly concede much of what it demands up front shades, or could even practically supersede, the public statute, regulation and case law. The practice and guidelines should be disclosed.x
This would support Appeals' mission to resolve tax controversies without litigation fairly, consistency, efficiently, and with integrity.xi Rigorous public reasoning, confirmation-hearing scrutiny, and accountability for those who install the judges help courts balance rather than erode the rest our government. The IRS knows how to delete identifying and sensitive details before publicly releasing material.xii And owning up to challenges respects “customers” as citizens, not chumps.xiii
Respectfully submitted,
Anand Desai
November 18, 2019
FOOTNOTES
i“Citizen Comment: Keep the Lid Off IRS Settlement Practices,” Anand Desai, emailed to the IRS Office of National Public Liaison on November 8, 2018 for IRSAC's November 15, 2018 public meeting.
The reports are “Barriers Exist to Properly Evaluating Transfer Pricing Issues,” available through https://www.treasury.gov/tigta/press/press_tigta-2016-32.htm, and “Better Documentation is Needed to Support Office of Appeals' Decisions on International Cases, available through https://www.treasury.gov/tigta/auditreports/2017reports/201710068_oa_highlights.html.
iiAvailable through https://www.treasury.gov/tigta/auditreports/2019reports/201930036_oa_highlights.html.
iiiNational Taxpayer Advocate Objectives Report to Congress for Fiscal Year 2020, Volume 2, pp. 56–61, available through https://taxpayeradvocate.irs.gov/ObjectivesReport2020.
Taxpayer Advocate has also recommended more disclosure of internal legal analysis, which could shed light on debatable issues let go earlier in the tax-administration process. “TAS Will Continue to Advocate for Counsel to Disclose Emailed Advice”, NTA FY2020 Objectives Report, Volume 1, pp. 68 – 71, available at https://taxpayeradvocate.irs.gov/Media/Default/Documents/2020-JRC/JRC20_Volume1_AOF_04.pdf.
ivI.R.C. (26 U.S.C.) §§ 6108 and 7803(c)(2)(B)(ii).
vLarge Business and International Compliance Campaigns, https://www.irs.gov/businesses/large-business-and-international-compliance-campaigns.
viExecutive Order 13892, Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication, October 9, 2019, available at https://www.federalregister.gov/documents/2019/10/15/2019-22624/promoting-the-rule-of-law-through-transparency-and-fairness-in-civil-administrative-enforcement-and
viiSec. 6(b) of E.O. 13892.
viiiWhite House Law & Justice Fact Sheet, “President Donald J. Trump Is Combating Bureaucratic Abuse and Holding Federal Agencies Accountable”, October 9, 2019, available at https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-combating-bureaucratic-abuse-holding-federal-agencies-accountable/.
ixId.; “More than third of foreign investment is multinationals dodging tax,” Martin Sandbu, Financial Times, September 8, 2019, available at https://www.ft.com/content/37aa9d06-d0c8-11e9-99a4-b5ded7a7fe3f, and citing “The Rise of Phantom Investments,” International Monetary Fund, available at https://www.imf.org/external/pubs/ft/fandd/2019/09/the-rise-of-phantom-FDI-in-tax-havens-damgaard.htm,
xTIGTA's 2017 report found Appeals made efforts to resolve cases with similar issues at similar rates, but did not explain their other differences. And the IRS has disclosed some “Appeals Settlement Guidelines” at https://www.irs.gov/appeals/appeals-settlement-guidelines-asg. But whether the list is exhaustive is not clear, and seeming operative details are redacted from the individual documents. I don't understand why those would need to be secret if they can't be nefariously prearranged — and in any event the former IRS managers and Appeals staff Googlably seeking tax clients must have a feel for them.
xiI.R.C. § 7803(e).
xiiI.R.C. § 6110.
xiiiCompare “The twin goals of enforcing the tax laws evenhandedly and enforcing them with due regard for exigent circumstances are central to building and maintaining taxpayer trust. Yes, taxpayers want to know the IRS is going after people who are parking income and assets offshore and evading tax. That instills trust because taxpayers who are paying their taxes won't feel like chumps for complying with the law.” NTA FY2020 Objectives Report, Volume 1, p. 8, citing Erich Kirchler who is a professor of economic psychology at the University of Vienna.
END FOOTNOTES
- AuthorsDesai, Anand
- Subject Area/Tax Topics
- Jurisdictions
- Tax Analysts Document Number2019-44071
- Tax Analysts Electronic Citation2019 TNTF 226-29