Support Learning and Insight

It’s more important than ever to understand the challenges facing financial executives. Support the Financial Education & Research Foundation today.

Policy

FEI-Led Coalition Secures Changes to IRS Audit and Exam Procedures


Changes will help to ease the burden many businesses currently experience when undergoing IRS audits and exams.

©mj0007/iStock/Getty Images Plus

A three-year effort by a Financial Executives International (FEI)-led industry coalition to improve Internal Revenue Service (IRS) audit and exam practices will come to a successful conclusion in the coming days when President Trump is expected to sign into law IRS reform legislation that passed the House and Senate last week. The bill includes several provisions that were recommended by the Coalition for Effective and Efficient Tax Administration (CEETA), which FEI manages. These changes will help to ease the burden many businesses currently experience when undergoing IRS audits and exams.

One of the most significant changes advocated for by CEETA, and included in the wide ranging legislation dubbed The Taxpayer First Act, is the creation of an Independent Office of Appeals within the IRS, along with a new Chief of Appeals position that reports directly to the IRS Commissioner. This provision sets limits on the IRS’ ability to designate cases for litigation and deny a taxpayer’s ability to resolve matters through the Office of Appeals. The law instructs the IRS to ensure that the Independent Office of Appeals is available to all taxpayers and to provide a written explanation when an appeal request is denied.

Lawmakers also adopted a CEETA recommendation to prohibit the IRS use of outside counsel to participate and take testimony in tax audits, reversing an Obama-era rule that allowed the practice. CEETA-backed language to establish safeguards governing the IRS issuance of designated summonses to unilaterally extend the statute of limitations in audit cases, was also included in the bill.

CEETA’s objective was to bring collaboration and flexibility back into the IRS exam and audit process to better enable taxpayers to work with the IRS during the audit process and to make it easier to settle cases without costly and time-consuming litigation.

Other key provisions of The Taxpayer First Act include a requirement that the Treasury Secretary sends to Congress a comprehensive IRS restructuring plan to ensure adoption of the priorities Congress outlined in the bill that would prioritize taxpayer services, streamline the IRS structure, and improve the agency’s cybersecurity, among other things. The bill also calls on the IRS to develop (within one year) a comprehensive customer service strategy to improve the agency’s ability to provide assistance to taxpayers, including enhanced training for IRS customer service staff.

The legislation had originally passed the House in April but stalled in the Senate over a controversial provision that would have codified the IRS Free File program. Some Senate Democrats objected to the provision, maintaining that it could prevent the IRS from developing its own tax preparation software and giving an advantage to for-profit tax preparation software companies. The House removed the Free File provision and passed a new version of the legislation last week that was quickly adopted by the Senate and sent to the President.

Established in 2016, CEETA is comprised of 14 trade associations, including FEI, the US Chamber of Commerce, National Association of Manufacturers, ACT/The App Association, Retail Industry Leaders Association, National Taxpayers Union, Council for Citizens Against Government Waste, National Foreign Trade Council, Software Finance and Tax Executives Council as well as a number of FEI member companies. FEI has managed the coalition since its inception and coordinated the group’s advocacy efforts on Capitol Hill. Over the last three years, the coalition drafted policy recommendations, held dozens of meetings with members of the House and Senate and their staff, and suggested critical legislative language as the bill made its way through Congress. CEETA also submitted several comment letters to the Treasury Department and Internal Revenue Service on proposed regulations related to IRS audit and exam processes that have helped shape how the agency deals with taxpayers.

CEETA’s efforts are a prime example of how industry coalitions can work together to combine knowledge and advocacy capabilities to effectively educate lawmakers, and advocate for common sense and practical solutions to public policy challenges.