AICPA: Correspondence audits challenge taxpayers

The IRS’s use of correspondence audits to resolve issues with tax returns has mushroomed over the past decade—but taxpayer satisfaction with the program is fairly low. According to the Treasury Inspector General for Tax Administration (TIGTA), only 48% of those surveyed by the IRS said they were either somewhat or very satisfied with the service related to their audit.

Correspondence audits were the subject of a public hearing in February by the IRS Oversight Board.

The IRS uses correspondence audits to obtain additional information from taxpayers about a few limited issues on the taxpayer’s return. Correspondence audits are generally narrower than a traditional audit and are conducted by mail or other written communications, making them cheaper and less labor-intensive for the IRS.

Among the chief sources of taxpayer dissatisfaction are the excessive time it takes the IRS to resolve cases and difficulties reaching someone to learn the status of a case. Under the IRS’s earlier call system, 13% of callers phoned more than eight times before their issue was resolved, and 70% of the calls went to voice mail. The IRS has started to implement a system designed to provide a faster connection to someone who can answer a taxpayer’s question.

“AICPA members are very familiar with the difficulties and challenges taxpayers have faced with correspondence examinations,” said AICPA Tax Executive Committee Chair Patricia Thompson, one of four panelists at the hearing. Problems identified by members and previously communicated to the IRS are similar to those in the survey. However, she cited informal feedback from CPAs that the IRS is doing a better job at waiting to issue deficiency notices (90-day letters) until it reviews correspondence from taxpayers.

Thompson recommended that the IRS:

• Review internally whether the correct types of returns are being selected for correspondence audits.
• Expand e-services to alleviate delays in telephone and mail processing and expedite communications.
• Be given adequate resources to effectively and efficiently administer tax laws and collect taxes.

Thompson also said that taxpayers are often requested to substantiate tax deductions such as miscellaneous itemized deductions, state and local income taxes, and real estate taxes. However, if taxpayers are in an alternative minimum tax position, which does not allow these deductions, disallowing them generally does not result in an additional tax liability—a waste of resources for the IRS. She suggested that the IRS screen out such cases.