On April 4, 2012, the National Taxpayer Advocate, Nina Olson, posted news about a new project from her office to help the IRS move into the 21st century ("Virtual Face-to-Face Audits: A prescription for curing the IRS’s ailing correspondence examination process"). She notes that people don't always enjoy correspondence audits. She notes:
"While the IRS instituted correspondence or “corr” exams in an effort to conserve its resources and minimize taxpayer burden, IRS customer satisfaction surveys and Taxpayer Advocate Service (TAS) research studies have consistently shown that for the majority of taxpayers subject to this method of auditing – many of whom are low income and unrepresented – corr exams are an unnavigable labyrinth."
Helping my mother recently with a correspondence audit, I could not agree more. The notice assumed that the return was incorrect because someone at the IRS did not believe there was a retirement plan rollover. When documents were then provided to show the rollover, a much smaller bill came back, but it was larger than expected. In questioning it, a response came back with no information, just the liability. Given that at that point it was under $1,000, my mother is 80 years old, recently widowed, and tired of the stress, we paid it. At that point, I viewed it as extortion because there were no realistic options. One solution to this type of problem in the future would be for the IRS to ask on the original return for proof of a rollover rather than presume that it is incorrectly reported and try to get the records two or more years after the event. There would be no need for a correspondence audit in this situation if the IRS asked for records timely in situations where it doesn't believe what was reported on the return.
So, I fully agree on the issue of correspondence audits. They really misuse the word "correspondence" because true correspondence should be both parties listening to each other and responding in plain English rather than with standard form letters that make it look like they did not read your correspondence.
The trial being conducted to move the system into the 21st century came from the observation of a system used in Sweden. The trial in Tampa, will enable taxpayers to go to the IRS office and log onto a computer to interact face-to-face virtually with a real person at the IRS who will have access to information and tools to resolve the issue.
I think this is great idea. Many businesses and individuals have been doing similar things for years, such as with GoToMeeting, WebEx, and Skype.
Kudos to the National Taxpayer Advocate.
What do you think?