TEI comments on Phase II currency initiative: May 7, 2004.

• Position: Tax Executives Institute

On May 7, 2004, TEI submitted the following comments to the Internal Revenue Service on the Large and Mid-Size Business Division's LMSB Productivity Improvement, Phase II: IDR, 5701, and 30-Day Letter Processes For Current Cases and Cycles The comments took the form of a letter from TEI President Raymond G. Rossi to LMSB Commissioner Deborah M. Nolan. The comments were prepared under the aegis of the Institute's IRS Administrative Affairs Committee, whose chair is Paul O'Connor of Millipore Corporation.

This letter responds to a request for Tax Executives Institute's comments on LMSB's Phase II initiative to improve currency and cycle time. TEI appreciates the opportunity to comment on this initiative involving changes related to the use of information document requests (IDRs), Forms 5701 (Notice of Proposed Adjustments), revenue agent reports (RARs), and 30-day letters. While TEI has long and consistently supported the goal of currency, we have significant reservations about some of LMSB's proposals. These concerns are set forth below.

Background

This initiative is the second in three phases of LMSB's productivity improvement effort. In respect of the IDR process, the Phase II team has proposed a process whereby the taxpayer's behavior would determine the applicable IDR process. The general IDR process governs the situations in which the taxpayer provides information to the IRS in a timely manner. The procedure, however, also provides rules for dealing with two sets of taxpayers whose behavior does not satisfy the general rule: (1) the delayed-response taxpayer, where compliance is achieved through additional meetings or requests; and (2) the non-responsive taxpayer, which involves the potential use of summonses to achieve compliance.

The proposal would also eliminate the use of the traditional RAR by combining it with the issuance of the 30-day letter and limit extensions of time for filing a protest.

TEI agrees that both taxpayers and the IRS have a common goal of completing the audit in a fair, timely, and efficient manner. Several innovative procedures--such as the Limited Issue Focused Examination (LIFE), Joint Audit Planning Process, and Fast Track Mediation and Settlement-were developed with taxpayer input to improve the examination process and promote currency. These procedures all have in common a focus on the collaborative effort between the taxpayer and the IRS audit team and the desire to push resolution of issues down to the lowest possible level.

TEI agrees that the backlog of cases must be addressed before significant efficiencies can be achieved. Although the Institute commends LMSB for working to make the audit process more consistent and uniform, we regret that the Phase II proposal has the potential for adversely affecting the relationship between cooperative taxpayers and their audit team. The mandatory, non-collaborative processes developed by the Phase II team represent a step backward, not only by dictating a "one-size-fits-all" solution to IDR response time, but by moving the decision-making authority higher up the chain of command. In our view, more flexibility must be built into the process to acknowledge specific taxpayer circumstances and to ensure that taxpayers are not mistakenly characterized as delinquent or non-responsive.

There is an adage in the management field that "you get what you measure." If you measure IDR response...