Don't Mess With Taxes

You've probably been audited and didn't even realize it.

When the Internal Revenue Service sends out a letter requesting more information from filers, that's a correspondence audit. They are less labor intensive and don't require any intrusive face-to-face meetings with an IRS examiner.

The IRS uses correspondence audits -- and a lot of them -- to get more information from taxpayers about certain things on their returns.

During a recent hearing by the IRS Oversight Board, the group's Operations Support Committee Chairman E. Edwin Eck called the correspondence audit the "workhorse" of the IRS' arsenal.

"Approximately 1.2 million correspondence audits were conducted last fiscal year," Eck said at the opening of the public session, citing  IRS data. "During the same time period, approximately 400,000 field audits were conducted. So the long and the short of it was, in 2011, three quarters, 75 percent, of the audits were correspondence audits and 25 percent were field audits."

Actually, my calculator says around 70 percent, but when we're talking that many audit, Eck's estimate was close enough.

Still, a lot of people are not thrilled with the process. I'm not just talking about getting a letter from the IRS and the possibility of paying more taxes. I'm talking about the hoops you have to jump through once you get the letter.

The panelists at the hearing complained that taxpayers under correspondence audit still experience a long wait time for IRS responses to questions. The process often takes a long time and in many cases doesn't result in any or only minimal changes to a taxpayer's return. Taxpayers and their representatives also have trouble, according to the testimony, in reaching someone to learn the status of a case.

Overall, the Oversight Board was told, studies found a satisfaction level with correspondence audits that was so low that the rating in the private sector would be considered abysmal.

Peggy Begg, assistant inspector general for Audit, Compliance and Enforcement Operations, Treasury Inspector General for Tax Administration, quoted a July 2011 report that found only 48 percent of those sampled felt satisfied with the service they received during the correspondence audit.

So what to do? The experts who testified at the hearing last month had lots of suggestions.

They suggested narrowing audit selection, streamlining communication, relaying telephone questions to appropriately trained IRS personnel, doing away with correspondence audits for more complex filings and using expanded e-services instead of telephones to follow up on correspondence audits.

Private call center solution? One panelist even suggested that the IRS look to private sector call centers for guidance.

Photo by monkeybusinessimages via iStock

Bernie McKay, vice president of government affairs at Intuit Inc. (maker of TurboTax) and chairman of the Council for Electronic Revenue Communication Advancement (CERCA), said a symposium of private call center operators and the IRS could compare how the public and private sectors perform their duties and trade best practices.

"The practical challenges of the 2012 filing season reflect that the current IRS strategy is not adequately meeting taxpayer needs," McKay noted, citing the delays in refunds this year. He also pointed out the IRS' "long and mixed history regarding accuracy issues in providing answers to tax questions through customer inquiry-response call centers."

CERCA members believe a new customer service strategy is necessary if basic taxpayer informational needs are to be met going forward, especially in this era of budget cuts, said McKay. "As a practical matter, 'customer service' will not be successful if IRS tries to 'go it alone'."

In addition to an immediate sharing of best practices between private sector call centers and the IRS, McKay suggested that the IRS "think anew about end-to-end, and creative strategies and solutions that can better meet and respond to taxpayer's growing demand for information and service."

Once such reimagined strategy, he said, could "leverage the tax preparation industry and its resources, expertise and core competencies in the provision of customer service, much as the Free File strategy leveraged private sector resources to provide tax products and services to those in need."

McKay cited the existing public-private partnership of Free File and pointed to what he called today's reality that taxpayers already expect the IRS and the private tax industry to work together to answer their questions. Taxpayers cannot understand how it is possible that today such cooperative service is simply not forthcoming, he said.

"To satisfy reasonable citizen expectations," said McKay, "IRS cannot continue a 'business as usual' approach in an era of declining resources. It must instead focus and deliver on its most basic tax administration responsibilities in new and innovative ways, while finding new and innovative ways to deliver superior customer service at lower costs."

What do you think? Would you forgo talking with an IRS employee for quicker response time to your correspondence audit questions.

Do you have any concerns about privacy and possible tax marketing coming from such a partnership?

You also might find these items of interest:

• The IRS' electronic future
• Real time tax talk
• If IRS asks, you've got some 'splaining to do