IRS update: Boosting alternative dispute resolution, and more

The Internal Revenue Service is concerned that not enough taxpayers are taking advantage of its alternative dispute resolution process for resolving disputes.

Finding ways to boost use of the ADR process was one of several topics discussed at the IRS’s National Public Liaison May meeting in Washington, D.C. Among them were promoter investigations at the Office of Fraud & Enforcement, filing season processing, and stakeholder liaison.

Alternate dispute resolution

The ADR process was lauded for its ability to resolve disputes much more quickly than the standard appeals process. It is a fundamentally different path that shows promise to both taxpayers and the IRS. Moreover, studies have shown that the process ends with both parties being more compliant. The fact that it reaches a shared resolution changes the perspective on both sides, according to officials. Both parties need to be willing to compromise in order to reach an agreed outcome. 

However, ADR usage has been lower than expected and continues to decrease, according to officials. The IRS has convened a cross-functional team to study and provide changes going forward, according to Stephen Mankowski, tax chair at the National Conference of CPA Practitioners, who was at the meeting. 

“Some were procedural tweaks, while others were more sweeping recommendations that can improve the system,” he said. An example is when the taxpayer is denied without explanation. “Now, all denials are required to have details on the results. Also, tentative denial gets reviewed prior to submission to the taxpayer. Public education and internal training will need to occur to encourage taxpayer usage.”

The Office of Fraud Enforcement

A goal of the Office of Fraud Enforcement is to work with the practitioner community, as well as alternate channels, to make referrals. It has partnered with Small Business/Self-Employed Division research to get information at Tax Forums. Nearly all practitioners surveyed were familiar with the term “abusive transactions.” 

“It can be a fine line between fraud and tax planning, and clarification is needed on the website to illustrate this better, according to respondents in a poll,” Mankowski explained. “Practitioners felt that simple online submission was important, as well as the IRS releasing statistics. Both help to hold people accountable.”

The Earned Income Tax Credit was top on the list of problems, along with underreporting income and overreporting expenses, he added. Most are familiar with the “Dirty Dozen” tax scams. Overall, practitioners want more and better means for reporting. A common view was the desire to see a “perp walk” upon arrest. 

Tax season wrap-up

Filing season was a success, according to the IRS. There were no huge system issues; although there were some slow transmissions, they were quickly cleared up. Program completion dates for refunds are normal. More extensions were filed this season than last year, and returns are continuing to arrive. The IRS just began digitizing Form 709 from prior years, and will continue to digitize old returns and ultimately current-year returns. The service continues to struggle with hiring, with Kansas City being hit the hardest. 

The Direct File Pilot was available in 12 states this year. Its goal was to give the IRS the ability to provide simple tax preparation and filing for free. It became generally available to the public in those states in mid-March. 

Stakeholder Liaison

The goal of Stakeholder Liaison is to help practitioners navigate the IRS. It is planning on involvement in more events in 2024 than at any time in the past. It presents 50-60 webinars annually, with subject matter experts addressing the majority of topics.