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IRS Modifies Audit 'Call-First' Policy After Taxpayer Complaints

Posted on May 9, 2016 by Hoffman, William

The IRS will begin notifying taxpayers first by letter when they are subject to in-person field exams, "in an abundance of caution and in light of pervasive phone scams seeking to extort money from taxpayers," the agency said in a statement May 6.

The IRS announcement follows reports in Tax Notes Today that attendees of a public forum held by the Taxpayer Advocate Service May 5 complained that they had received phone calls from IRS employees trying to set up audits. The claims seemed to contradict IRS Commissioner John Koskinen's repeated pledges to taxpayers that the IRS never calls first.

The IRS's May 6 statement said the agency "will implement a policy to notify taxpayers in this smaller exam category first via mail that their return has been selected for audit and then contact them to schedule an appointment." It was not clear from the statement whether Internal Revenue Manual sections, dated February 11, that instructed revenue agents to call taxpayers first would be modified, or when.

Describing current practice, the IRS statement said, "While the vast majority of initial audit contacts are handled by sending a letter first, in some of our in-person field audits, a small percentage of our overall audits, the IRS may contact the taxpayer or their representative by phone to schedule an appointment to begin the audit."

"This phone contact is followed up with an appointment letter confirming the appointment," the IRS statement continued. "This has been a longstanding policy at the IRS and we have no indication that criminals claiming to represent the IRS on the phone have said they were calling to set up an appointment for a meeting."


Audit Calls 'Pretty Common'

Kristy Maitre, tax specialist at the Center for Agricultural Law and Taxation at Iowa State University, said the initial audit calls "are pretty common here in Iowa." In fact, taxpayer complaints about IRS employees calling to arrange audits were a staple of her experiences from 2001 to 2014, when Maitre served as Iowa's senior IRS stakeholder liaison.

Maitre said that taxpayers who have heard Koskinen's reassurances or the IRS's public education efforts against stolen identity refund fraud wonder, "How do I tell if the other person on the line is really with the IRS? . . . It's one thing to threaten people and demand money, but it's a different thing with an audit."

Just finding out whether someone calling a taxpayer's home is really an IRS employee can be intimidating, Maitre said. "Taxpayers don't want to interact with the IRS. They're scared."

Yet the taxpayer experience in Iowa may not reflect what taxpayers are experiencing in other parts of the country, Maitre said. Laurie Ziegler, an enrolled agent in Wisconsin, agreed. She said she's never heard of this problem.

"To say that the IRS never contacts a taxpayer by phone is not a true statement," noted Ziegler, a member of the board of the National Association of Enrolled Agents (NAEA). However, she added, "Our experience is that [the IRS] will always, always try by mail first, but if they don't have the taxpayer's mailing address, if it's not a current address, if addresses on returns don't match, then they may reach out by other means of communications, primarily phone."

Ziegler, of Sass Accounting in Saukville, Wisconsin, said she's never had a client who said the IRS had phoned to arrange an audit. She said some taxpayers lose the initial paperwork the IRS mails to them before calling by phone, and may thus be confused about the subsequent IRS phone call.

Ziegler said NAEA executives gathered for a board meeting in Washington agreed in an informal discussion they had not encountered this problem in their own practices.

Maitre said she couldn't speak for taxpayers outside her business area. "I can't tell you how often it's happening," she added, "but it's happening."


Source of Confusion?

Koskinen's tax-related identity theft warnings were directed to taxpayers targeted by identity thieves and scammers who threaten fines, deportation, or imprisonment to persuade their victims to send money to settle alleged tax debts -- not to taxpayers being notified of an audit.

In collection matters, as the IRS's "Identity Protection: Prevention, Detection and Victim Assistance" Web page explains, the IRS doesn't threaten lawsuits or arrests, and doesn't call or email taxpayers about tax debt.

But the rules are different when it comes to audits. As IRM 4.10.2.8 explains, "Generally, revenue agents make initial contact via telephone and tax compliance officers (TCOs) make initial contact via letter."

The "Initial Contact" subsection is dated February 11. It is the most recent change to that portion of the IRM. The IRS did not provide an explanation for the changed portions, which include subsections titled "Contacting the Taxpayer or Representative by Telephone," "Field Examination Contact by Telephone," "Office Examination Contact by Telephone," and "Undeliverable Initial Contact Letters."

National Taxpayer Advocate Nina Olson said May 5 that she had been told by her Omaha, Nebraska-based employees that as of a year ago, the IRM instructed revenue agents that the preferred method for initiating taxpayer contact was by phone.

The Taxpayer Advocate Service declined to make further comment. But tax practitioners contacted later by Tax Analysts said the audit contact procedure, combined with Koskinen's inexact comments, probably contributed to taxpayers' confusion.