IRS RESPONSE TO RECOMMENDATION: There has been no notable change in the types of compliance activities to warrant this review nor has there been a change to IRC Section 7605(b). Revenue Procedure 2005-32 specifies what is considered a closed case; a reopening; and taxpayer contacts and other actions that are not examinations, inspections, or reopenings. Specifically, Section 4.03 defines the four categories of IRS contacts that are not examinations, inspections, or reopening of closed cases:
(1) narrow, limited contacts, such as to correct mathematical errors;
(2) IRS-administered programs in which taxpayers voluntarily participate, such as the Advance Pricing Agreement program;
(3) reconsiderations of tax periods affected by positions taken by the taxpayer or a related taxpayer in other years, such as a change to a carried-back item that affects the carryback year; and
(4) contacts for one purpose that result in information relevant to a different purpose, such as an inspection of a taxpayer’s records in investigating a possible Title 31 violation.
These categories and examples describe the nature of the IRS’ contacts, and are not meant to be exhaustive, exclusive, or limitative. As such, they ensure Revenue Procedure 2005-32 remains relevant and applicable to current compliance contacts, even when specific compliance methods evolve. Taxpayers are informed of their rights during examinations as well as other IRS contacts
with taxpayers, where required.
CORRECTIVE ACTION: N/A
TAS RESPONSE: The National Taxpayer Advocate fundamentally disagrees with the IRS that there has been no notable change in the types of IRS compliance activities to warrant comprehensive review of its audit definition under Revenue Procedure 2005-32 to reflect IRS compliance activity today, and the application of the Taxpayer Bill of Rights. As noted in the Most Serious Problem, the IRS conducted in the range of approximately eight to nine million “unreal” audits for fiscal years 2014 through 2016, as compared to approximately one million “real” audits annually during the same time period. “Unreal” audit compliance work of this scope certainly warrants IRS review and reconsideration of its definition of an audit. In addition, as noted in the ACA context above, there are circumstances where the IRS essentially conducts a “real” audit under the guise of an “unreal” audit, thereby circumventing the IRC § 7605(b) protection against repeat examinations.
The National Taxpayer Advocate emphasizes that, as a general matter, the definition of an audit should include both pre-refund and post-refund examinations of returns that, like correspondence examinations, require the taxpayer to provide some level of documentation. Such a definition would recognize the “real” audit-like nature of some of the IRS’s “unreal” audit work and provide taxpayers with appropriate rights and protections.
ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted
OPEN or CLOSED: Closed
DUE DATE FOR ACTION (if left open): N/A