After practitioners in Iowa complained in a meeting with Taxpayer Advocate Nina Olsen about the IRS initiating audits in that state via phone contact with taxpayers that was reported by Tax Notes, the IRS has decided to change that policy.
Practitioners had complained that such IRS contacts via phone were confusing to clients whom they had warned about fraudulent calls from people claiming to be with the IRS demanding payment, citing IRS statements that the “IRS doesn’t call first” with regard to such collection cases.
The IRS, it appears, didn’t see that while it might be very clear to those in the agency that collection and audit were totally different functions, for those not deep into the culture and structure of the agency that distinction is not clear—as this author can attest from my own clients’ understanding of what the IRS has said and that I’ve found when discussing the issues in course sessions with CPAs.
In reality, the Internal Revenue Manual does contain language that suggests the “preferable” way to initiate an in-person filed audit to schedule the initial meeting. While in many states offices had not been taking step (likely due to management that realized the potential for confusion with scam calls), in some locations the agency’s exam function appeared to be strictly following this preference.
After a furor developed over the Iowa complaints, the IRS has now decided that, out of “an abundance of caution” (agency-speak for “we aren’t admitting we did anything wrong”) the policy should be changed.
The IRS’s statement of a change in their position follows:
Phone scams from con artists are one of the biggest challenges facing taxpayers. Generally, phone scam callers are focused on masquerading as an IRS collection agent and demanding immediate payment of money.
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. 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.
However, in an abundance of caution and in light of pervasive phone scams seeking to extort money from taxpayers, the IRS has decided to adjust this policy for in-person field exams. The IRS 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.
The protection of taxpayers and their rights remains a top priority for the IRS. We are committed to working with our partners across government and the private sector to stop these scammers from preying on taxpayers.
Similarly, the IRS noted in the past year they plan to start contacting taxpayers who fall behind in 941 payments proactively. Not a bad idea, but the agency then notes that it will include making such contacts by phone—so, once again, a taxpayer could see contact initiated by a phone call.
Of course, the IRS isn’t the only governmental body that doesn’t seem to “get” that phone calls and tax matters are now “tainted” and a potential problem. Let’s not forget that our Congress has mandated that the IRS begin contracting with outside collection agencies to pursue delinquent tax bills.
While in that case it should be the IRS will not initiate contact, it likely won’t take the scammers long to start claiming they represent the new collection agencies and start attempting to scare marks into turning over funds. But that is a problem for another day.
These sorts of things do make it difficult to warn clients in a way they can easily understand about fraudulent calls that attempt to scare them into giving money, thinking that otherwise they are facing a problem with the IRS, something most taxpayers absolutely want to avoid. Unfortunately, until both the IRS and Congress grasp the difficulties in this area we are going to have problems communicating to our clients what does and does not represent legitimate contact by the IRS with the taxpayer.