And the person standing next to you does or doesnt have it. At 9 00 p. M. Eastern, hamilton playwright and actor Linmanuel Miranda accepts the u. S. Capitol Historical Society freedom award. When youre a kid you make friends from different grades and social groups. You learn to work hard to create something greater than the sum of your parts. And just for the sum of making something great, you learn to trust your passion and let it lead the way. Without humanities and arts programs, i wouldnt be standing here. And without Alexander Hamilton and the countless other immigrants who built this country, its very probable that very few of us would be here either. American history tv, all weekend, every weekend, only on cspan3. A former irs commissioner and also Taxpayer Advocates testify before the house ways and means subcommittee on oversight about resolving disputes between the irs and taxpayers. The witnesses said the dispute process should be simplified and made more user friendly. Welcome to the ways and means subcommittee hearing on irs reform resolving taxpayer disputes. Before i begin my official statement, i would like to recognize the extraordinary effort of two of our Witnesses Today that made it up here from florida. I think you drove from orlando. Both mr. Shin and ms. Wilson came from the great state of florida. Thank you very much for your determination to be here. I know it wasnt easy. Let me pause for a moment to thank all our first responders, local government officials and community members. We stepped up and responded to the hurricane of irma in my home state of florida. It is impressive to see everyone working together. Im confident we will continue to Work Together in the aftermath of the storm as well. Todays hearing is another important step in the process of considering reforms to the irs. I have stated previously i do not view this as an opportunity to degrade or discredit the good work being done by irs employees. However, im a big believer in continuous improvement. Thats been my philosophy in business. We can always get better. In government like business, we should always be looking ways to improve. In a system of voluntary tax compliant, even with the simplest of tax codes, and ours are not one of those, there are bound to be disputes between the taxpayers and the irs. What we hope to learn today is about the experience of those taxpayers. These are folks that have been in the trenches working with a lot of those taxpayers, involved with resolving disputes with the irs. And whether there are ways to improve the current process, i believe there will be. Nearly 20 years ago, the last time significant reforms were made to the irs, one of the key legislative priorities for congress was the creation of an independent appeals function. As recently as two years ago congress reaffirmed the importance of an independent forum. When the right to appeal to such a up for was included in taxpayers bill of right and codified as a responsibility of the commissioner. Ensuring the independence and the ability of a administrative review process for taxpayers dispute, remain a top priority of this subcommittee. Additional to being independent, disputes, Resolution Options need to be assessable and efficient. This t process is failing if only Large Business was deep pockets feel equipped to dispute a determination made by the irs. Individuals and Small Businesses should not have to weigh the cost of hiring outside help against paying the assessment. For most taxpayer, their only interaction with the irs is when they file their taxes once a year. But when the taxpayers find themselves in a dispute with the agency, they deserve a fair and prompt process. I look forward to working with the Ranking Member on these issues and hearing from the witnesses a we continue our effort to examine reforms to the irs. I now yield to the distinguished Ranking Member from georgia, mr. Lewis, for the purposes of an opening statement. Thank you, mr. Chairman. Thank you, mr. Chairman, for holding this hearing resolving taxpayers disputes with the Internal Revenue service. I welcome you back to washington, mr. Chairman. And on behalf of the citizens of georgia and especially the citizens of the fifth district, we were able to welcome hundreds and thousands of people from florida. I went into a parking lot in downtown atlanta on saturday, and there was so many cars from florida. And people had their dogs, walking their dogs through the parks from florida. Were neighbors. And i want to in particular welcome ms. Wilson and mr. Shin and relatives that live over in fort lauderdale. And only thing that we had happen in my district for the most part, pine trees coming down. I want to thank you for being here today. Before we begin, mr. Chairman, i would like to take a moment to extend my condolences to you and millions of americans who were impacted by the recent hurricanes in the caribbeans and the southern states. As you know, the hurricane damaged homes, downed trees, closed roads, and left about one million residents without power in my home state of georgia. And i and our citizens, our people begin the difficult process of rebuilding their homes, their communities and their lives. And i hope this committee will Work Together, to do all we can to assist the recovery efforts. Mr. Chairman, ive said it before and i will say it again, we must approach this effort to reform and improve the irs with a great deal of care and thoughtfulness. I hope we will take our time to develop bipartisan solution to serve the best interest of both taxpayers and agency. For many years i cautioned that we cannot get blood from a turnip. As you know, congress cut the irs budget by almost 1 billion since 2010. Over the last three years the budget for the irs appeal Office Dropped 11 . And there are about 24 fewer offices. Today we learn more about how these deep budget cuts have affected the ability of the agency to resolve disputes with taxpayers. Our citizens expect and deserve timely services. Simply said, mr. Chairman, taxpayers will not get the level of service that they expect and deserve until we provide Adequate Funding to this agency. As you know, this is the subcommittee fourth hearing to explore how we can improve the irs. We remain bipartisan and explore a Good Government path to explore how the irs operates and identify possible improvement. I hope and pray our product will be a model for our colleagues. This afternoon we will also explore how to improve what can be a long and complicated appeal process. To get together we will listen and learn about possible remedies. Some may suggest expanding the number of states that have permanent hearing offices, and allowing taxpayers to request facetoface conferences throughout the appeal process. Above all, mr. Chairman, i hope we will continue to Work Together as we have all year to explore and address these issues. In closing, mr. Chairman, i look forward to hearing from our witnesses and learning more about the experiences with the agency. Again, mr. Chairman, i want to thank you, my friend, for holding this hearing. Thank you, mr. Lewis. And i want to thank you for your thoughts and prayers. And we do have a lot of our family and people that went to georgia and other states, and i appreciate your thoughts on that. And you know youve got my commitment to Work Together on a bipartisan basis. We want to improve this together. There is a lot of work to be done. So i look forward to working with you. Thank you. Without objection, other members Opening Statements will be made part of the record. Todays witnesses, Witness Panel includes four experts. Kathy petrancha, director of the irs practice and procedures at the alliance group. Pete sepp, president at the National Taxpayers union. Byron shin in our district. Were excited to have him and his lovely wife here today. He is the founder and managing partner at shin company. I think hes probably got 35 years dealing with dispute resolution with the irs. So i know that. Jesse wilson, principle with the National Tax Office of clifton, larson and allen from orlando, and a member of the aicpa. The subcommittees will receive your written statements and they will be made part of the formal record. Each of you have five minutes to deliver your oral remarks. We will begin with ms. Petrechon. You may begin when your ready. Chairman buchanan, Ranking Member lewis, and members of the subcommittee, thank you for inviting me to testify. It is an honor to provide comments today. I interact with small and medium size businesses in my work with aliant group. I also spent 29 years at the irs, and gives me a unique perspective in the examination and appeals program. My testimony focuses on challenges that taxpayers face when dealing with the irs and what irs can do to improve the examination and appeals process. I raised six issues in my written testimony, and id like to highlight two of those issues. The first issue is the appeals process. Before heading to court, the final administrative step a taxpayer can take to contest an adverse examination agent is through appeals. Appeals is important for so many businesses seeking a fair review of their tax issues without having to incur additional costs to go to court. Taxpayers are appreciative of the opportunity to attend the appeals conference in person. They are not thrilled about the recent change by appeals indicating they may not be granted an inperson meeting. Appeals made telephone and conferences First Options for appeal, only granting inperson conferences in limited circumstances. We believe that not granting tax taxpayers an opportunity to have an inperson meeting would be highly prejudicial to taxpayers restrict the ability of appeals officers to adequately judge the credibility of witnesses, and make the conference more difficult in situations where the appeal is of highly technical and highly evidentiary focused cases. While we have seen appeals officers flexible in granting inperson conferences, we believe taxpayers have the right to meet appeals facetoface. This inperson conference may be the only way a taxpayer believes there is the increased involvement of irs compliance employees in appeals meetings. This change has created a perception for taxpayers they may not get an independent hearing and decision as afforded by the taxpayer bill of rights. We believe the only involvement exams should have at appeals is in a preconference meeting. At a preconference, the originating function can attend an appeals conference to present their views on the issues, the taxpayers protest and the process of litigating hazards in accordance with expart they coordinati rules. As of late, rather than leaving at that point, exam has been invited by appeals to stay for the taxpayers presentation. When this happens, the entire appeals atmosphere is altered, and there are opportunities for this to turn into an extension of the examination process for a taxpayer. The independence of appeals is hindered when exam plays too great of a role in the appeals process. A representative recently described a situation where in preconference it became clear that exam had not fully addressed the position the taxpayer had brought forward in his response to the exam team. After hearing the taxpayer orally present their position at the appeals meeting, the exam team made another 24page admission to appeals to attempt further support for their position on the issue, taking an alternative approach. It seems patently unfair that company can continue their process when case is asiped to an independent forum to make the decision. Taxpayers who feel theyve already been through a grueling process with exam should be able to have the peace of mind their case is being given a fresh look by appeals and that the examination is over. Todays comments on the issue of alternative dispute resolution focus on the irs fast track settlement program. This program was created to provide an expedited dispute resolution option for taxpayers to mediate their disputes during an examination with an appeals official acting as a mediator. The use of fast track has the potential to be a highly effective tool when both parties come to the table willing to reach an agreement. Taxpayers and their representatives welcome the opportunity to resolve as many issues as possible at the lowest level in a cooperative manner. This same sense of urgency should be felt by the irs. In closing, i commend the committee for its work in oversight in ensuring that taxpayers receive good treatment from the irs. Alliance looks forward to working with the key to further improve tax cooperation and look forward to your recommendations. And ill be glad to take your questions. Youre recognized. Mr. Chairman, Ranking Member and members of the committee, a number of my predecessors have actually testified in this very room on taxpayer rights issues. So im particularly honored you would ask me here to follow in their footsteps. And we need to follow in the footsteps of all of our predecessors in developing a bipartisan solution to many of the problems that have cropped up since enactment of the irs restructuring and reform act of 1998. One of my predecessors, bob cammen, put it this way. He called it taxpayers triage. What you need are a number of steps, a number of options in resolving problems between the agency and taxpayers that provide a range of responses. One of them is prevention, of course. We can simplify the tax system. We can educate taxpayers about their rights in advance so they know going into the process of interacting with the irs what to expect and problems can be resolved at this level, the preconference level, for example. Then theres basic care. What we have now, of course, is the appeals process and a very nacien alternative dispute resolution process. Were going to hear a lot from the Witnesses Today about the malfunctioning systems from appeals. And especially with the recent evolution in the Large Business and International Division of strategies like designating cases for litigation that can be very harmful to the audit process. I hope we can discuss that in further detail later. But the rise of alternative dispute resolution mechanisms around the world and its relatively flat usage here in the United States actually declining at the appeals level right now suggests that we need very serious reforms if were going to make that process workable in the future. Third level of triage really is intensive care. Thats when taxpayers and the irs have to litigate an issue. And their taxpayer access beyond the court level is still highly problematic. Everything from the antiinjunction act to the decker to relief act essentially prevents taxpayers from enforcing their rights in court in a meaningful manner of largely their choices are confined to litigating for damages after the acts have already been committed by the agency that have deprived a taxpayer of his or her income or right to earn. The fourth level is essentially post op observation, as i would call it, oversight. Now current plans in several of the tax reform options being discussed would do away with the irs oversight board. There are flaws in the oversight board, certainly, but i would urge this committee to very carefully consider alternatives to the current irs oversight board, which is essentially paralyzed due to a lack of a quorum. We really need to establish and maintain that kind of consistent oversight in some manner. Specifically, i would make a few recommendations, and, again, we can discuss these in detail. The foundation for another taxpayer rights package really ought to be based on hr3220, the preserving taxpayers rights act. Its a bipartisan bill. It codifies the right to appeal, and it establishes a more businesslike working relationship between the irs and taxpayers. This will apply to Large Businesses, Small Businesses, individuals across the board. Section 3 of that bill, which essentially directs the secretary to begin developing more dispute resolution procedures at appeals would pave the way for more effective use of adr in a number of situations. There are many, many other suggestions i could make that we should look at. The taxpayers bill of rights enhancement act just introduced in the senate yesterday. Hr2901, which would expand some of the assistance and volunteer income tax assistance program, expanding low income taxpayer clinics. All of these things need to be put into a package to Work Together to enhance the progress we have made in taxpayer bill of rights 1, t2, and the irs restructuring and reform act. And this is the committee where it all starts. Every single piece of important irs reform legislation began with members of this committee, your predecessors, and you now, such as with the respect act that just passed, coming together in a bipartisan fashion to do better for taxpayers. We can do it. We must do it. I thank you for your leadership. Thank you. Mr. Shin, youre recognized. Thank you, chairman buchanan, Ranking Member lewis and members of the subcommittee. Thank you for the opportunity to discuss reforming how the irs dissolves taxpayer disputes. As a practicing account for over 38 years and a florida cpa, ive seen a lot of change. Can you speak up a little bit more in the mic so everybody can hear . In my opinion, our focus should be Taxpayer Service first. Improved tone with access, consistent control, and require fast track steps. I have a unique perspective. As i have been involved in oversight of florida cpas as a member of the probable cause panel for well over a decade. And most practitioners work hard to get it right. Theres a handful of marginal practitioners in and aggressive taxpayers that try to push the envelope. Tease interest practitioners and taxpayers that need to be reviewed. First id like to address correspondence audits. They have been expanded in lew of exams for many individual returns. These exams require responses in a specific period of time. However, the irs responses are taking considerably more time than the taxpayer is given. These exams have a high probability of no change. Once the irs receives the submitted responses. In several instances, the taxpayers rights have been ignored by the issuance of 15day letters, and then shortly thereafter, 90day notice of deficiencies, thereby ignoring the 30day letter. And which grants the rights of the taxpayer for an administrative hearing and appeals. And that also breaks their taxpayer bill of rights. This also prevents the fasttrack settlement opportunity. Therefore, i believe a standard that it should exist, that the process must be maintained and the service, when it jumps over process should lose the right to pursue additional revenue. Follow the rules or lose the adjustment. We also should require fasttrack to prevent the circumstances that are existing today. I next want to speak about field exams. The process has been very taxpayer unfriendly with a litigious and enforcement tone. Over my 38 years we have reached a new low regarding the respect that the taxpayers and their professionals have with the service. It is as if the taxpayer is guilty and have to prove the irs wrong. The agents are doing several audits at the same time and they tend to start and stop during the audit. Many of them taking much more than 12 months. This just is not right. We have new rules that are also killing the system. An example of the new partnership exam rules. Theyve brought the process to a state of total chaos. In order to close issues and reduce the time necessary, we talk about the call centers and the local office access. Unfortunately, the wait time on the call centers is extremely long. Overall, my experience has been good once you get to a qualified person. This shows how the Service Needs to open up access. The service should increase the Call Center Available hours, making them earlier, later and on weekends. The service has a very good eservice process. However, this has been reduced due to budget cuts. This needs to be expanded back in a much broader sense. The local offices no longer allow walkins. This is just not sorry. Its not taxpayer right. Its just not taxpayer first. They need to have reasonable access. Another area of concern is foreign disclosure exams. Were seeing a situation growing with the continued disclosure of foreign assets and Bank Accounts going the appeals, and the appeals officers feel that they cannot settle. So the issue goes to offshore settle. The issue goes to offshore technical aid visors and ends up all or nothing. We need to give them guidance onsetlement. Created opportunity for dbtd. The code and current state remains in your opinion one problem facing the service and taxpayers. Most of the career has been with maul and medium size business i can talk about challenges in compliance. Identity theft, since many id thefts were in florida i was a victim. We should require all taxpayers to have pin numbers. My information was stolen through e services on a data dump. And that shouldnt happen. If we have had all taxpayers with pins that wouldnt have happened. I would like to recommend a separate task force answers to you congress to assist the National Taxpayers advocate developing change in the stru structure and process. Thank you. Miss wilson you are reck nized. Chairman buchanan, and other members of the subcommittee. Thank you for the opportunity to testify. The aicpa awe plauds efforts to address the importance of irs resolving taxpayers disputes in a timely, official and Cost Effective manner today i would like to share our thoughts on refining the independence and efficiency within the irs dispute resolution process. I will also address the importance for the irs to understand the taxpayers perspective. And deliver customer focussed service. First lets start with penalties. Upon receipt of an irs notice, taxpayers or representatives may determine a reporting error was made. However, if the taxpayer made the effort to comply with the reporting requirements the ta taxpayer may request relief from penalty. Frequently the official response is a routine denial. This process is handled independently within each of the primary irs divisions. We recommend that the irs urn take a review of the process across the agency. To identify necessary training to ensure a consistent and fair treatment of all taxpayer disputes. Next lets discuss appeals. Appeals is the primary form for taxpayers disputes. Their mission is resolve tax controversy without litigation on a fair and impartial basis. We appreciate them holding conferences which provide a meaningful and unique opportunity for taxpayers to present positions. In october of 2016, appeals made several changes to its conference procedure. Which arguably impact the ability or perception to independently and objectively help taxpayers. We recommend that one, the irs limit settlement conferences to the appropriate appeals personnel sdp two two provide taxers with the option of a face to face conference. In one settlement conference the appeals officer asked openly asked the exam team what they thought was a fair settlement. My compliant asked how is it possible for appeals to main ta their independence when theyre seeking the opinion of the same irs employee who examined them . Although in reality irs employees may or may not have influence ore the appeals process. It is hard to view them as objective when other irs employees are vved. We suggest that once the taxpayers presentation to appeals begins they should limit the meeting participants to the appropriate appeals personnel, and the taxpayer. In another appeals case, payroll obligations were not met until my compliant discovered the error. The appeals officer said it took a whole five minutes to determine there was no reasonable cause and asked not to discuss it. In this particular situation, a conversation much less a face to face conference was considered up necessary. From his perspective. However, from the clients sperktive he was not heard. He was unfairly denied the right to present his case. While its possible to resolve some issues over the telephone, we think its important that taxpayers have the option of a face to face conference. For larger tax disputes cases are assigned a team of irs appeals officers and case leader who is designated Settlement Authority. In these situations we urge the irs to provoid truly independent Settlement Authority to the case leaders and eliminate the approval process that was recently added. Finally, a customer focussed Service Approach should extend to all irs services. It will help reduce disputes in the first place. For example the irs should create a new dedicated executive level Practitioner Service ts unit that would centralize and modernize its approach. With a mind set of understanding the taxpayers sperktive the service will enhance voluntary compliance and increase the Public Confidence in the integrity of the service. We appreciate the opportunity to testify. I will be happy to answer any questions. Thank you, all of you for your excellent testimony. Now proceed to questions and answer session. Keeping with my past president i will hold my question until the end. I now recognize the gentleman from michigan. Mr. Bishop. Thank you to the panel. Lots o questions so little time. Is it ms. Petronchak . You indicated your written testimony. You didnt have much time today. You indicated in written testimony that there were procedures in place by the irs during audit that would give larger businesses an advantage over smaller businesses. Specifically having to do with transparency. Can you elaborate on that and tell us is this something that the irs is doing as a result of the code or is this an arbitrary kind of application of the rules . So what that regards to that and my testimony. In the Large Business and International Division they have put out proer procedure ands the petition and indicated when you are issuing information document request to taxpayers that you have a discussion. You identify what the issue is. And you talk about what documents youre going to request. So the taxpayer has on opportunity to have a discussion with the agent and say maybe i dont have those kinds of records. These might be more pertinent. They understand what the irs is looking at and where they plan ongoing with the examination. Small Business Division that just doesnt happen. What happens is youll get a letter saying youre under exam and heres a four page document request with everything but the kitchen sink on the request. And then instead of as in Large Business division bh the response is made to the document request, its expected in Large Business they would review that response and then have a discussion with the taxpayer to say we think its complete or its not. And its an ongoing discussion. Small business youre more likely than not going to find out the results of their review at the end of the an examination. Which is way too late. For a taxpayer to be understanding what issues are in dispute. And even sl have the opportunity to use alternative dispute resolution. It belg begs a question why are they treated differently . Is this the result of the code . Or something that the irs is doing independently at its discretion . Its an administrative practice in the Large Business division. Its not required by code. But certainly although the procedure somewhat or could be approved. Its a drastic change and different from that afforded to small and medium size business. I dont understand why. Is there you have done this before . Does anybody understand why Small Businesses are treated differently than Large Businesses . In this area . I personally dont see a reason why they could not integrate some of the procedures into their examination practices. Its having the discussion up front that meets the taxpayer bill of rights to be informed and know whats going on. I dont see why it could not become a part of the work process. I would agree it should. Although i would say there has been some negative feed back even from folks who have experienced audits in lbni. That requests are often poorly focussed. So this might be a problem thats not only with Small Businesses but with the procedural latitude given to the irs. You indicated that the nonin person exam or the appeal is it the expert for the irs in the room with the examiner . So, when its actually an appeals meeting and its a telephone or they moved to virtual conferences. The appeals officer is in the room, they may have a technical specialist. And under the current rules they could invite exam to be on the phone as well. So thats a real concern is that whos on the phone . You have so many party, you dont know whos speaking. Whose perspective are you hearing. Is there a problem with expart communication. In house . That doesnt violate ex parte communication. If the taxpayer is invited to attend the conference where examine or compliance will be present. Its not a violation. I get that. In practice in theory youre 100 right. In practice it seems that would be an absolute reoccurring problem. It could be. One other thing if i might. Is the appeal process de novo or continuing process that is your appeal does it take up the entire evidence all the evidence to the consider everything or only that which was considered in the previous review . In appeals they should be considering the information that was developed and presented to them by exam. As well as what the taxpayer submitted and making an independent decision. They have when they change mrs. Wilson recognize the the rim change. Were not going to hear new facts or evidence in appeals. Well rely on whats in the file to make the decision. It should be exactly whats in front of them. Thank you very much. Thank you. I recognize Ranking Member mr. Louis from georgia. Thank you very much. Thank you for being here today. I understand youre the head of the National Tax Office at your firm. What type of issues are taxpayers trying to resolve when they come to your firm . Great question. Small issue . Big issue . Global issues . That is the unique thing about our firm. I would say they run the gam et. They are all the way from small 1,000 penalty issues to large exams. So we have a very unique client base. We target midsize business. Which by the nature of that we have all range of issues that we see. Recently the significant issues i see are around penalties. And penalties appeal. We have a lot of clients or clients in the base that have been on slotted with information return penalties. And so we try to help them manage through that process. In your experience, what are the Biggest Challenges you and your compliant expeerps in resolving tax issues with the agency . Thats a good question. I think the largest issue is just being heard. Making sure. Do you have a hard time a difficult time in just being heard . Just getting a face to face meeting . Exactly. Exactly. And appeals as we discussed as i discussed in my testimony has dramatically changed that process. I have been doing this for many yores. Of where i focus just on youre too young to have been doing it for many years. But face to face was the that was the one time you got to sit down and face the irs. And really talk about the issues. And from a compliant perspective, they felt lie that i can were being heard because they sat across the table from the appeals officer. And they could see them listening. They could see the head nod. And so even if it didnt come in the favor they felt like they were being heard. When you turn to the telephone conferences which are now the standard practice, you remove that. And they question whether the appeals officer my clients do, are even listening. Because you get to the ebd of the conference and im not saying every case. A lot of the times this process does work well. In some cases the client walks away and says u dont think they were listening. In fact i heard key strokes on the computer. And so i think from the aicpa thats a recommendation. You need to lock at this new procedure. Its a administrative. You need to look at it and say what are we doing to Taxpayer Service here. Are our taxpayers really feeling like theyre being heard . This is their last opportunity. Ranking member. When they get to appeals the next option is litigation. I can tell you in my client base, 99 of them are not going to want to take it to litigation. Maybe the dollar amount isnt high enough. Or theyre frightened by the concept of going tax court. Are you suggesting a recommending that we need to do more . To humanize the irs and not make it so distant, this unbelievable agency in some place . How do we go about doing that . What are your suggestions . Ranking member, thats why i got so choked up. By doing it in person you know the people that can afford to go. Theres a will the of taxpayers out there that dont have that access. And having the opportunity to walk in and talk at the local agent office level is so important. And having that face to face humanizes the circumstances in the facts and situations. And you actually feel whats going on. We granted we all understand. That theres some states that dont even have an appeal officer in them. And so appeal officers have to come from out of state. Like an alabama and mississippi theyre coming from out of state. Just to doeal with it. We have a staffing issue. Having that conversation with appeals officer is a real opportunity to solve. And having the process the process that you talk about with the Small Business audits, it is very much behind a dark curtain. And its a very scary proposition. When those taxpayers get the letters, and those long four page requests. Its intense. In a very scary moment. And we dont get the chance like with a Large Business audit to have a face to face with the team. Then not being able to pick up the phone and call. We have situations where youll go on hold for over an hour. And be at the end of the day at 4 30 they pick up the phone and put it down again. And restart the next day. Thats not taxpayer friendly. Thank you. I yield back. The gentleman from pennsylvania. Mr. Meehan. I thank each of the panelists for your service. In dedication because its clear that you are here as voices for people who feel that they, if theyre not abiding by the rules they wonder sometimes just whats the technicality. Theyre not people who are out there deliberate ri trying to skirt the rules or beat the system. So there is a place for those who are deliberately. But so many of us are caught in the melee. I have questions about trying to get your interpretation to make this better. So much of it is tied to a personal relationship. A sense somebody is listening to me. Lets resolve this thing while were here. I have a couple questions. I think mr. Shin it was you that you were saying there were, or miss wilson it was you. There were recording errors and penalty situations where there would be appeals and just getting to be routine noes. When i was a prosecutor, and you had a case u you might do a deck la nation or do a prosecution memo. But whenever there was a decision point. Its justified. Even though it was internal in the should we be requiring that if there is an original inquiry routine no set out. Theres a justification you can know someone actually an loized the file and said theres a reason why were saying no right now . I would absolutely agree you. There should be a requirement to document what the justification for denial was. And again theres many times where we do get the redenial and does appear somebody reviewed it. Because they put specific facts in there. Youre comfortable with that. At least you know you can come to your client. Theres been instances where they clearly it wasnt read. Because they articulated the way maybe she can speak to this. Theyll take paragraphs. They have paragraphs that can pull from a system to to do a notice to a specific taxpayer. Its been obvious they pull the paragraphs and dump them in the letter. Its very irrelevant to what was discussed. Have penalties and fined been waived during this period. Is there further accumulation during the period of time youre appealing this process . Interest continues to accrue going through this process. The clock is ticking against the person who is appealing . Yes. So thats a discussion you have to have with your client. Theres instances you know your client will say do i pay now . Because i dont want the accrue the interest. Theres a different process. You have to file a different form. 843 to make a refund claim. Its a different process. And you end up in the sap place. Theres a lot of considerations to take in when youre counselling clin counselling client of what path. Back to your point. The impact it has on my client is that we are built on a voluntary compliance system. And what i have seen in some of the penalty administration recently is that clients become discouraged. They truly thought they were being compliant. When they get the notice that looks like they werent looked at. It can be discouraging. The positive note i will say is when once we get to the appeals process. A lot o times we have success there. Its that routine just seems to be when you make your initial request its just the routine. Maybe you can end that appeal process. Presuming we get to that point. Where you have somebody and youre talking. I am intrigued by the concept. Mr. Shin you were talking about it. You believe the presence of the examiner also at the appeal was create lging a piling on and yet i wonder totd extent that if youre actually trying to fwet to a resolution, should there be some capacity for the person that knows the facts to be able to present it to i know the irs person is supposed to be independent so to spoke, but i would believe that if i was doing an appeal i want to have at my availability the person who knows the record. My experience has been the appeals officers are extremely experienced. And knowledgeable on the issues. And if they wouldnt they would assign another person. So they can come to their own conclusion based on the facts as presented. They came up. And that file is transferred. They see the file. The file. But you dont have the benefit just explain the difference. Why is it preferable not to have the person in the room that knows the record . Maybe for another time. Maybe if you have a thought you want to share in written testimony or otherwise. Thank you so much. Thank you. Thank you all for being here with us. I want to follow up on comments you made earlier. We were talking about the challenges that Small Businesses face. And the inconsistency we see for Small Businesses vs. Large business. What do you think we should do to address these issues . What procedures would you like to see . Do you have recommendations on what we can do that would work for Small Business . Some of the things could be administratively. I think pete had talked about the process isnt perfect. By any means. Those are things from a quality perspective. Within the service. I think they can take a look at. And decide that they want to change those processes for taxpayers. And indicate that when were developing the facts it is important to put the Human Element on it. And have a discussion with the taxpayer about the information. And although thats fot perfect and you have disagreements and have exams, it is an administrative process that can be implemented by rolling out procedures for agents and how they interact with taxpayers on a routine basis. Theyre developing the facts. We have spoken to the independence issue and appeals. That initial fact finding that document request is critical to ataxpayer feeling like they have had the opportunity to present their position and be heard by someone at the service. Who will be open about what it is theyre looking at. And the treatment theyll decide on a particular tax issue. So i dont know that anything needs to be mandated or but the irs looking at their procedures could say i was commissioner Small Business and yes when i was there back when i left, i could have looked at and said there are ways we can be interacting on a much better basis. With our taxpayers to make them feel bert about the voluntary compliance system. Mr. Sepp. It seems the current procedure for Small Business leave room for improvement. You talked about that as well. You also point td out that largers businesses also have challenges when it comes to the right to appeal. And i wondered if you could talk about your assessment of why organizations loik member of the coalition are facing the challenges and dealing with the irs that you out line. What are the challenges, why do you think theyre happening . The coalition for efficient and effective Tax Administration. A coalition not only of Large Business groups but taxpayer advocacy groups. Were concerned that some of the trends both in Small Business and selfemployed division towards audit. Lbni are leaking across to each other and were going to have auditing procedures that are taking the worst elements in both divisions to be use td against taxpayers across the spectrum. Some of the problems were facing designating certain cases for litigation where they might have pres den shl value. There isnt a clear connection to precedent value or large numbers of taxpayers that might be effected. Theres a designated summons. A rather extraordinary irs power for getting information out of uncooperative taxpayers. Used in cases when the taxpayer is being cooperative. And Third Party Counsel not to advise but rather do things that approach depose lg witnesses. All of this really matters to taxpayers across the board. Because again as everyone has testified here, there is on paper a directive to the secretary to provide procedures for fair and independent audit appeals but in reality its just not happening. I see this in case after case. Even Small Business owners who are getting things like the 90 day letter. If they are lucky enough to have getting a 30 day letter in the first place. They think its a demand to pay tax. They dont realize its the revenue officer report that would allow them to take an appeal to tax court. They dont understand the basic nature of the process because they are so intimidated by it. And again this is why we support hr 3220 as a start of a package that could begin addressing these things. I yield back. Mr. Holding you are recognized. Obviously we dont usually hear from constituents interactions with the irs. Unless theyre negative. And i appreciate the committee looking into ways to enhance this experience. So im concerned about what i think is a new diversion nar tactic being used by the irs to keep taxpayers from accessing administrative appeals. So we all know that cases that are docketed in the tax court are typically transferred to appeals for consideration. Or not typically docketed unless they are designated for litigation. And its come to my attention that the irs maybe restricting taxpayer access to appeals in some cases that are docketed in tax court. And the case that im aware of was not designated for litigation. Nor referred to appeals. The two standard options for making an audit dispute. Instead the case was kept in a purgatory type status. Waiting for litigation urn the justification of sound Tax Administration. I put that in quotes. Thats the term used. And that was the only option available. The only option available to the taxpayers was litigation. My question ill ask mr. Sepp to respond. In your experience as a practitioner have you or any clients experienced something to this . I should state im not a practitioner. But people in the Small Business community other taxpayers have come to us and there has been that sort of experience. Relayed to us. And there are other experiences such as what are called speed up situations. Where a taxpayer may receive a notice of audit and a request for document. And suddenly theyll find in the mail yet another determination they havent had a chance to respond to the first one. Its a way of intimidating the taxpayer into taking a position thats detrimental to them. Mr. Shin youre nodding your head. Yes, sir. We have seen this in a very similar fashion. With foreign penalties on foreign reporting. And i mention it in the verbal sdp written response. We have seen it numerous times. Thats why i make the comment that they need to follow the rules or there needs to be a repercussion to the service. You follow it or you lose your opportunity. Somehow we have to hold them accountable to the process. Thats why you have a taxpayer bill of rights. Petronchak . Not sure of all the specifics around it. In the revenue procedure that addresses cases. If the a taxpayer is filed a tax court petition. They generally can get the case heard by appeal before they end up in tax court. If they havent already been to appeals. I dont remember the revenue procedure. That covers it. So there are provisions. However you used a term that shows up in several revenue procedures. Sound Tax Administration. I dont know what that means. But in regard to sound Tax Administration they dont have to offer alternative dispute resolution the fast track process that i talked about. So i think there is sound Tax Administration is a way they can choose to treat cases differently. Than what we would see as should be the normal treatment of a taxpayer and how their case would move through the system. What the answer is to that i dont know. But i think the use of sound Tax Administration theyre using as lee way to do many Different Things with a taxpayer case. Do you want to add anything . No, i just want to 100 agree with her. That shes spot on on the issue. My head going back and forth violently. I couldnt agree more. Thank you. The gentleman from oregon. Youre recognized. I find the conversation fascinating. But in the backdrop of my experience when i visit our local irs offices, and when i have meetings which i do routinely with tax practitioners, tax attorneys, accountants. It part of this strikes me that it would be easier to resolve some of this if the irs was equipped to operate in a modern economy. If it didnt have a Computer System that is so far out of date that they have to delve into the archives, find somebody encased in amber that can figure out programming. When i have meetings with people who work at the irs, and have them break into tears. Because they dont have any time to talk to people on the phone. To be able to maybe help guide a little bit. There are people who dont fully understand the rules and regulations and the opportunity within the agency. And the training budget. I hear from both people in the agency and from the practitioners who interestingly are not hostile to the irs, they are frus at a timed. Frus at a timed they tell clients you have a good point. We can Work Together. We can resolve it. And get your 3,700 back. It will cost you more to work with me to get it. And i just wonder what you think is attributed to the fact we have slashed the budget, slashed the work force, congress each year that i have been here makes the tax code more complicated. And some cases its a rush to be able to actually get the stuff out in time. And sometimes we miss the deadline. So what point does congress comp lis it in this by not taking the largest tax collecting system in the world, which relies heavily on voluntary compliance, and treats our employees and our taxpayers with respect and put the resources behind it to make it do you have thoughts on that . Yes. In florida in our office the number of people in there. The whole area that was set for walk ins is gone. The number of agents has been reduced. Ill be the first to stand up and say its going to take more resources. If were going to stand here and say were going to provide more appellate officers that takes dollars. If we need more access through the internet and broaden our e services. Which obviously were all nodding our head. We need technology to give access and in those phone calls extending the hours. All that takes money. Thats why were here today. Would that be helpful for some of these things if they were extended hours, more people, more training, a modern Computer System . I was additional funding would be useful. Irs can do some things administratively. You mention training. I was commissioner of the Small Business unit in 2008. For me to have adequate training for my revenue agents who do the exams and the collection officers. It was a really high focussed training for one of the groups each year. I couldnt afford to have a real highly focussed training for each of the groups. Even back in 2008. You can imagine how this plays out in terms of taxpayers and practitioners. We feel like were having to educate the revenue agent on the issues. Because they cant get the training they need within the service. They are working issues they have never seen before. And go to somebody for advise. How much gets translated down the line and actually comes to form a final conclusion. Id make a quick plea for funding in another area. The volunteering income tax assistance program. And low income tax clinic. Right now i think eligibility for the litc program is 250 of poverty level. Thats about 60,000 for a household of four. Thats not going to capture all that many Small Businesses clients for example who might need assistance sdp could get it through a nonprofit organization. Thank you for your patience, mr. Chairman. I hope at some point when passions cool, to look at how we treat our accounts receivable. And in being able to sympathy through the resource, the training, the computer. I hope shouldnt be politicized. But i think the evidence is that will pay for itself many times over. And relieve Blood Pressure medication. I hear what youre saying. The computers some are back from the 70s and 80s. Kant imagine that. Thats part of the testimony. Mrs. Walorski. Thank you to the witnesses for being here. And lending your expertise. This has been a fascinating conversation. It has been a conversation. Listening to your expertise and the questions we have. So much unanimous response that we have. Were kind of talking about all the same issues. One of the rights inshrined in the taxpayer bill of rights is the right to pay no more than the correction amount of tax. Mr. Sepp i was struck that less than 5 of Small Business taxpayers appeal the audit determine nax. And a big reason is taxpayers believe its cheaper just give up and pay the irs rather than appeal. To me its disheartening. If a taxpayer thinking they are paying more than they should. My advice is fight it. The tools are there. Instead the perception seems to be appealing isnt worth the time or money. We node to change the perception as well as the actual time and money associated with appealing. I want to address this to mr. Sepp and petronchak. You discussed dispute resolution. And options that would be less formal. Lower cost for taxpayer. The irs failed to expand the use of the fast track dispute resolutions. Can you explain how the fast track procedures work and how they assist taxpayers in resolving cases quickly . My follow up question to both of you. Is there a way that we in congress can do something about that . Or is it irs authority . Id tlik hear about the options. And what can we do . In fast track settlement its an option where im being examined by the irs and we know that i have a dispute over travel expenses. So they have said what their position is. I have said my position. So the taxpayer and irs can agree a fast track settlement having the use of an appeals mediator while in exam would be beneficial to all parties to come to resolution on the issue. Getting to your earlier comment. Brings quicker resolution, the taxpayer is hoping to get it resolved at least cost. Much less go to tax court. Which not only is cost. But many small and medium size taxpayers dont want their laundry aired out. So even though they may think theyre right. Theyre not going to choose that as a the venue. They dont want the neighbors talking about their issues with irs. So fast track we used to see a lot. We dont see as many anymore. The procedures i talk about that Small Businesses use for the exams when they wait until the end of the process to have a discussion. Doesnt lend itself to have the alternative discussion. What can we do about it . Based on my limited study of other countries, practices and what the Taxpayer Advocate said. There seem to be several problems. One, we have to restore the independence of the adr process. Almost every case from australia to uk, portugal, all around the world where adr is much more common. And hundreds of thousands of cases will get resolved this way. They have to keep the mediator function well insulate td away from the tax authority. We may not be able to use private accredited mediators here. Much in the way it appears in the taxpayer bill of rights. We could have a situation where there is an office of mediation with specially trained people. Rather than plucking people from appeals who have some training in mediation. You could even house that bureau somewhere in the treasury. So it has further independence. The other important thing i think is to instruct the irs where mediation and arbitration can be used. The agency will often exclude so called campus collection cases. And other types of matters for adr from the start. And we have to resolve those kinds of issues as well. I appreciate it. Mr. Shin did you want to add anything . In response, thats why i think especially in Small Business, that it needs to be a requirement of the steps. Sot that way people arent afraid of appeals. Its part of the process. The fast track is there and part of the sign off. I appreciate it. I yield back. I want to thank everybody for the opportunity. Let me run through this will be a question to all of us. Trying to simplify the dispute resolution. Trying to improve on the process. I want you to take a minute. Before i do i want to say a couple things. I agree with big corporations doesnt mean theres not work to be done. And dispute resolution. I have been in the world. You have cfo and asset cash and go to court. You dont want to. But they have resources. What im concerned about personally is individuals i read in the u. S. Today, 62 of americans dont have 1,000 in the bank. If you get a letter from the irs you owe 2,000. Where are you going to resolve that . Cpa account thats going to be couple 3, 4,000. You probably say youre better off write a check. Or get on a payment plan. Agree and move on. Small businesses a dispute resolution if you think about going to court, you could be talking 100,000. 50,000. Did you say youre in a law firm . No. You know. When you hand it off to the tax lawyer youre talking big money. And usually just lets go make the best deal. Even though i dont think i have thats happened to me and others. Where they dont think they owe the money. But the 10 or 20,000 the 5,000. It cost you more where accounts and lawyers to resolve it. The question i have for the individual taxpayer, the 62 that dont have 1,000 in the bank. How do we simplify this dispute resolution. Where people can have their day in court. But doesnt take six months a year. Because that meeting is running. Theres no way you can afford to go to court or arbitration. Or work with someone to resolve that. Mr. Shin ill give you the opportunity. From that standpoint. I know you have dealt with that. Thats my sentiment. Thats why i said we have to have the opportunity to have access through phone calls and walk ins. And also when the irs when the taxpayer doesnt follow the deadlines, there are repercussions. When the irs doesnt follow their protocol there needs to be repercussions. The taxpayer is hard and fast. So i can give you one quick analogy that really struck me. I helped an employee a 90 yearold person of color. Who couldnt write, he was a night watchmen. At a packing house. Worked several years there. Part of that he worked at another packing house and treated as an independent contractor. And he got billed. And he didnt know what to do. And went to collections and they garnished his wages. Hended up with cancer and the employer asked me to step in. I tried to get the collection officer to settle. And the employer was going to settle. They wouldnt take a dime less and he passed away two and a half weeks later. I sent the copy of the death certificate. I said that isnt in the taxpayers best interest. Thats what were dealing with. Its so sad. Mrs. Wilson . I now work in an accounting firm. I was a local Taxpayer Advocate. This is near and dear to my heart. Exactly what youre talking about. Let me say. Were looking to do irs reform. This is one of the biggest areas i think we have to find a way that people can get these disputes settled. Thats what were looking for. Go ahead. I think we need to simplify the process. Its intimidating. And i think because its intimidating, taxpayers feel the only way theyre going it resolve it and win is if they engage help. And as your point most taxpayers dont have a thousand in the account. We need to find a way to simplify the process. And make it less intimidating for the taxpayer. And focus on that that bill of rights that says you shouldnt have to pay more tax than you owe. We have to find a way to institutionalize alternative dispute resolution mechanism. Learn from the experiences in other countries where millions of individuals have utilized the process making it less formal, but more actionable. With fewer delays. Applying to a larger number of cases. With a more independent arbitration involved. If we do those things and hr 1828 from the last congress is only a starting point for this. If we do that, i think well dramatically increase the access to justice that taxpayers need. Add to that things like the low income taxpayer clinic. Add to that more resources for the Taxpayer Advocate office. And you have the beginning of a core of principles that will get to this point. Of giving taxpayers the justice they need. They still need it. You get the last word. Chairman, so fast track settlement i agree should be available for all taxpayers. Large business and International Develop this process 2002. It didnt become final until 2015. So when i commented on a couple processes i think could make things more transparent and easy. There are things they have there. Fast track isnt the answer to everything. Because dwrou may have reluctant irs folks to use it. Pete mentioned in my written testimony mentioned outside mediator. To them hiring them for 1,500 is cheaper than tax court. Havent thought of a concept of a group that serves the problem is if you owe you cant pay 1,500. Youll write the check or figure out a way. Again irs hasnt shown theyre extremely interested in the alternative dispute resolution. I would caution against saying we mandate you to use alternative dispute resolution. If they dont come to the table willing so settle. They have to agree and walk away and the taxpayer has appeals rights. Somehow come up with whats the happy medium here. And how this could be changed. Its there taxpayers would love to use it. Individual taxpayers need to be able to use it. Its available to businesses small and large. It needs to be expanded and made available. At least cost and be successful. I would appreciate all of you your thoughts, your ideas. To our committee. We want to wok Work Together. On a by partisan basis. Because this is an important issue. And i have been in the world where larger organizations have the resources. Im concerned about the person thats gets 1,500. Small business or individual tax bill. How do we resolve that without putting them into bankruptcy or in a bad situation. And i agree with you a loft times you get the notice. I have gotten my fair share. Its frightening. To a lot of people. We need to work on. And get your thoughts and ideas. So i would like to thank witnesses for air appearing before us today. Members have two weeks to submit written questions to be answered later in writing. Questions and answers will be made part of the formal hearing record. With that the subcommittee stands adjourned. [ inaudible conversation ] tomorrow morning on cspan 3 the Senate Banking committee holds a hearing on the effectiveness of sanctions against north korea. Officials with the treasury and state department will testify about sanctions and diplomatic actions as ts u. S. And allies seek to deter north Koreas Nuclear weapons and Ballistic Missile program. The hears gets under way at 9 30 a. M. Eastern. Live on cspan 3. The cspan bus traveling across the country on the 50 capitoling tour. We stopped in ar ris burg, pennsylvania. Asking folks whats the most important issue in their state . My name is larry roper. Im from harrisburg. Im concerned about the libraries. I feel they are the hubs of small communities. The Resource Centers to large cities. And the Knowledge Base to the state. And i am here to make sure that they are able to get the funding they need. And the keystone grant is not taking away from them. Im sue, state legislative for the 104th district. Here in central pennsylvania. As i go door to door, the number one issue that people talk about is property tax elimination. They just cant afford to pay the property taxes anymore. However, lately, i have been getting a lot of questions a lot of talk about Opioid Crisis in pennsylvania. Something we have to correct and look into. Well do that. Were working with legislation. Putting more money into it. We plan to solve the problem. My name is day na. The most important things to me in the commonwealth is continued support. And increase support for in our education educational institutions. From early age preschool throughout the college. And support for the arts. And museums and libraries. Most important issue facing pennsylvania in my opinion is the responsible energy production. That is taking place across pennsylvania. Not only because of the direct jobs impact that we have seen. We have 200,000 people working today. In the oil and gas industry in pennsylvania. But if we maximize our opportunity, we remain competitive. We can bring manufacturing back to pennsylvania. And brand new industries. And help make energy secure. Voices from the states. On cspan. I dont care a fig for the framers. Care for the people that ratify the constitution. I dont believe in original intent. I believe in original meaning. What was the meaning of the constitution. When the people ratified it. You quoted jefferson, that the validity of government depends on the consent of the governed. You find that consent in what e
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