Subcommittee hearing on irs reform resolving taxpayer disputes. Before it began my official statement i would like to recognize the extraordinary effort of two of our Witnesses Today that made it appear from florida. I think you drove from orlando, so thats pretty impressive. Both mr. Shinn 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 who stepped up and respond to the Hurricane 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. As i have stated previously, i do not view this effort as an opportunity to degrade or discredit the good work being done by irs employees. However, i am a big believer in continuous improvement. Thats my philosophy in business. Business. We can always get better. In government, like in business, we should always be looking for ways to improve. In a system of voluntary tax compliance, even with the simplest of tax codes, and ours is currently not one of those, there are bound to be disputes between taxpayers and the irs. What we hope to learn today is about the experience of those taxpayers, folks have been in the trenches work with a loveless taxpayers involve involving disputes with the irs and whether there 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 forum was included in the taxpayer bill of rights and codified as a responsibility of the commissioner. Ensuring the independence and availability of the administrative review process for taxpayer disputes remains a top priority of this subcommittee. In addition to being independent, dispute Resolution Options need to be accessible and efficient. The process is failing if only Large Businesses with 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 taxpayers, their only interactions with the irs is when they file their taxes once a year. But when taxpayers do 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 to hearing from our witnesses as we continue our efforts 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, for resolving taxpayers disputes, with the Internal Revenue service. And i welcome you back to washington, mr. Chairman. And on behalf of the citizens of georgia and a special of the 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 were so many cars from florida, and people had their dogs, walking their dogs to the parks from florida. We are neighbors, and i want you in particular welcome ms. Wilson and mr. Shinn. I have relatives that live in fort lauderdale, and the only thing we had happened in my district was some, for the most part, pine trees coming down. I want to thank you for being here today. Before we begin, mr, mr. Chairmi would like to take a moment to extend my condolences to you and the millions of americans who are impacted by the recent hurricanes in the caribbean and the southern states. As you know, the hurricane damaged homes, downed trees, closed roads, and left about 1 million residents without power in my home state of georgia. Now our citizens, our people making the difficult process of rebuilding their homes, their communities and their lives. Add out this committee will Work Together to do all we can to assist, the recovery efforts. Mr. Chairman, i have said it before and ill say it again. We must approach this effort to reform and improve the irs with a great deal of care and resourcefulness. I hope we will take our time to develop Bipartisan Solutions that serve the best interest of both taxpayers and the agency. For many years i have cautioned that we cannot get blood from a turnip. As you know, congress have the irs budget by almost 1 billion since 2010. Over the last three years the budget for the irs Appeals Office dropped 11 , and there are about 24 fewer here in offices. Today we will learn more about how these deep budget cuts have expected the building of a tax agency to resolve disputes with taxpayers. Our citizens expect and deserve timely and efficient 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 a subcommittee for steering to explore how we can approve the irs. We have remained bipartisan and explore a Good Governance path to examine how the irs operates and to identify possible improvements. I hope and pray that our work 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 officers, ensuring the independence of taxpayer conferences, and align taxpayers to have facetoface conferences throughout the appeals process. Above all, mr. Chairman, i hope you continue to Work Together as we have all year to explore and address the issues. In closing, mr. Chairman, i look forward to hearing from our witnesses and learning more about their expatriate agency. Again, mr. Chairman, i want to thank you, my friend for holding this hearing. Thank you, mr. Lewis. And what 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. You know youve got my commitment to Work Together in a by person basis. We want to put this together. Theres a lot of work to be desolate for to working with you. Thank you, mr. Chairman. Without objection of the members Opening Statements will be made part of the record. Todays witnesses for this panel and cleared for experts. Kathy petronchak, director of the alliance group, present at the National Taxpayers union. Byron shinn in our district, where such of him, his lovely wife are today. Hes founder and edgy partner at shinn and company, you think is probably got 35 years of dealing with dispute resolution with the irs so i know cathy wilson the principle of the National Tax Office of Clifton Larson allen from orlando, and a member of the aicpa pizza subcommittee is little, will receive a statement so theyll be made part of the record. Formal record. Each of your five minutes to deliver your all remarks. We will begin with ms. Petronchak. You may begin when youre ready. Chairman buchanan, Ranking Member lewis, and members of the subcommittee, thank you for inviting me to testify if it is an honor to provide comments today. I interact with small and mediumsize businesses in their work with the line crew. I also spent 299 years at the irs and so this could be a unique perspective into the examination and appeals process. My testimony focuses on charges that taxpayers face when to do with the irs and what irs can do to improve the examination and appeals process. I raise six issues in my written testimony at a like to highlight two of those issues. The first issue is the appeals process. Before heading to court the final administrative step attacks that can take to contest an adverse determination or revenue 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 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 and in person meeting. Appeals as may telephone and virtual conferences First Options for an appeal only granting in person conferences and limited circumstances. We believe not granting taxpayers an opportunity to have an in person meeting would be highly prejudicial to taxpayers can restrict the ability of Appeals Officers to adequately the credibility of witnesses and make the conference more difficult in situations where the appeal is highly technical and im evidentiary focus cases. While were seeing Appeals Officers flexible and granting inperson conferences, we believe that taxpayers should have a fundamental right to meet appeals facetoface. This in person conference may be the only way a taxpayer believes there is an impartial resolution with a full understanding of the facts involved. Another issue emerging in appeals is the increased involvement of irs compliance employs in appeals meetings. This change has created a perception for taxpayers that they may not get an independent hearing and decision as afforded by the taxpayer bill of rights. We believe the own involvement exams or debit appeals is in a preconference meeting. At a preconference of the originate function cant attend and appeals conference to present their views on the issues, attacks that protest, and assessment of litigating hazards and accords with ex partake communication rules. In a preconference setting, exam would leave after the presentation but as of late, rather than leav leaving at this 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 place too to greater role in the appeals process. A representative recently described a situation where in a preconference it became clear that exam had to address the position the taxpayer had brought forward in his response to the exam team. Anchoring the taxpayer orally present their position, the exam team made another 24 page submission to appeals to attempt for the support for their position on the issue, taking an alternative approach. It seems patently unfair exam can attempt to continue their process when the case is assigned to an independent forum to make a decision. We disagree with appeals have unilateral decisionmaking over exam participation in a conference. Taxpayers of those if theyve already been through a grueling process with exam should have the peace of mind that the case was being given a fresh look by appeals and that the examination is over. Two days, the issue of alternate dispute resolution focus on irs fast tracks of the program. This program was great to provide an expedited dispute resolution option for taxpayers, to mediate the dispute during an examination with an appeals official acting as a mediator. The use of fast track has the potential to be highly effective tool when both parties come to the table pulling to reach an agreement. Taxpayers and the representatives welcomed the opportunity to resolve this man 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 and oversight in ensuring that taxpayers receive fair treatment and good service on the irs. A light group looks for to working with the committee to further improve Tax Administration and i would be glad to take your questions. Thank you. Mr. Sepp, you are recognized. Mr. Chairman, mr. Ranking member, members of the committee, a number of my predecessors have actually testified in this very room on taxpayer rights issues, so im particularly honored that you ask me here to follow in their footsteps. 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, put it this way. He called it taxpayers triage. What you need 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 pickwick semper fi attack system. We can educate taxpayers about the rights and advance so they know going into the process of interacting with the irs what to expect and perhaps problems can be resolved at that level. The preconference level, for example. Then theres basic care. What we have now of course is the appeals process, and a very nation alternate dispute resolution process nation. We will hear from the Witnesses Today about some of the malfunctioning systems within appeals, and especially with the recent evolution and 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 is 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. Taxpayers access to the courts beyond the tax court level is still highly problematic. Everything from the antiinjunction act to the deck lid story relief act, essentially prevents taxpayers from enforcing the rights in court in a meaningful manner largely their choices are confined to litigating for damages after the acts of artie been committed by the agency that is deprived the taxpayer of his or her income, the 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 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 h. R. 3220, the preserving taxpayers rights act, 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 three of that bill, which essentially directs the secretary to begin developing more dispute resolution procedures that appeals would pave the way for more effective use of adr in a number of situations. There are many, many of the suggestions i could make that we should look at, the taxpayers bill of rights enhancement act just introduced in the senate yesterday, h. R. 2901 which would expand some of the assistance and the 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 and the irs restructuring and reform act, and this is the committee where it all starts. You are recognized. Thank you, Ranking Member lewis and members of the subcommittee, you for discussing how the irs files text their disputes which is a practicing accountant for 38 years i have seen a lot of change. Can you speak up a little bit . In my opinion our focus should be Taxpayer Service first, improved tone with access, consistent controls and require fast track steps. I have a unique perspective as i have been involved in oversight over the probable cause panel for over a decade. Most practitioners work hard to get it right. These are the practitioners and taxpayers that need to be reviewed but i would like to discuss correspondence, have been expanded in lieu of exams for many individual returns. These require responses in a specific period of time. It takes more time than taxpayers given these exams have high probability of no change once the irs receipt is submitted, and the taxpayers rights have been ignored by the 15 day letters and shortly thereafter 90 day notice of the efficiency thereby ignoring the 30 day letter, which grants the rights of the taxpayer for an administrative hearing and appeals and that also breaks the taxpayer bill of rights and prevents fasttrack settlement opportunity. A standard should exist the process must be maintained and service when it jumps over process should lose the right to pursue additional revenue, follow rules or lose the adjustment. The circumstances that are existing today. I am next to talk about field exams, the process has been tax they are friendly with an enforcement tone. Over 38 years we have reached a new low, the respect the taxpayers and professionals have with service is that if taxpayers have to prove t