Established in 1998 to provide independent oversight to the Internal Revenue Service (IRS), the Treasury Inspector General for Tax Administration (TIGTA) regularly audits IRS processes. In September 2019, the group completed an audit of various aspects of the IRS appeals hearing process. The TIGTA found several mistakes that are worrisome for taxpayers.
What Is the Appeals Process?
After the IRS files a Notice of a Federal Tax Lien, the IRS must notify the taxpayer of the filing and their right to a hearing. Before levying property, the IRS has to notify taxpayers of their right to a hearing. The appeals process helps to ensure that the IRS complies with relevant laws. More importantly, the process gives taxpayers the chance to contest errors on their records.
To explain, imagine a taxpayer receives a notice that the IRS plans to seize their wages, bank accounts, or other assets. After receiving the letter, the taxpayer has a deadline to make arrangements with the IRS or request an appeals hearing. If the taxpayer believes there is an error on their account, they can request an appeal.
At that point, they can request a Collection Due Process (CDP) or equivalent hearing. The appeal is supposed to be handled by an impartial officer. Unfortunately, the audit indicates that the IRS is making mistakes during this process.
What Did the TIGTA Discover About the Appeals Process?
The TIGTA looked at a statistically relevant sample of 140 cases of over 35,000 cases that went through the appeals hearing process in 2018. It discovered the following main issues:
Failure to Assign Impartial Officers to Appeals Cases
The group did not definitely uncover that the IRS was not assigning impartial officers to each appeals request. However, the TIGTA did notice similar mistakes at different stages of the review process. It indicated that the same person may have worked on the case before and after the appeals request. If happening, this fact means that taxpayers are not receiving the legal protection and impartiality they are entitled to under the law.
Not Properly Forwarding Misaddressed Appeals Requests
Additionally, TIGTA also discovered that the IRS was not dealing with misaddressed appeals requests correctly. If taxpayers send a request for an appeals hearing to the wrong office, IRS employees are supposed to fax the request to the correct office on the same day they receive it. However, employees were not doing this.
Giving Taxpayers the Wrong Type of Appeals Hearings
As a result of the above issue, taxpayers weren’t just facing delays. They were also receiving the wrong type of appeals hearing.
Mistakes With the Collection Statute Expiration Date
The Collection Statute Expiration Date (CSED) is the date after which the IRS cannot collect on an unpaid tax. Most tax liabilities expire ten years after the assessment of the tax liability. However, the CSEDs get tolled when the IRS receives a request for an appeal and gets restarted at the conclusion of the hearing. Unfortunately, TIGTA discovered issues with the CSED on eight tax returns (nearly 6% of the total sample). By entering the incorrect codes or making other mistakes, the IRS extended the CSED on five cases. Moreover, it shortened the time in three cases.
What Are the TIGTA Recommendations?
After the audit, TIGTA recommended that the IRS needs to take action to make sure that misdirected appeal hearing requests get forwarded to the right office on the day they are received. The IRS agreed with this recommendation. The IRS decided to strengthen the wording in training manuals so that employees would understand the importance of taking care of misguided requests as soon as possible.
In terms of the incorrect CSEDs, TIGTA advised the IRS to fix the CSED mistakes on the eight cases noted above. The IRS agreed to take that action. However, the IRS did not implement any processes or safeguards to prevent this mistake from happening in the future. Last year, the TIGTA found nine cases with CSED issues. Therefore, the situation does not seem to be improving.
What Does This Mean for Taxpayers?
The results of the TIGTA audit underscore that mistakes are rife during the appeals process. If you are a taxpayer trying to appeal a federal tax issue, you need to be aware that the IRS may make mistakes related to your hearing and your CSED(s). Unfortunately, as a layperson, you may find it nearly impossible to identify some of these issues.
To protect yourself, you should work with a tax professional. They can guide you through the appeals process. Furthermore, they can help you discover where the IRS may be over assessing your tax liability and keep an eye out for other issues such as incorrect CSED.
If applicable, a tax professional can also help you. They can help eliminate tax penalties, reduce interest, set up payments, apply for hardship waivers, and potentially even lower your balance. To get a free consultation from a tax professional now, call 1-888-249-2116.
For more information, you can read the report yourself here.