IRS Reimbursable Service Agreements

The IRS is often called upon to assist other branches of the Federal Government.  Even though the IRS is normally willing to “do them a solid,” those agencies that contract with the IRS through reimbursable work agreements are not paying the IRS fairly.  The IRS is not always getting fully reimbursed for services rendered.  But according to the latest TIGTA audit report, nobody deserves more blame for this than the IRS itself.

To give an idea of how common these service agreements are, TIGTA identified 89 such agreements in 2011 alone.  They selected just 6 agreements for audit and found that 50% of them were not reimbursed properly.  These are some of the problems TIGTA found:

  • IRS is not consistently including overhead in the calculation of the reimbursable service costs
  • IRS is not consistently documenting the costs associated with service agreements so they can be independently verified
  • IRS is not consistently involving the CFO Office of Cost Accounting in the calculation of overhead

These are multi-million dollar errors that result in less money to spend on frustrating the tax relief efforts of ordinary taxpayers and their attorneys.  Further proof that the IRS needs to do better with what they’ve got before we can in good conscience allocate to them any more funding.

The Discriminant Index Function

Any tax relief attorney would love to know exactly how the IRS selects returns for audit, but the IRS only gives hints here and there, leaving us to piece it all together ourselves.  A recent TIGTA audit report offers some insight into the process:

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The IRS developed a variety of sources to select returns for audit. The IRS strives to select for audit those returns for which its examiners are likely to find areas of noncompliance and recommend changes to one or more items reported on the return. One audit source is the Discriminant Index Function (DIF) system, which the IRS has relied on over the years to help decide how to best allocate its audit resources. The system uses mathematical formulas to calculate and assign a score to returns based on their audit potential. The higher the score, the greater the chance an audit will result in recommended changes to the return.

~ TIGTA Report No. 2012-30-062 (June 21, 2012)

So, we know there are mathematical formulas involved.  We know the IRS is looking for returns with errors or “areas of noncompliance.”  And we know that one of the resources the IRS turns to for determining which returns to select for audit is the Discriminant Index Function (DIF).  There appear to be multiple formulas and multiple systems involved in the audit selection process. Continue reading “The Discriminant Index Function”

IRS Needs to Revamp Visitation Project

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Sometimes I think IRS management has a vision of what it wants to accomplish, but no clear roadmap showing their employees how to get there.  I can certainly appreciate the desire to take the first step and get the ball rolling on a project; at some point the planning and preparing must give way to action.  But it seems the IRS was underprepared for what they call the Return Preparer Visitation Project (RPVP).  While the latest TIGTA report puts a positive spin on the RPVP, if you read between the lines, its was obviously a waste of time and money.

The IRS badly wants to partner with paid return preparers because they see how important their role is in voluntary compliance.  Or so they say.  But the fact of the matter is, paid return preparers just want to be left alone to do their job; they don’t want the IRS checking up on them.  As part of the RPVP, IRS revenue agents were sent out to make in-person visits to thousands of return preparers around the country (nearly 2,500 visits in 2011 alone), and enrolled agents, CPAs, and tax attorneys were not excluded.

However, according to TIGTA, the criteria used to determine which return preparers would get a visit were found to be lacking.  In other words, the competent and ethical return preparers had to stay after school and clean erasers for something the naughty returns preparers did.  Because the visitations were not properly targeted, there is resentment stewing among some preparers who feel they didn’t need an IRS agent popping in to tell them something they already knew.

I’m sure the revenue agents didn’t mind leaving their cubicles for these little field trips, but next time the IRS needs to have a better plan to ensure they are productive.

If you have to call TAS, at least dial the right number


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The Taxpayer Advocate Service (TAS) has two main phone numbers. 

  1. 877-ASK-TAS1 (established in 2004)
  2. 877-777-4778 (NTA toll-free line, established in 1998)

The NTA toll-free line is the more prominent number on the TAS website.  It is the number found under the “contact us” link.  And this is the same number listed on the IRS website.  However, the primary difference between these two numbers may surprise you.  ASK-TAS1 is staffed by TAS personnel, but the NTA toll-free line is actually staffed by IRS customer service personnel!  See the latest TIGTA report for more information.  These representatives are charged with vetting out the cases that they believe will “qualify” for TAS help.

TAS describes itself as an “independent organization within the IRS” — really an oxymoron, don’t you think?  Tax professionals have long questioned their independence.  When you call TAS, you are literally talking with the IRS (unless you dial the right number).  I do not recommend calling TAS for help with your tax problems.  For high-quality tax relief, it is important to select an experienced tax attorney that can give objective, unbiased attention to your tax matter.