Most Serious Problem: Audit Rates

The IRS has the authority under IRC § 7602 to examine, in what can be termed a “real” or traditional audit, any books, papers, records, or other data that may be relevant to ascertain the correctness of any return. However, the IRS does not consider a significant number of compliance contacts with taxpayers to be “real” audits, including math error corrections, Automated Underreporter (AUR), identity and wage verification, and Automated Substitute for Return (ASFR). Yet these contacts, or “unreal” audits, require taxpayers to provide documentation or information to the IRS, comprise the majority of compliance contacts, and feel very much like a “real” examination to taxpayers. “Unreal” audits lack taxpayer protections typically found in “real” audits, such as the opportunity to generally seek an administrative review with the IRS Office of Appeals (“Appeals”) or the statutory prohibition against repeat examinations. As the IRS is planning for the increased use of “unreal” audits through automated means with its “Future State” Initiative, it is crucial that the IRS reevaluate and revise its current guidance through the lens of the Taxpayer Bill of Rights.

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