Business owners in Maryland may be pleased to learn about new legislation designed to protect their rights and eliminate some common sources of frustration in IRS audits. The bill targets a number of worrisome developments in recent years, such as the outsourcing of audits and use of litigation to stop appeals. The Preserving Taxpayers’ Rights Act currently has support from both Democrat and Republican officials in the House of Representatives.
Several tactics have contributed to making the audit process more combative. One of these regards how the IRS obtains information, which includes methods like witness testimony and accounting documents. Instead of using other avenues of getting this evidence, the IRS has often turned to the designated summons. This allows the agency to extend the time it is allowed to carry out an audit examination and delay the respondent’s opportunity to file an appeal. The bill would limit the use of summonses to taxpayers who are not reasonably cooperative.
The IRS has also engaged in the troubling practice of outsourcing tax audits to private law firms. If the bill passes, these federal contractors will be forbidden from examining witnesses, taking testimony or collecting other evidence, which will effectively end their role in audits. With this and other changes, the bill’s authors hope to ensure the IRS returns to a more collaborative process.
Even with such a process, businesses should remain proactive in preventing audits and preparing for them in case of random selection. Simple taxpayer error, such as incorrectly filed taxes or failure to keep up with tax code changes, might lead to a costly process involving the costs of tax audit representation, defense preparation and fines. Businesses may benefit from retaining an experienced attorney who can study the business, provide knowledge of tax law and ensure preparation in the event of an audit.