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May 20, 2013
IRS Scandal Will Affect Taxpayer and Agent Relationships, Practitioners Say
by Jaime Arora

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Practitioners in Las Vegas agreed May 16 that fallout from the IRS's exempt organizations scandal will affect relationships between taxpayers and agents throughout the country.

Speaking at the American Institute of Certified Public Accountants Tax Planning, Compliance, and Controversy Conference, Larry A. Campagna of Chamberlain, Hrdlicka, White, Williams & Aughtry said the effects are likely to be most immediately felt by taxpayers and practitioners involved with exempt organizations. Campagna said the IRS agents working with those groups will do everything "by the book and clean as a whistle" because they will be subject to heightened scrutiny.

The situation is likely to harm the general morale of IRS employees, Scott D. Michel of Caplin & Drysdale said. Seeing their superiors being marched up to Capitol Hill affects them, he said.

Ted B. Meyer, former exam territory manager of the California area, IRS Small Business/Self-Employed Division, who retired in January after 30 years with the IRS, agreed that the next commissioner will need to address morale so that the IRS avoids falling into a "bunker mentality," which could damage agents' relationships with taxpayers. He said the IRS instinctively protects itself from the outside.

Campagna said departing acting IRS Commissioner Steven Miller's focus on enforcement filtered all the way down to the field level, an emphasis that may change following his resignation. Miller was known to be personally involved in many enforcement decisions, including how much leniency agents could exercise in the offshore voluntary disclosure program, Campagna said.

Michel said he expects slower IRS implementation of rules across the board for at least the next two years. Oversight will play a larger role, he said, adding that interpretations, judgments, and rulings at the national level are likely to take more time as officials consider how their decisions will appear to others. Officials will look at a given decision and think about what will happen if it hits the front page of The Washington Post or comes to the attention of an oversight committee in Congress, he said.

Meyer said his biggest concern is that the high voluntary compliance rate that the IRS depends on will be harmed by public distrust. Voluntary compliance happens because taxpayers generally believe in the system, he said, adding that while they may not like the IRS, taxpayers generally find it fair and equitable in its dealings with the general public.

Campagna disagreed, saying most of the high voluntary compliance rate is attributable to withholding. People file their returns because they want to get their refunds, he said, adding that withholding will continue no matter what happens in the investigation.

However, a perception that the IRS is unfair or distracted may lead some taxpayers to try to get away with something, and practitioners should consider adjusting their due diligence accordingly, Michel said.

-- Jaime Arora

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