As part of the ongoing series to learn more about the faces of the IRS, CPA Magazine Editor T. Steel Rose sat down with the IRS Commissioner of the Small Business and Self-Employed Division, Faris Fink. Rose spent time finding out more about the challenges facing the man holding the most senior position affecting small business in America.
Rose: I heard you speak in DC at the AICPA Tax event and appreciate your candor. Can you tell us a little about yourself and your tax experiences?
Fink: I graduated from the University of Akron and took the bar in Ohio, which is now inactive. I started as a Revenue Officer in collections.
Rose: What is your biggest challenge?
Fink: Identifying tax schemes from the simple such as those using false documents which are more widespread to the more complex tax schemes using structured trusts and partnerships. The other challenge is the economic situation has us walking in the shoes of the taxpayer during collection and examination; maintaining a balance between compliance and the need to recognize the impact of the current economic environment.
Rose: How can tax practitioners help?
Fink: A threshold of clear expectations on the part of practitioner (and the IRS), establishing open and clear communications, staying current with policies so they can better advocate for their clients. If a problem exists I encourage that you elevate the situation. We may disagree on positions and interpretations of law, but that should never be a barrier to being professional.
Unquestionably, the vast majority of taxpayers want to comply with the tax law. I firmly believe that we need to provide necessary information, tools and knowledge to taxpayers and practitioners. Education has long been a key component for successful compliance.
Rose: I understand the current audit coverage is the highest in years. How long do you expect the current level of audit activity to continue?
Fink: We will continue the high income/ high wealth group, but cannot neglect or over-emphasize any audit category. We have balanced coverage or auditing through entities. We continually try to meet or exceed prior year audit closures. This fiscal year, and potentially next fiscal year, we will have large hiring initiatives. For collections and examinations 2009-2010 was our largest for hiring, and is now limited.
We will have to pull our senior auditors off-line to assist with training and on-the-job instruction which will impact closures. As we get our new hires on-line, they will start producing closures. During this period, there may be changes in the mix of work, but we will strive to minimize any impact on overall level of audit activity. Ultimately, this hiring initiative will increase audit activity assuming our hiring can outpace attrition.
Rose: What is the success rate of these audits?
Fink: We have a completion plan on a broad range of returns based on filing status and points of risk, like 1065 partnership return schemes. So we focus more attention on possible filtering of income through partnerships from individuals.
There are many measures of success. The ultimate goal is to cut the tax gap, which can be done through compliance initiatives, and outreach and education. We audit high tax gap groups. We need to ensure we position ourselves for the future which includes: Identifying emerging issues including those involving the global economy; keeping up with technology in both our compliance activities and communicating with our internal and external customers, and building an innovative, empowered, and engaged workforce. We must ensure our taxpayers, those that want to comply, have the tools and knowledge to comply. Reducing burden is key to making people want to comply.
Rose: How do you measure success?
Fink: We have many traditional methods we use to measure our success such as:
Case closure rates, ensuring we maintain the appropriate level of coverage, and “no change” audit rates to ensure we are addressing the non-compliant taxpayers. As a federal administrator if we commit resources and find a high, “no change” audit rate, we reassess our classification methodology.
Other measures of success are: customer satisfaction surveys which we can then use to target process changes or training opportunities for our employees; employee satisfaction surveys to better understand how we can improve employee engagement and quality reviews of our case work to again target training opportunities for our employees.
We believe engagement and partnering with practitioners is also key. We have relationships with many practitioner organizations that provide us feedback on how we are doing and where we can improve. We have used practitioner surveys and focus group interviews of practitioners to identify improvement areas or best practices. We also have advisory groups such as the Information Reporting Program Advisory Committee (IRPAC) and the Internal Revenue Service Advisory Council (IRSAC) that work with us on issues.
Our practitioners also help us target outreach and education to our taxpayers, their clients; leveraging the practitioners to assist taxpayers is a great resource for us with high impact. There is also the on-going National Research Project (NPR) to monitor our impact on the tax gap.
Rose: What have been the results of the NRP audits?
Fink: The NRP systemic problem results reflect that, for 1040s the schedule C filers were putting information in the wrong location on the return instead of egregious non-compliance or fraud. The NRP for 1040s is an annual project. The others outside of 1040s are limited. The employment tax NRP is limited to three years. Although the final results are not complete, the 941s are in high compliance. Rather than question the sample taken, I believe this indicates employment tax is an area of high filing compliance.
Rose: What should tax practitioners know to expedite audits of their clients?
Fink: 1) Have supportive documentation available and in good order. 2) Provide documentation timely. 3) If a field audit, work with the examiner in the initial meeting on setting Mutual Commitment Dates (MCD) which provide response timeframes for both the examiner and the practitioner, and 4) Provide the requested information to the appropriate person/address especially when responding to Campus notices.
Rose: Are there other dispute resolution forums in addition to the IRS Nationwide Tax Forums?
Fink: Avenues for dispute may depend on the issue or where you are in the process. For instance: If you are working with an employee on a proposed assessment or collection action, and you do not feel your issue is being appropriately considered, you should ask to speak to the employee’s manager. There is also our administrative appeals process.
If normal procedures are not working or responses are not timely, our Taxpayer Advocate Service may be able to assist. We have also held some ad hoc problem solving days and are working on expanding that concept.
Rose: How is the hiring and training process for new SB/SE auditors going?
Fink: The hiring is going well. We are doing it in phases throughout the fiscal year to ease some of the stress. We have also begun working towards a service-wide approach to promote consistency in recruiting and retaining employees. This approach will also reduce the resource drain on any one Operating Division or geographical area. As part of this service-wide effort, we are looking at a corporate approach to our Revenue Agent Training. The Revenue Agent position is one that is used in most of the Operating Divisions (OD)s. SB/SE is often used as a “farm team” for the other ODs; so this concept will ensure equal commitment for the development of our Agents across all ODs.
Rose: Will the Form 8867, Paid Preparer’s Earned Income Credit Checklist, be filed with the return? Is the Form 8867 in final format? Can other formats with the same questions be used?
Rose: What happens when the IRS circumvents a filed power of attorney and goes directly to the taxpayer by-passing the tax practitioner?
Fink: We train on respecting power of attorneys. If an IRS agent is going directly to a client we want to know about it. It would be extremely rare. You should go to the group manager or taxpayer advocate office if you are not being treated with respect.
Rose: What do you do with your time away from the office?
Fink: I am a very big sports fanatic. I am an Ohio State fan because my kid goes there. I am a big boxing fan. I was a boxer. Boxing gives you confidence and self-reliance. It helps your self-esteem as well as your fitness.
Rose: I boxed when I was a kid and my arms were never more tired in my life after three rounds.
Fink: That is because of the weight of the gloves. The younger you are the heavier the gloves and the headgear to provide more protection.
Rose: Do you have any final advice for small firm CPAs and Tax Practitioners?
Fink: Most practitioners do a good job and perform their due diligence. Without the efforts of practitioners, our job would be much more difficult. But a suggestion for even doing better would be to ensure you educate your taxpayer (client). I believe most taxpayers want to comply, if they know how. Explaining rules specific to the taxpayer’s situation may assist them in providing the correct facts or documents to properly prepare the return. Questioning statements or worksheets that “just don’t seem right” may be necessary.
Ensuring they know upfront what documents will be needed in preparing their return and then which to keep (and for how long), in case the return is audited, will ease the process. In an audit setting, ensuring the taxpayer knows why a particular issue is being raised may speed receipt of the correct supporting documentation and thereby speed the audit.
Practitioners should ensure they stay up-to-date on recent law changes. Where practitioners see complexities or confusion, they should let us know to ensure we can assist in keeping them compliant.
Rose: Do you have any final remarks for tax practitioners?
Fink: I would ask the practitioner to understand, that like you said when we started; we are all in this together, working in tax administration together because we believe in this tax system.