Taxing Thoughts for a Taxing World - Considerations on Audits, Appeals, Collections and Current Events.
Monday, June 10, 2013
The Rules Still Matter
There has been a rash of scandals plaguing the Internal Revenue Service over the past many weeks. These scandals include the targeting of conservative groups seeking tax exemption, the disclosure of confidential information to opposition groups, the appearance of a cover up and even allegations of targeted federal tax audits. Regardless of how these issues play out, who was involved and what consequences befall those responsible, the fact is that the tax laws, rules and regulations will still apply to the taxpaying public.
The credibility that the IRS may have had concerning its even-handedness has been significantly damaged by these scandals. Collectively, these actions are as bad as those which caused a complete reorganization of the IRS with the 1998 Restructuring and Reform Act. That act still has ripple effects through the agency today. It will take years before the IRS is able to overcome the shadow of these scandals and it will have to work hard to counteract the likely effect on the voluntary compliance of our tax system.
The taxpaying public should be offended by the IRS’ failure to follow the rules and apply the law equally to all who come before it. The unfortunate, but understandable, question that will pervade the minds of many taxpayers at tax time is whether they need to follow the rules if the IRS has failed to do so itself. The answer is yes. The rules still matter and the tax laws still apply.
The IRS will still apply the federal tax law and administrative procedures concerning compliance with those laws in the same way. From the perspective of any one individual or business reporting their tax liability, these issues that systemically affect the IRS will not matter.
No taxpayer should take the perspective that just because the IRS didn't follow the rules that they should somehow be excused from doing so. Rather, the failure to obey the tax laws, properly report income and deductions or file appropriate returns will not be forgiven. Tax returns should be accurate and any taxpayer receiving correspondence from the IRS (be it an audit or a matter of tax collection) should address the issues with the IRS as they arise. If documents and information are requested to support certain transactions, those transactions should be supported. Threatened collection action should be addressed. Failing to do so may result in unnecessary tax, penalty and interest being assessed or paid. Those are the rules and the rules still matter.
It is essential, however, that the taxpayers also hold the IRS to following the rules themselves. This is particularly true in light of recent events. That is, where the IRS, under the apparent authority of the federal government, takes action or makes certain requests, those actions should be scrutinized and the requests should only be complied with if they comport with applicable federal laws and regulations. The rules still matter, even for the IRS.