Poor Data Plagues IRS Enforcement Efforts

IRS attorneys who have now reviewed a May 12, 2011 Government Accountability Office (GAO) report, which was recently released to the public on June 13, 2011, say the report is critical of the IRS enforcement efforts. Specifically, these IRS attorneys indicate the GAO’s report (11-493) concludes the IRS isn’t adequately investigating abusive tax avoidance transactions (ATATs) due to poor data.

While the IRS is evidently aware of the problem, IRS tax lawyers say such transactions are often complicated schemes involving highly technical tax shelters making them difficult for the Agency to uncover. These same IRS tax attorneys indicate the GAO’s report also cites a lack of metrics, to adequately track enforcement efforts, makes it impossible for the IRS to say whether their investigative efforts have been successful to reduce the number of ATATs, or whether the number of ATATs is growing.

According to Stephen T. Miller, IRS Deputy Commissioner for Services, “The IRS agrees that better data may lead to better decisions about focusing resource allocations and improve our enforcement efforts for Abusive Tax Avoidance Transactions.” But, IRS tax lawyers are quick to note that while better data might help the IRS be more effective, the challenge will be for the Agency to do more with less given Congress’ recent cuts to the IRS’s budget.

The GAO recommended stronger penalties against non-material adviser promoters submitting investor lists late. According to the GAO’s reasoning, IRS attorneys point out that as ATAT trends are constantly changing, getting pertinent information on time could help indicate which types of investigations the IRS might initiate.

As IRS tax law becomes increasingly more complex, in part through legislative initiatives seeking to achieve political agendas, ATATs are likely to continue growing. IRS tax lawyers suggest that eliminating much of the complexity associated with current IRS tax law might actually reduce the number of ATATs.

In the end, the IRS is really a victim of the government’s own design. With more politically driven deductions, tax credits, and loopholes for big companies, ATATs are presumably growing as well. Of course, given the GAO report, we are left to our assumptions because we now know the IRS can’t tell if ATATs are growing or not.


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