TREASURY INSPECTOR GENERAL FOR TAX
ADMINISTRATION
CHIEF COUNSEL SHOULD ADDRESS
QUESTIONS RELATED TO PROPOSED CHANGES IN THE AUTOMATIC CONSENT PROCESS
Issued on June 3, 2008
Highlights
Highlights of
Report Number: 2008-10-123 to the
Internal Revenue Service Chief Counsel.
IMPACT ON TAXPAYERS
The Office of
Chief Counsel (Chief Counsel) is responsible for reviewing a taxpayer’s request
to change their method of accounting for Federal income tax purposes through
its Change in Accounting Method (CAM) program.
Although Chief Counsel has initiated and recommended actions to improve
the efficiency of the CAM program, questions
with the proposed automatic consent process must be addressed to ensure that the
changes do not inadvertently affect tax compliance or the Internal Revenue
Service’s (IRS) ability to effectively administer this law provision. A strong CAM
program will enable taxpayers to better understand the requirements for
changing to another accounting method and help the IRS apply the tax laws
correctly and uniformly.
WHY TIGTA DID THE AUDIT
During
Fiscal Year 2007, the Chief Counsel initiated efforts to improve the efficiency
of its CAM program, conducted an analysis to
identify problems facing the program, and provided recommendations for
improvement. The results of this
analysis were used to develop and issue Notice 2007-88, which requested public
comments regarding the proposal to change the process taxpayers use to obtain
the Commissioner’s consent for changing their accounting methods. This audit was initiated to provide an
assessment of Chief Counsel’s proposal to change the consent processes used by
taxpayers to request changes to another method of accounting.
WHAT
TIGTA FOUND
TIGTA’s
review of the proposed changes identified questions that Chief Counsel should
address before it implements the proposed automatic consent process. Specifically, Chief Counsel should consider
the:
- Possibility
that the IRS Commissioner’s authority to extend the automatic consent process
to include non-routine and controversial accounting methods might be
questioned. The IRS Commissioner
has applied the automatic consent process to the routine and non-controversial
accounting methods. However, the
proposed automatic consent process intends to expand the automatic consent
process to all accounting methods, unless the accounting method the
taxpayer wants to adopt is specifically identified as requiring the
advance consent process.
- Impact
that proposed changes might have on the IRS’ ability to ensure taxpayers
are compliant with tax laws governing accounting methods. While Notice 2007-88 indicates that
automatic consent requests will be reviewed for completeness and
permissibility of the accounting method change, Chief Counsel had not
developed a detailed plan for reviewing these requests to ensure that taxpayers
would not change to accounting methods that are not permissible.
- Impact
on the IRS’ ability to detect taxpayers who make inappropriate use of the
automatic consent process. Chief
Counsel indicated an option under consideration may be to shift review
responsibilities to the Examination functions in the Operating Divisions. However, shifting this review process could
adversely affect the IRS’ administration over accounting method changes,
particularly if the Examination functions do not have the resources or do
not want responsibility for reviewing the requests.
WHAT TIGTA RECOMMENDED
TIGTA provided our observations for Chief
Counsel’s information and made no recommendations. In their response to the report, Chief
Counsel agreed with the observations and conclusions presented.
READ THE
FULL REPORT
To view the report,
including the scope, methodology, and full IRS response go to:
http://www.treas.gov/tigta/auditreports/2008reports/200810123fr.html.
Email Address: inquiries@tigta.treas.gov
Phone Number: 202-622-6500
Web Site:
http://www.tigta.gov