[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


                     REFORMING HOW THE IRS RESOLVES
                           TAXPAYER DISPUTES

=======================================================================

                                HEARING

                               BEFORE THE 

                       SUBCOMMITTEE ON OVERSIGHT

                                 OF THE

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 13, 2017

                               __________

                          Serial No. 115-OS07

                               __________

         Printed for the use of the Committee on Ways and Means
         
        
         
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                    U.S. GOVERNMENT PUBLISHING OFFICE                    
33-617                  WASHINGTON : 2019                     
          
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                      COMMITTEE ON WAYS AND MEANS
         

                      KEVIN BRADY, Texas, Chairman

SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
DEVIN NUNES, California              SANDER M. LEVIN, Michigan
PATRICK J. TIBERI, Ohio              JOHN LEWIS, Georgia
DAVID G. REICHERT, Washington        LLOYD DOGGETT, Texas
PETER J. ROSKAM, Illinois            MIKE THOMPSON, California
VERN BUCHANAN, Florida               JOHN B. LARSON, Connecticut
ADRIAN SMITH, Nebraska               EARL BLUMENAUER, Oregon
LYNN JENKINS, Kansas                 RON KIND, Wisconsin
ERIK PAULSEN, Minnesota              BILL PASCRELL, JR., New Jersey
KENNY MARCHANT, Texas                JOSEPH CROWLEY, New York
DIANE BLACK, Tennessee               DANNY DAVIS, Illinois
TOM REED, New York                   LINDA SANCHEZ, California
MIKE KELLY, Pennsylvania             BRIAN HIGGINS, New York
JIM RENACCI, Ohio                    TERRI SEWELL, Alabama
PAT MEEHAN, Pennsylvania             SUZAN DELBENE, Washington
KRISTI NOEM, South Dakota            JUDY CHU, California
GEORGE HOLDING, North Carolina
JASON SMITH, Missouri
TOM RICE, South Carolina
DAVID SCHWEIKERT, Arizona
JACKIE WALORSKI, Indiana
CARLOS CURBELO, Florida
MIKE BISHOP, Michigan

                     David Stewart, Staff Director

                 Brandon Casey, Minority Chief Counsel

                                 ______

                       SUBCOMMITTEE ON OVERSIGHT

                    VERN BUCHANAN, Florida, Chairman

DAVID SCHWEIKERT, Arizona            JOHN LEWIS, Georgia
JACKIE WALORSKI, Indiana             JOSEPH CROWLEY, New York
CARLOS CURBELO, Florida              SUZAN DELBENE, Washington
MIKE BISHOP, Michigan                EARL BLUMENAUER, Oregon
PAT MEEHAN, Pennsylvania
GEORGE HOLDING, North Carolina


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of September 13, 2017 announcing the hearing............     2

                               WITNESSES

Ms. Kathy Petronchak, Director of IRS Practice & Procedures, 
  alliantgroup, LP...............................................     6
Mr. Pete Sepp, President, National Taxpayers Union & NTU 
  Foundation.....................................................    19
Mr. Byron Shinn, Founder and Managing Partner, Shinn & Co........    41
Ms. Chastity Wilson, Principal, National Tax Office, 
  CliftonLarsonAllen LLP.........................................    48

                   PUBLIC SUBMISSIONS FOR THE RECORD

Coalition for Effective and Efficient Tax Administration (CEETA).    74
Fitzgerald Kit Trucks & Sales LLC................................    79
  Taxpayer Confidentiality Disclosure Waiver.....................    82
John Klotsche....................................................    83
National Association of Enrolled Agents..........................    85
Software Finance & Tax Executives Council (SOFTEC)...............    90
Chief Judge L. Paige Marvel, United States Tax Court.............    94

 
                IRS REFORM: RESOLVING TAXPAYER DISPUTES

                              ----------                              


                     WEDNESDAY, SEPTEMBER 13, 2017

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                 Subcommittee on Oversight,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 2:10 p.m., in 
Room 1100, Longworth House Office Building, Hon. Vern Buchanan 
[Chairman of the Subcommittee] presiding.
    [The advisory announcing the hearing follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Chairman BUCHANAN. The Subcommittee will come to order.
    Welcome to the Ways and Means Oversight Subcommittee 
hearing on ``IRS Reform: Resolving Taxpayer Disputes.''
    Before I begin my official statement, I would like to 
recognize the extraordinary effort of two of our witnesses 
today who made it up here from Florida.
    I think you drove from Orlando. So that is pretty 
impressive.
    Both Mr. Shinn and Ms. Wilson came from the great state of 
Florida. Thank you very much for your determination to be here. 
I know it wasn't easy.
    And let me pause for a moment to thank all our first 
responders, local government officials, and community members 
who stepped up and responded to Hurricane Irma in my home state 
of Florida. It is impressive to see everyone working together. 
I am confident that we will continue to work together in the 
aftermath of the storm as well.
    Today's hearing is another important step in the process of 
considering reforms to the IRS. I have stated previously I do 
not view this effort as an opportunity to degrade or discredit 
the good work being done by IRS employees.
    However, I am a big believer in continuous improvement. 
That has been my philosophy in business. We can always be 
better. In government, like business, we should always be 
looking for ways to improve.
    In a system of voluntary tax compliance, even with the 
simplest of tax codes--and ours is currently not one of those--
there are bound to be disputes between taxpayers and the IRS. 
What we hope to learn today is about the experience of those 
taxpayers.
    These are folks that have been in the trenches working with 
a lot of those taxpayers involved in resolving disputes with 
the IRS. And whether there are ways to improve the current 
process, I believe there will be.
    Nearly 20 years ago, the last time significant reforms were 
made to the IRS, one of the key legislative priorities for 
Congress was the creation of an independent appeals function. 
As recently as two years ago, Congress reaffirmed the 
importance of an independent forum when the right to appeal to 
such a forum was included in the Taxpayer Bill of Rights and 
codified as a responsibility of the Commissioner. Ensuring the 
independence and the availability of administrative review 
process for taxpayer disputes remains a top priority of this 
Subcommittee.
    In addition to being independent, dispute resolution 
options need to be accessible and efficient. The process is 
failing if only large businesses with deep pockets feel 
equipped to dispute a determination made by the IRS. 
Individuals and small businesses should not have to weigh the 
cost of hiring outside help against paying the assessment.
    For most taxpayers, their only interaction with the IRS is 
when they file their taxes once a year. But when the taxpayers 
find themselves in a dispute with the agency, they deserve a 
fair and prompt process.
    I look forward to working with the Ranking Member on these 
issues and to hearing from our witnesses as we continue our 
efforts to examine reforms to the IRS.
    I now yield to the distinguished Ranking Member from 
Georgia, Mr. Lewis, for the purposes of an opening statement.
    Mr. LEWIS. Well, thank you, Mr. Chairman, for holding this 
hearing on resolving taxpayers' disputes with the Internal 
Revenue Service.
    I welcome you back to Washington, Mr. Chairman. And on 
behalf of the citizens of Georgia, and especially the citizens 
of the Fifth District, we were able to welcome hundreds and 
thousands of people from Florida.
    I went into a parking lot in downtown Atlanta on Saturday, 
and there were so many cars from Florida. And people had their 
dogs, walking their dogs through the parks, from Florida. We 
are neighbors.
    And I want to, in particular, welcome Ms. Wilson and Mr. 
Shinn. I have relatives that live in Fort Lauderdale, and the 
only thing we had happen in my district was some, for the most 
part, pine trees coming down. I want to thank you for being 
here today.
    Before we begin, Mr. Chairman, I would like to take a 
moment to extend my condolences to you and the millions of 
Americans who were impacted by the recent hurricanes in the 
Caribbean and the Southern States.
    As you know, the hurricane damaged homes, downed trees, 
closed roads, and left about 1 million residents without power 
in my home State of Georgia. Now our citizens, our people, 
begin the difficult process of rebuilding their homes, their 
communities, and their lives. And I hope this committee will 
work together to do all we can to assist the recovery efforts.
    Mr. Chairman, I have said it before and I will say it 
again: We must approach this effort to reform and improve the 
IRS with a great deal of care and thoughtfulness. I hope we 
will take our time to develop bipartisan solutions that serve 
the best interests of both taxpayers and the agency.
    For many years, I have cautioned that we cannot get blood 
from a turnip. As you know, Congress cut the IRS budget by 
almost $1 billion since 2010. Over the last 3 years, the budget 
for the IRS Appeals Office dropped 11 percent, and there are 
about 24 percent fewer hearing officers.
    Today, we will learn more about how these deep budget cuts 
have affected the ability of the agency to resolve disputes 
with taxpayers. Our citizens expect and deserve timely and 
efficient services. Simply said, Mr. Chairman, taxpayers will 
not get the level of service that they expect and deserve until 
we provide adequate funding to this agency.
    As you know, this is the Subcommittee's fourth hearing to 
explore how we can improve the IRS. We have remained bipartisan 
and explored a good governance path to examine how the IRS 
operates and to identify possible improvement.
    I hope and pray that our work product will be a model for 
our colleagues. This afternoon, we will also explore how to 
improve what can be a long and complicated appeals process. 
Together, we will listen and learn about possible remedies.
    Some may suggest expanding the number of States that have 
permanent hearing officers, ensuring the independence of 
taxpayer conferences, and allowing taxpayers to request face-
to-face conferences throughout the appeals process. Above all, 
Mr. Chairman, I hope we will continue to work together, as we 
have all year, to explore and address these issues.
    In closing, Mr. Chairman, I look forward to hearing from 
our witnesses and learning more about their experiences with 
the agency. Again, Mr. Chairman, I want to thank you, my 
friend, for holding this hearing.
    Chairman BUCHANAN. Thank you, Mr. Lewis. And I want to 
thank you for your thoughts and prayers. We do have a lot of 
our family and people who went to Georgia and other states, and 
I appreciate your thoughts on that.
    And you know you have my commitment to work together on a 
bipartisan basis. We want to improve this together. There is a 
lot of work to be done. So I look forward to working with you.
    Without objection, other Members' opening statements will 
be made part of the record.
    Today's witness panel includes four experts: Kathy 
Petronchak, director of the IRS Practice & Procedures at the 
alliantgroup; Pete Sepp, president of the National Taxpayers 
Union; Byron Shinn, in our district--we are excited to have him 
and his lovely wife here today--he is the founder and managing 
partner of Shinn & Co., and I think he probably has 35 years of 
experience dealing with dispute resolution with the IRS; 
Chastity Wilson, principal of the National Tax Office of 
CliftonLarsonAllen, from Orlando, and a member of the AICPA.
    The Subcommittee will receive your written statements, and 
they will be made part of the formal record. Each of you has 5 
minutes to deliver your oral remarks. We will begin with Ms. 
Petronchak.
    You may begin when you are ready.

   STATEMENT OF KATHY PETRONCHAK, DIRECTOR OF IRS PRACTICE & 
                  PROCEDURES, ALLIANTGROUP, LP

    Ms. PETRONCHAK. Chairman Buchanan, Ranking Member Lewis, 
and Members of the Subcommittee, thank you for inviting me to 
testify. It is an honor to provide comments today.
    I interact with small and medium-sized businesses in my 
work with alliantgroup. I also spent 29 years at the IRS and 
feel this gives me a unique perspective into the Examination 
and appeals process. My testimony focuses on challenges that 
taxpayers face when dealing with the IRS and what IRS can do to 
improve the examination and appeals process.
    I raise six issues in my written testimony, and I would 
like to highlight two of those issues. The first issue is the 
appeals process. Before heading to court, the final 
administrative step a taxpayer can take to contest an adverse 
determination by a revenue agent is through appeals.
    Appeals is important for so many businesses seeking a fair 
review of their tax issues without having to incur additional 
costs to go to court. Taxpayers are appreciative of the 
opportunity to attend the Appeals conference in person.
    They are not thrilled about the recent change by Appeals, 
indicating that they may not be granted an in-person meeting. 
Appeals has made telephone and virtual conferences first 
options for an appeal, only granting in-person conferences in 
limited circumstances.
    We believe that not granting taxpayers an opportunity to 
have an in-person meeting would be highly prejudicial to 
taxpayers, restrict the ability of Appeals officers to 
adequately judge the credibility of witnesses, and make the 
conference more difficult in situations where the appeal is of 
highly technical and highly evidentiary-focused cases.
    While we have seen Appeals officers flexible in granting 
in-person conferences, we believe that taxpayers should have a 
fundamental right to meet Appeals face to face. This in-person 
conference may be the only way a taxpayer believes there is an 
impartial resolution with a full understanding of the facts 
involved.
    Another issue emerging in Appeals is the increased 
involvement of IRS Compliance employees in Appeals meetings. 
This change has created a perception for taxpayers that they 
may not get an independent hearing and decision as afforded by 
the Taxpayer Bill of Rights.
    We believe the only involvement Exams should have at 
Appeals is in a preconference meeting. At a preconference, the 
originating function can attend an Appeals conference to 
present their views on the issues, the taxpayer's protest and 
assessment of litigating hazards in accordance with ex parte 
communication rules.
    In a preconference setting, Exam would leave after their 
presentation. But as of late, rather than leaving at this 
point, Exam has been invited by Appeals to stay for the 
taxpayer's presentation. When this happens, the entire appeals 
atmosphere is altered, and there are opportunities for this to 
turn into an extension of the examination process for a 
taxpayer.
    The independence of Appeals is hindered when Exam plays too 
great of a role in the appeals process. A representative 
recently described a situation where, in a preconference, it 
became clear that Exam had not fully addressed the position the 
taxpayer had brought forward in its response to the Exam team. 
After hearing the taxpayer orally present their position at the 
Appeals meeting, the Exam team made another 24-page submission 
to Appeals to attempt further support for their position on the 
issue, taking an alternative approach. It seems patently unfair 
that Exam can attempt to continue their process when the case 
is assigned to an independent forum to make a decision.
    We disagree with Appeals having unilateral decisionmaking 
over Exam participation in a conference. Taxpayers who feel as 
if they have already been through a grueling process with Exam 
should be able to have the peace of mind that their case is 
being given a fresh look by Appeals and that the examination is 
over.
    Today's comments on the issue of alternative dispute 
resolution focus on the IRS Fast Track Settlement program. This 
program was created to provide an expedited dispute resolution 
option for taxpayers to mediate their disputes during an 
examination with an Appeals official acting as a mediator. The 
use of Fast Track has the potential to be a highly effective 
tool when both parties come to the table willing to reach an 
agreement. Taxpayers and their representatives welcome the 
opportunity to resolve as many issues as possible at the lowest 
level in a cooperative manner. This same sense of urgency 
should be felt by the IRS.
    In closing, I commend the committee for its work and 
oversight in ensuring that taxpayers receive fair treatment and 
good service from the IRS. Alliantgroup looks forward to 
working with the committee to further improve tax 
administration, and I would be glad to take your questions.
    [The prepared statement of Ms. Petronchak follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Chairman BUCHANAN. Thank you.
    Mr. Sepp, you are recognized.

 STATEMENT OF PETE SEPP, PRESIDENT, NATIONAL TAXPAYERS UNION & 
                         NTU FOUNDATION

    Mr. SEPP. Mr. Chairman, Mr. Ranking Member, Members of the 
Committee, a number of my predecessors have actually testified 
in this very room on taxpayer rights issues, so I am 
particularly honored that you would ask me here to follow in 
their footsteps.
    And we need to follow in the footsteps of all of our 
predecessors in developing a bipartisan solution to many of the 
problems that have cropped up since enactment of the IRS 
Restructuring and Reform Act of 1998.
    One of my predecessors, Bob Kamman, put it this way: He 
called it taxpayers triage. What you need are a number of 
steps, a number of options, in resolving problems between the 
agency and taxpayers that provide a range of responses.
    One of them is prevention, of course. We can simplify the 
tax system. We can educate taxpayers about their rights in 
advance so they know going into the process of interacting with 
the IRS what to expect, and perhaps problems can be resolved at 
that level, the preconference level, for example.
    Then there is basic care. What we have now is the appeals 
process and a very nascent alternative dispute resolution 
process. We are going to hear a lot from the witnesses today 
about some of the malfunctioning systems within Appeals, and 
especially with the recent evolution in the large business and 
international division of strategies, like designating cases 
for litigation, that can be very harmful to the audit process. 
I hope we can discuss that in further detail later.
    But the rise of alternative dispute resolution mechanisms 
around the world and its relatively flat usage here in the 
United States--actually declining at the Appeals level right 
now--suggests that we need very serious reforms if we are going 
to make that process workable in the future.
    The third level of triage really is intensive care. That is 
when taxpayers and the IRS have to litigate an issue. And 
there, taxpayers' access to the courts beyond the tax court 
level is still highly problematic. Everything from the Anti-
Injunction Act to the Declaratory Relief Act essentially 
prevents taxpayers from enforcing their rights in court in a 
meaningful manner. Largely, their choices are confined to 
litigating for damages after the acts have already been 
committed by the agency that have deprived a taxpayer of his or 
her income or right to earn.
    The fourth level is essentially post-op observation, as I 
would call it, oversight. Now, current plans in several of the 
tax reform options being discussed would do away with the IRS 
Oversight Board. There are flaws in the Oversight Board 
certainly, but I would urge this committee to very carefully 
consider alternatives to the current IRS Oversight Board, which 
is essentially paralyzed due to a lack of a quorum.
    We really need to establish and maintain that kind of 
consistent oversight in some manner. Specifically, I would make 
a few recommendations, and, again, we can further discuss these 
in detail.
    The foundation for another taxpayer rights package really 
ought to be based on H.R. 3220, the Preserving Taxpayers' 
Rights Act. It is a bipartisan bill. It codifies the right to 
appeal, and it establishes a more business-like working 
relationship between the IRS and taxpayers in audits.
    This will apply to large businesses, small businesses, 
individuals across the board. Section 3 of that bill, which 
essentially directs the Secretary to begin developing more 
dispute resolution procedures at Appeals, would pave the way 
for more effective use of Alternative Dispute Resolution (ADR) 
in a number of situations.
    There are many, many other suggestions I could make that we 
should look at. The Taxpayer Bill of Rights Enhancement Act 
just introduced in the Senate yesterday, S. 1793, which would 
expand some of the assistance in the Volunteer Income Tax 
Assistance program, expanding low-income taxpayer clinics. All 
of these things need to be put into a package to work together 
to enhance the progress we have made in Taxpayer Bill of Rights 
I, T II, and the IRS Restructuring and Reform Act. And this is 
the committee where it all starts.
    Every single piece of important IRS reform legislation 
began with Members of this Committee, your predecessors, and 
you now, such as with the RESPECT Act that just passed, coming 
together in a bipartisan fashion to do better for taxpayers. We 
can do it. We must do it.
    I thank you for your leadership.
    [The prepared statement of Mr. Sepp follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Chairman BUCHANAN. Thank you.
    Mr. Shinn, you are recognized.

STATEMENT OF BYRON SHINN, FOUNDER AND MANAGING PARTNER, SHINN & 
                              CO.

    Mr. SHINN. Thank you, Chairman Buchanan, Ranking Member 
Lewis, and Members of the Subcommittee. Thank you for the 
opportunity to discuss reforming how the IRS resolves taxpayer 
disputes.
    As a practicing accountant for over 38 years and a Florida 
CPA, I have seen a lot of change.
    Chairman BUCHANAN. Could you speak up a little bit more in 
the mike so everybody can hear?
    Mr. SHINN. In my opinion, our focus should be taxpayer 
service first, improve tone with access, consistent controls, 
and require Fast Track steps.
    I have a unique perspective as I have been involved in 
oversight of the Florida CPAs as a member of the Board of 
Accountancy's Probable Cause Panel for well over a decade. And 
most practitioners work hard to get it right. It is the handful 
of marginal practitioners and aggressive taxpayers that try to 
push the envelope. These are the practitioners and taxpayers 
that need to be reviewed.
    First, I would like to discuss correspondence audits. They 
have been expanded in lieu of field exams for many individual 
returns. These exams require responses in a specific period of 
time. However, the IRS responses are taking considerably more 
time than the taxpayer is given.
    These exams have a high probability of no change once the 
IRS receives the submitted responses. In several instances, the 
taxpayer's rights have been ignored by the issuance of 15-day 
letters and then, shortly thereafter, 90-day notice of 
deficiencies, thereby ignoring the 30-day letter and which 
grants the rights of the taxpayer for an administrative hearing 
and appeals, and that also breaks their Taxpayer Bill of 
Rights.
    This also prevents the Fast Track Settlement opportunity. 
Therefore, I believe a standard, that it should exist, that the 
process must be maintained, and the Service, when it jumps over 
process, should lose the right to pursue additional revenue: 
Follow the rules or lose the adjustment. We also should require 
Fast Track to prevent the circumstances that are existing 
today.
    I next want to speak about field exams. The process has 
been very taxpayer-unfriendly with a litigious and enforcement 
tone. Over my 38 years, we have reached a new low regarding the 
respect that the taxpayers and their professionals have with 
the Service. It is as if the taxpayer is guilty and has to 
prove the IRS wrong. The agents are doing several audits at the 
same time, and they tend to start and stop during the audit, 
many of them taking much more than 12 months. This just is not 
right.
    We have new rules that are also killing the system. An 
example is the new partnership exam rules that have brought the 
process to a state of total chaos. In order to close issues and 
reduce the time necessary, we talk about the call centers and 
the local office access. Unfortunately, the wait time on the 
call centers is extremely long.
    Overall, my experience is it has been good once you get to 
a qualified person. This shows how the Service needs to open up 
access. The Service should increase the call center available 
hours, making them earlier, later, and on weekends.
    The Service has a very good e-service process. However, 
this has been reduced due to budget cuts. This needs to be 
expanded back in a much broader sense.
    The local offices no longer allow walk-ins. This is just 
not--sorry. It is not taxpayer right. It is just not taxpayer 
first. They need to have reasonable access.
    Another area of concern is foreign disclosure exams. We are 
seeing a situation growing with the continued disclosure of 
foreign assets and bank accounts going to Appeals, and the 
Appeals officers feel that they cannot settle, so the issue 
goes on to offshore technical advisers. Then it ends up all or 
nothing. We need to give them guidance on settlement.
    Tax law complexity has created opportunities for debate. 
The Code in its current state remains the number one problem 
facing both the Service and the taxpayers. Since most of our 
career has been with small and medium-sized business, I can 
talk specifically about the challenges in compliance.
    Identity theft. Since many ID thefts were in Florida, I was 
also a victim. We should require all taxpayers to have PIN 
numbers. My information was stolen through e-services on a data 
dump, and that shouldn't happen. If we had all taxpayers with 
PINs, that wouldn't happen.
    And, lastly, I think that I would like to recommend a 
separate task force that answers to you, Congress, to assist 
the National Taxpayer Advocate in developing change in the 
business structure and processes.
    Thank you very much.
    [The prepared statement of Mr. Shinn follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Chairman BUCHANAN. Thank you.
    Ms. Wilson, you are recognized.

 STATEMENT OF CHASTITY WILSON, PRINCIPAL, NATIONAL TAX OFFICE, 
                     CLIFTONLARSONALLEN LLP

    Ms. WILSON. Chairman Buchanan, Ranking Member Lewis, and 
other Members of the Subcommittee, thank you for the 
opportunity to testify.
    The AICPA applauds your efforts to address the importance 
of the IRS resolving taxpayer disputes in a timely, efficient, 
and cost-effective manner. Today, I would like to share our 
thoughts on refining the independence and efficiency within the 
IRS dispute resolution process.
    I will also address the importance for the IRS to 
understand the taxpayer's perspective and deliver customer-
focused service.
    First, let's start with penalties. Upon receipt of an IRS 
notice, taxpayers or their representatives may determine a 
reporting error was made. However, if the taxpayer made the 
effort to comply with the reporting requirements, the taxpayer 
may request relief from penalties.
    Frequently, the initial IRS response is a routine denial. 
This process is currently handled independently within each of 
the primary IRS divisions. We recommend that the IRS undertake 
a review of this process across the agency to identify 
necessary training to ensure a consistent and fair treatment of 
all taxpayer disputes.
    Next, let's discuss Appeals. Appeals is the primary forum 
for taxpayers' disputes. Their mission is to resolve tax 
controversies without litigation on a fair and impartial basis. 
We appreciate them holding conferences which provide a 
meaningful and unique opportunity for taxpayers to present 
their positions.
    In October of 2016, Appeals made several changes to its 
conference procedures, which arguably impact the ability or 
perception to independently and objectively help taxpayers. We 
recommend that, one, the IRS limit settlement conferences to 
the appropriate Appeals personnel; and two, they provide 
taxpayers with the option of a face-to-face conference.
    In one settlement conference, the Appeals officer openly 
asked the Exam team what they thought was a fair settlement. My 
client asked, how is it possible for Appeals to maintain their 
independence when they are seeking the opinion of the same IRS 
employee who examined them?
    Although, in reality, IRS employees may or may not have 
influence over the appeals process, it is hard to view them as 
objective when other IRS employees are involved. We suggest 
that, once the taxpayer's presentation to Appeals begins, they 
should limit the meeting participants to the appropriate 
Appeals personnel and the taxpayer.
    In another Appeals case, payroll obligations were not met 
until my client discovered the error. The Appeals officer said 
it took him a whole 5 minutes to determine there was no 
reasonable cause and asked not to discuss it.
    In this particular situation, a conversation, much less a 
face-to-face conference, was considered unnecessary from his 
perspective. However, from the client's perspective, he was not 
heard. He was unfairly denied the right to present his case. 
While it is possible to resolve some issues over the telephone, 
we think it is important that taxpayers have the option of a 
face-to-face conference.
    For larger tax disputes, cases are assigned a team of IRS 
Appeals officers and a case leader who is designated settlement 
authority. In these situations, we urge the IRS to provide 
truly independent settlement authority to these case leaders 
and eliminate the approval process that was recently added.
    Finally, a customer-focused service approach should extend 
to all IRS services. It will help reduce disputes in the first 
place. For example, the IRS should create a new dedicated, 
executive-level practitioner services unit that would 
centralize and modernize its approach.
    With a mindset of understanding the taxpayers' perspective, 
the Service will enhance voluntary compliance and increase the 
public's confidence in the integrity of the Service.
    We appreciate the opportunity to testify. I will be happy 
to answer any questions.
    [The prepared statement of Ms. Wilson follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Chairman BUCHANAN. Thank you, all of you, for your 
excellent testimony.
    I will now proceed to the question and answer session. In 
keeping with past precedent, I will hold my questions until the 
end.
    I now recognize the gentleman from Michigan, Mr. Bishop.
    Mr. BISHOP. Thank you, Mr. Chairman.
    And thank you to the panel for your time and expertise. I 
appreciate it. Lots of questions. So little time.
    Is it Ms. Petronchak? Pretty good? Close? Okay. Good. You 
indicated in your written testimony--I know you didn't have 
much time today, but you indicated in your written testimony 
that there were procedures in place by the IRS during an audit 
that would give larger businesses an advantage over smaller 
businesses, specifically having to do with transparency.
    Can you elaborate on that? And can you tell us, is this 
something that the IRS is doing as a result of the Code, or is 
this an arbitrary kind of application of the rules?
    Ms. PETRONCHAK. So, with regards to that, Congressman 
Bishop, in my testimony, in the Large Business and 
International Division, they have put out procedures in a 
publication and indicated that, when you are issuing 
information document requests to taxpayers, that you have a 
discussion. You identify what the issue is, and you talk about 
what documents you are going to request so that the taxpayer 
has an opportunity to have a discussion with the agent and say: 
Well, maybe I don't have those kinds of records; these might be 
more pertinent. But they understand what the IRS is looking at 
and where they plan on going with their examination.
    In the Small Business Division, that just doesn't happen. 
What happens is you will get, you know, a letter saying, you 
are under exam. And then here is a 4-page document request with 
everything but the kitchen sink pretty much on the initial 
document request.
    And then, instead of, as in Large Business Division, when 
that response is made to that document request, it is expected 
in Large Business that they would review that response and then 
have a discussion with the taxpayer to say, we think it is 
complete or it is not complete and it is an ongoing discussion.
    In Small Business, you are more likely than not going to 
find out the results of their review at the end of an 
examination, which is way too late for a taxpayer to be 
understanding what issues are in dispute and even have the 
opportunity to use alternative dispute resolution.
    Mr. BISHOP. Well, it begs a question then: Why are they 
treated differently? And, again, is this a result of the Code, 
or is this something that the IRS is doing independently at its 
discretion?
    Ms. PETRONCHAK. Yes. Congressman Bishop, it is an 
administrative practice in the Large Business Division. So it 
is not required by Code. But certainly, although that 
procedure, you know, some would argue could be improved, it is 
a drastic change and different from that that is afforded to 
small and medium-sized businesses.
    Mr. BISHOP. I still don't understand why. You all have done 
this before. Does anybody understand why small businesses are 
treated differently than large businesses in this area? It just 
seems like it is----
    Ms. PETRONCHAK. I personally don't see a reason why they 
could not integrate some of those procedures into their 
examination practices. You know, having the discussion upfront 
meets the Taxpayer Bill of Rights to be informed and know what 
is going on, so I certainly don't see why it could not become a 
part of their work processes.
    Mr. SEPP. I would agree that it should. Although, I would 
say that there has been some negative feedback, even from folks 
who have experienced audits in LB&I that the IDR requests are 
often poorly focused. So this might be a problem that is not 
only with small businesses but with the procedural latitude 
given to the IRS.
    Mr. BISHOP. You indicated that the non-in-person exam or 
the Appeals Officer, is the expert for the IRS in the room with 
the examiner?
    Ms. PETRONCHAK. So it is actually an Appeals meeting, and 
it is a telephone or they have moved to virtual conferences in 
some instances. The Appeals officer is in the room. They may 
have a technical specialist. And under the current rules, they 
could invite Exam to be on the phone as well. So that is a real 
concern, is that, well, who is on the phone. You have got so 
many parties. You don't know who is speaking, whose perspective 
are you hearing.
    Mr. BISHOP. Is there a problem with ex parte communication 
in-house?
    Ms. PETRONCHAK. That does not violate ex parte 
communications because the way ex parte works, if the taxpayer 
is invited to attend the conference where Exam or Compliance 
will be present, then it is not a violation of ex parte.
    Mr. BISHOP. I get that in practice. In theory, you are 100 
percent right. But in practice, it seems that that would be an 
absolute recurring problem.
    Ms. PETRONCHAK. It could be.
    Mr. BISHOP. And one other thing, if I might, Mr. Chair, is 
the appeal process de novo, or is it a continuing process--does 
your appeal take up all the evidence? Do they consider 
everything or only that which was considered in the previous 
review?
    Ms. PETRONCHAK. So, in Appeals, they should be considering 
the information that was developed and presented to them by 
Exam as well as what the taxpayer submitted and then making an 
independent decision.
    When they changed--I think Ms. Wilson referenced the IRM 
change--they said: We are not going to hear new facts, new 
evidence in Appeals. We are only going to rely on what is in 
the file to make our decision. So it should be exactly what is 
in front of them.
    Mr. BISHOP. Thank you very much.
    Thank you, Mr. Chair.
    Chairman BUCHANAN. Thank you.
    I now recognize the Ranking Member, Mr. Lewis, from 
Georgia.
    Mr. LEWIS. Thank you very much, Mr. Chairman.
    Ms. Wilson, thank you for being here today. I understand 
that you are the head of the national tax office at your firm. 
What type of issues are taxpayers trying to resolve when they 
come to your firm?
    Ms. WILSON. Great question.
    Mr. LEWIS. Small issues? Big issues? Global issues?
    Ms. WILSON. That is the unique thing about our firm. I 
would say they run the gamut, so they are all the way from 
small $1,000 penalty issues up to very large exams. So, you 
know, we have a very unique client base, and we target mid-
sized business, which by the nature of that, we have all range 
of issues that we see.
    You know, recently, the significant issues I see are around 
penalties and penalties appeal. We have a lot of clients or 
clients in our base that, you know, have been onslaughted with 
information return penalties. And so we try to help them manage 
through that process.
    Mr. LEWIS. In your experience, what are the biggest 
challenges you and your clients experience in resolving tax 
issues with the agency?
    Ms. WILSON. That is a good question. You know, I think the 
largest issue is just being heard, making sure that you----
    Mr. LEWIS. Do you have a hard time, a difficult time in 
sometimes just being heard, just getting a face-to-face 
meeting?
    Ms. WILSON. Exactly. Exactly. And Appeals, as we discussed, 
as I discussed in my testimony, has dramatically changed that 
process. I have been doing this for many, many years where I 
focus just on IRS----
    Mr. LEWIS. You haven't been doing it. You are too young to 
be doing it for many, many years, now.
    Ms. WILSON. But, you know, face-to-face was the--that was 
the one time you got to sit down and face the IRS and really 
talk about the issues. And from a client's perspective, they 
felt like they were being heard because they sat across the 
table from that Appeals officer, and they could see them 
listening. They could see the head nodding.
    And so, even if it didn't come in their favor, they felt 
like they were being heard. When you turn to these telephone 
conferences, which are now the standard practice, you know, you 
remove that.
    And they question whether the Appeals officer--my clients 
do--are even listening, because you get to the end of the 
conference and--and I am not saying in every case, because a 
lot of times this process does work well. But in some cases, 
the client just walks away and says: I don't even think they 
were listening; in fact, I heard keystrokes on the computer, 
right.
    And so, you know, I think, from the AICPA, that is one of 
our recommendations, is you really need to look at this new 
procedure. It is administrative. But you really need to look at 
it and say: What are we doing to taxpayers' services here? Are 
our taxpayers really feeling like they are being heard, because 
this is their last opportunity, Ranking Member? When they get 
to Appeals, their next option is litigation. And I can tell 
you, in my client base, 99 percent of them are not going to 
want to take it to litigation because, again, maybe the dollar 
amount isn't high enough, or they are just frightened by the 
whole concept of having to go to tax court.
    Mr. LEWIS. Are you suggesting or recommending that we need 
to do more to humanize the IRS and not make it so distant, this 
unbelievable agency at someplace? How do we go about doing 
that? What are your recommendations? What are you suggesting?
    Yes, Mr. Shinn.
    Mr. SHINN. Ranking Member, that is why I got so choked up 
about doing it in person. You know, there are people that can 
afford to go to an enrolled agent or a CPA, but there are a lot 
of taxpayers out there that don't have that access. And having 
the opportunity to walk in and talk at the local agent office 
level is so important. And having that face-to-face humanizes 
the circumstances and the facts in the situation, and you 
actually feel what is going on.
    Now, granted, we all understand that there are some States 
that don't even have an Appeal officer in them, and so Appeal 
officers have to come from out of State. So, like in Alabama 
and Mississippi, they are coming from out of State just to deal 
with it. So we have a staffing issue.
    But having that conversation with the Appeals officer is a 
real opportunity to solve. And having the process, the process 
that you talked about with the small business audits, it is 
very much behind a dark curtain, and it is a very scary 
proposition.
    When those taxpayers get those letters and those long, 4-
page requests, it is intense and a very scary moment. And we 
don't get the chance, like with a large business audit, to have 
a face-to-face with the team.
    And then, not being able to pick up the phone and call, we 
have situations where you will go on hold for over an hour, and 
it will be at the end of the day. And at 4:30, they will pick 
up the phone and put it back down again, and you restart the 
next day. That is not taxpayer-friendly.
    Mr. LEWIS. Thank you.
    Thank you, Mr. Chairman. I yield back.
    Chairman BUCHANAN. Thank you.
    The gentleman from Pennsylvania, Mr. Meehan, you are 
recognized.
    Mr. MEEHAN. Thank you, Mr. Chairman.
    And I thank each of the panelists for your service and 
dedication, because it is clear that you are here as voices for 
people who feel that they have--if they are not abiding by the 
rules, they wonder sometimes what is the technicality. They are 
not people who are out there deliberately trying to skirt the 
rules or beat the system.
    There is a place for those who are deliberately 
recalcitrant, but so many of us are just caught in the melee. 
So I have some questions about trying to get your 
interpretations to make this a little better. It just seems so 
much of it is tied to a personal relationship, a sense that 
somebody is actually listening to me, and let's just resolve 
this thing while we are here.
    I have a couple of questions. One had to do--and I think 
Mr. Shinn, it was you who was saying that there were--or, Ms. 
Wilson, it was you, according to my notes--that there were 
recording errors, penalty situations where there would be 
appeals, and they were just getting to be routine noes.
    Now, when I was a prosecutor and you had a case, you might 
do a declination or you would do a prosecution memo, but 
whenever there was a decision point, it was justified. Even 
though it was all internal in the--should we be requiring that 
if there is an original inquiry and there is a routine ``no'' 
set out, that there is a justification that you can know that 
somebody has actually analyzed the file and has said that there 
is a reason why we are just saying no right now?
    Ms. WILSON. I would absolutely agree with you that there 
should be a requirement to, you know, document what the 
justification for denial was. And, again, you know, there is 
many a time where we do get the denial, and it does appear 
somebody has reviewed it because they have put specific facts 
in there.
    Mr. MEEHAN. But you are comfortable with that because at 
least you know you can counsel your client: Here is what it 
is----
    Ms. WILSON. Exactly. But there have been instances where 
clearly it wasn't read because they articulated--you know the 
way--and maybe Ms. Petronchak can speak to this, but they will 
take paragraphs. They have got modelled paragraphs that they 
can pull from a system to do a notice to a specific taxpayer. 
And it has been obvious that they just pulled those paragraphs 
and are dumping them into this letter----
    Mr. MEEHAN. Pro forma.
    Ms. WILSON [continuing]. And it is very irrelevant to what 
was even discussed.
    Mr. MEEHAN. So what is the effect on the taxpayer? It just 
draws it out even further. Have penalties and fines been waived 
during this period, or is there further accumulation during the 
period in time that you are appealing this process?
    Ms. WILSON. So, yeah, interest continues to accrue while we 
are going through this process.
    Mr. MEEHAN. So the clock is ticking against the person who 
is appealing?
    Ms. WILSON. Yes. And so, you know, that is a discussion you 
have to have with your clients. But then, you know, there have 
been instances where, you know, your client will come to you 
and say: Do I pay now because, you know, I don't want to accrue 
all the interest?
    But then there is a different process. You have to file a 
different form, the form 843, to make a refund claim, and it is 
a different process. And you will end up in the same place, 
but, you know, there are a lot of considerations to take in 
when you are counseling clients of what path to go down.
    But, you know, back to your point, I think the impact it 
has on my clients is that we are built on a voluntary 
compliance system. And, you know, what I have seen in some of 
this penalty administration recently just is that clients 
become very discouraged because they truly thought they were 
being compliant. And then when they get this notice that looks 
like they weren't even really looked at, it can be very 
discouraging to them.
    Now, the positive note I will say is that, once we get to 
the appeals process in the penalty arena, a lot of times we do 
have success there. But it is that routine--it just seems to be 
when you make your initial request, it is just the routine----
    Mr. MEEHAN. Well, maybe you can--and that appeals process, 
because that would be presuming we get to that point where you 
actually have somebody and now you are talking--but I am 
intrigued by the concept.
    I think, Mr. Shinn, you were talking about it where you 
believed that the presence of the examiner also at the appeal 
was creating kind of a piling on, and yet I wonder to the 
extent that if you are actually trying to get to a resolution, 
should there be some capacity for the person that knows the 
facts to be able to present them to--I know that the IRS person 
is supposed to be independent, so to speak, but I would believe 
that if I was doing an appeal I would want to have at my 
availability the person who knows the record.
    Mr. SHINN. My experience has been the Appeals officers are 
extremely experienced and knowledgeable on the issues and if 
they weren't, they would assign another person. And so they can 
come to their own conclusions based on the facts as presented 
that came up. That file is transferred. They get to see the 
file.
    Mr. MEEHAN. The file, but you don't have the benefit--so 
just explain to me the difference. Why is it preferable not to 
have that person in the room who knows the record?
    Well, maybe for another time. Maybe if you have a thought 
that you want to share with us in written testimony or 
otherwise, we would benefit from it. Thank you so much.
    Chairman BUCHANAN. Ms. DelBene, you are recognized.
    Ms. DELBENE. Thank you, Mr. Chair.
    Thank you all for being here with us today.
    Ms. Petronchak, I wanted to follow up on comments you made 
earlier when we were talking about the challenges that small 
businesses face and the inconsistency that we see for small 
businesses versus large businesses.
    What do you think we should do to address these issues? 
What procedures would you like to see? Or do you have 
recommendations on what you think we could do that would work 
for small businesses?
    Ms. PETRONCHAK. So some of the things could be implemented 
administratively. I think Pete had talked about the IDR 
process, and LB&I isn't perfect by any means. But those are 
things, from a quality perspective, within the Service, I think 
they could take a look at and decide that they want to change 
those processes for taxpayers and indicate that, gee, when we 
are developing the facts, it is important to put the human 
element on it and actually having a discussion with the 
taxpayer about the information.
    And although that is not perfect and you will still have 
disagreements and still have contentious exams, it is an 
administrative process that could be implemented by rolling out 
new procedures for their agents in how they interact with 
taxpayers on a routine basis.
    I mean, they are developing the facts. We have all spoken 
to the independence issue in Appeals. So that initial fact 
finding, that document request, is critical to a taxpayer 
feeling like they have had the opportunity to present their 
position and be heard by someone at the Service who is going to 
be open about what it is they are looking at and the treatment 
they are going to decide on a particular tax issue.
    So I don't know that anything needs to be mandated, but the 
IRS, in looking at their procedures, could say--I was 
Commissioner of Small Business, and, yes, when I was there, 
back when I left in--was one of those things I could have 
looked at and said, gee, there are ways we could be interacting 
on a much better basis with our taxpayers to make them feel 
better about the voluntary compliance system.
    Ms. DELBENE. Thank you.
    Mr. Sepp, it seems the current procedures for small 
business leave room for improvement, and I know you talked 
about that in your testimony as well.
    You also pointed out in your testimony that larger 
businesses also have some challenges when it comes to the right 
to appeal. And I wondered if you could talk a little bit about 
your assessment of why organizations, like members of the CEETA 
coalition, are facing the challenges in dealing with the IRS 
that you outlined. What are some of those challenges, and why 
do you think those are happening?
    Mr. SEPP. Sure. That is the Coalition for Effective and 
Efficient Tax Administration. It is a coalition not only of 
large business groups but taxpayer advocacy groups, because we 
are concerned that some of the trends, both in Small Business 
and Self-Employed Division toward audits but LB&I, are leaking 
across to each other, and we are going to have auditing 
procedures that are taking the worst elements in all divisions 
to be used against taxpayers across the spectrum.
    Some of the problems we are facing: designating certain 
cases for litigation, where they might have precedential value 
even though there really isn't a clear connection to 
precedential value or large numbers of taxpayers who might be 
affected. There is the designated summons, which is a rather 
extraordinary IRS power for getting information out of 
uncooperative taxpayers that is being increasingly used in 
cases where the taxpayers really are being cooperative. And, of 
course, there is the use of third-party counsel to work 
auditing situations, not to advise but, rather, to do things 
that approach deposing witnesses.
    But all of this really matters to taxpayers across the 
board, because, again, as everyone has testified here, there is 
on paper a directive to the Secretary to provide procedures for 
fair and independent audit appeals, but, in reality, it is just 
not happening. And I see this in case after case.
    Even small business owners who are getting things like the 
90-day letter, if they are lucky enough to ever have gotten a 
30-day letter in the first place, they think it is a demand to 
pay tax. They don't even realize it is the revenue officer's 
report that would allow them to take an appeal to Tax Court. 
They don't even understand the basic nature of the process, 
because they are so intimidated by it.
    And, again, this is why we support H.R. 3220 as a start of 
a package that could begin addressing these things.
    Ms. DELBENE. Thank you very much.
    I yield back, Mr. Chairman.
    Chairman BUCHANAN. Thank you.
    Mr. Holding, you are recognized.
    Mr. HOLDING. Thank you, Mr. Chairman. Thanks for holding 
this hearing.
    You know, obviously, we don't usually hear from our 
constituents' interactions with the IRS unless they are 
negative. And I appreciate the Committee looking into ways to 
enhance this experience.
    So I am just concerned about what I think is a new 
diversionary tactic being used by the IRS to keep taxpayers 
from accessing administrative appeals. So we all know that 
cases docketed in the Tax Court are typically transferred to 
Appeals for consideration--are not typically docketed unless 
they are designated for litigation. And it has come to my 
attention that the IRS may be restricting taxpayer access to 
appeals in some cases that are docketed in Tax Court.
    And the case that I am aware of was not designated for 
litigation nor referred to Appeals, the two standard options 
for making an audit dispute. And, instead, the case was kept in 
a purgatory-type status, waiting for litigation, under the 
justification of ``sound tax administration.'' I put that in 
quotes because that is the term they used. And that was the 
only option available. The only option available to the 
taxpayer was litigation.
    So my question--and I am going to ask Mr. Sepp to respond 
first and then open it up to the panel: In your experience as a 
practitioner, have you or any of your clients experienced 
something analogous to this?
    Mr. SEPP. I should state I am not a practitioner, but 
people in the small business community----
    Mr. HOLDING. Right.
    Mr. SEPP [continuing]. Other taxpayers have come to us, and 
there has been that sort of experience relayed to us. And there 
are other experiences, such as what are called speed-up 
situations, where a taxpayer may receive a notice of audit and 
requests for documents, and suddenly they will find in the mail 
yet another determination, and they haven't even had a chance 
to respond to the first one. And it is a way of intimidating 
the taxpayer into taking a position that is detrimental to 
them.
    Mr. HOLDING. Mr. Shinn, you are nodding your head there.
    Mr. SHINN. Yes, sir. We have seen this in a very similar 
fashion with foreign penalties on foreign reporting. And I 
mention it in my verbal and in my written response. We have 
seen it numerous times.
    That is why I make the comment that they need to follow the 
rules or there needs to be a repercussion to the Service. You 
follow it, or you lose your opportunity. Somehow, we have to 
hold them accountable to the process. That is why you have a 
taxpayer bill of rights.
    Mr. HOLDING. Ms. Petronchak?
    Ms. PETRONCHAK. Congressman, I am not sure of all the 
specifics around it, but in the revenue procedure that 
addresses cases, so if a taxpayer filed a Tax Court petition, 
they generally can get their case heard by Appeals before they 
actually end up in Tax Court if they have not already been to 
Appeals. I don't remember the revenue procedure that covers it. 
So there is a provision.
    However, you used a term that shows up in several of the 
revenue procedures: sound tax administration. I don't know what 
that means, but in regards to sound tax administration, they 
don't have to offer alternative dispute resolution, the fast-
track process that I talked about in my testimony.
    So I think sound tax administration is a way that they can 
choose to treat cases differently than what we would see should 
be the normal treatment of a taxpayer and how their case would 
move through the system. What the answer is to that I don't 
know, but I think the use of sound tax administration they are 
using as leeway to do many different things with a taxpayer's 
case.
    Mr. HOLDING. Thank you.
    Ms. Wilson, do you want to add anything to that in the 
final few seconds?
    Ms. WILSON. No. I just want to 100 percent agree with her 
that, you know, she is spot-on on the issue. And that is why 
you see my head going back and forth violently, because I 
couldn't agree with her more on that issue.
    Mr. HOLDING. Thank you.
    Mr. Chairman, I yield back.
    Chairman BUCHANAN. Thank you.
    The gentleman from Oregon, Mr. Blumenauer, you are 
recognized.
    Mr. BLUMENAUER. Thank you, Mr. Chairman.
    I find the conversation fascinating, but in the backdrop of 
my experience, when I visit our local IRS offices and when I 
have meetings, which I do routinely with tax practitioners, tax 
attorneys, accountants, part of this strikes me that it would 
be easier to resolve some of this if the IRS was equipped to 
operate in a modern economy, if it didn't have a computer 
system that is so far out of date that they have to delve into 
the archives, find somebody encased in amber that can figure 
out FORTRAN programming.
    I have meetings with people who work at the IRS and have 
them break into tears because they don't have any time to talk 
to people on the phone to be able to maybe help guide a little 
bit. There are people who don't fully understand the rules and 
regulations and the opportunities within the agency and the 
training budget.
    I hear from both people in the agency and from the 
practitioners who, interestingly, are not hostile to the IRS; 
they are frustrated. They are frustrated that they tell 
clients, ``You have a good point. We can work together. We can 
resolve it and get your $3,700 back. But it will cost you more 
to work with me to get it.''
    And I just wonder what you think is attributed to the fact 
that we have slashed the budget, slashed the workforce. 
Congress, each year that I have been here, makes the Tax Code 
more complicated. And, in some cases, it is a rush to be able 
to actually get the stuff out in time, and sometimes we miss 
the deadline.
    So at what point is Congress complicit in this by not 
taking the largest tax-collecting system in the world, which 
relies heavily on voluntary compliance and treats our employees 
and our taxpayers with respect and put the resources behind it 
to make it a--any of you have any thoughts on that?
    Mr. Shinn?
    Mr. SHINN. Yes. In Sarasota, at our office there in 
Sarasota, Florida, the number of people in there, the whole 
area that was set for walk-ins is gone. The number of agents 
has been reduced. I will be the first one to stand up and say 
it is going to take more resources.
    If we are going to stand here and say we are going to 
provide more appellate officers, that takes dollars. If we need 
more access through the internet and to broaden our e-services, 
which obviously we are all nodding our head, we need to use 
technology to give access. And in those phone calls, extending 
the hours, all that takes money. And that is why we are here 
today.
    Mr. BLUMENAUER. But would that be helpful for some of these 
things----
    Mr. SHINN. Absolutely.
    Mr. BLUMENAUER [continuing]. If there were extended hours, 
if there were more people, if there was more training, a modern 
computer system?
    Ms. PETRONCHAK. Sir, I would say additional funding would 
be useful. I mean, IRS can do some things administratively, but 
you mentioned training. I mean, I was Commissioner of the Small 
Business Unit in 2008. And for me to have adequate training for 
my revenue agents who do the exams and the collection officers 
who--the revenue officers who did collection, it was a really 
high-focused training for one of those groups each year, but I 
couldn't afford to have a real highly focused training for each 
of those groups, even back in 2008. So you can imagine.
    Well, how this plays out in terms of taxpayers and 
practitioners, I mean, we feel like we are having to try to 
educate the revenue agent on the issues, because they can't get 
the training they need within the Service. And they are working 
issues on exams that they have never seen before, and so then 
they tend to go to somebody for advice. But you know how it is. 
You talk to three different people; how much gets translated as 
it goes down the line and really actually comes to form a final 
conclusion.
    Mr. SEPP. I would also make a quick plea for funding in 
another area, the Volunteer Income Tax Assistance program and 
the low-income tax clinics.
    Right now, I think eligibility for the LITC program is 250 
percent of poverty level. That is about $60,000 for a household 
of four. That is not going to capture all that many small 
business clients, for example, who might desperately need 
assistance and could get it through a nonprofit organization 
like that.
    Mr. BLUMENAUER. Great.
    Thank you for your patience, Mr. Chairman. I just hope at 
some point, when passions cool, to look at how we treat our 
accounts receivable and being able to think through the 
resource, the training, the computer, that I hope shouldn't be 
politicized, but I think the evidence is that that will pay for 
itself many times over and relieve blood pressure medication.
    Thank you.
    Chairman BUCHANAN. I hear what you are saying. They said 
the computers, some of them are back from the seventies and 
eighties and sixties. I can't imagine that, but that is part of 
the testimony we had.
    The gentlelady from Indiana, Mrs. Walorski.
    Mrs. WALORSKI. Thanks, Mr. Chairman.
    And thanks to the witnesses again for being here today and 
lending your expertise to us. I think this has just been a 
fascinating conversation. And it has been a conversation, 
listening to your expertise and to questions that we have, and 
the unanimous response that we all have. We are all kind of 
talking about all these same issues.
    One of the rights enshrined in the Taxpayer Bill of Rights 
is the right to pay no more than the correct amount of tax.
    Mr. Sepp, I was struck that less than 5 percent of small 
business taxpayers appeal their audit determinations and that a 
big reason for this is taxpayers believe it is cheaper to just 
give up and pay the IRS rather than appeal. That, to me, is 
incredibly disheartening. If a taxpayer thinks they are paying 
more in taxes than they should, you know, my advice is 
absolutely fight it. The tools are there to fight it. Instead, 
their perception seems to be that appealing it isn't worth the 
time or the money. We need to change that perception, as well 
as the actual time and money associated with appealing.
    But I just wanted to address this to Mr. Sepp and Ms. 
Petronchak. You both discussed dispute resolution and options 
that would be less formal, lower cost for taxpayers. You also 
noted that the IRS has failed to expand its use of these fast-
track dispute resolutions.
    Ms. Petronchak, can you explain how these fast-track 
procedures work and how they assist taxpayers in resolving 
cases quickly?
    And I am just going to tell you, my follow-up question to 
both of you, Mr. Sepp as well, is, is there a way that we in 
Congress can do something about that, or is it purely just IRS 
authority?
    So I would just like to hear about the options and then, 
what can we do.
    Ms. PETRONCHAK. So, in fast-track settlement, it is an 
option where, you know, I am being examined by the IRS and we 
know that I have a dispute over--let's just make it simple--
travel expenses. So they have said what their position is; I 
have said what my position is. So the taxpayer and IRS can 
agree that a fast-track settlement, having the use of an 
appeals mediator while it is in Exam, would be beneficial to 
all parties to come to resolution on the issue.
    So, getting to your earlier comments, it brings quicker 
resolution. The taxpayer is hoping to get this resolved at 
least cost so they don't have to go on to formal appeals, much 
less go to Tax Court, which not only is cost, but many small- 
and medium-size taxpayers don't want their laundry aired out in 
public court.
    Mrs. WALORSKI. Oh, absolutely. Right.
    Ms. PETRONCHAK. So, even though they may think they are 
right, they are not going to choose that as the venue to go to, 
because they don't want their neighbors talking about their 
issues with IRS.
    And so fast track, you know, we used to see a lot of them; 
we don't see as many anymore. But the procedures I talked about 
that Small Business is using for their exams, when they wait to 
the end of the process to have a discussion, doesn't lend 
itself to having that alternative dispute resolution.
    Mrs. WALORSKI. And what can we do about it, Mr. Sepp?
    Mr. SEPP. Based on my limited study of other countries' 
practices and what the taxpayer advocate has said, there seem 
to be several problems.
    One, we have to restore the independence of the ADR 
process. In almost every case, from Australia to U.K., 
Portugal, all around the world where ADR is much more common 
and hundreds of thousands of cases will get resolved this way, 
they have to keep the mediator or arbitrator function well-
insulated away from the tax authority.
    We may not be able to use private accredited mediators 
here, much in the way that it appears in the Small Business 
Taxpayer Bill of Rights that was introduced in the last 
Congress, but we could have a situation where there is an 
office of mediation with specially trained people, rather than 
plucking people from Appeals who have some training in 
mediation and arbitration. You could even house that bureau 
somewhere in the Treasury so that it has further independence.
    The other important thing, I think, is to instruct the IRS 
where mediation and arbitration can be used. The agency will 
often exclude so-called campus collection cases and other types 
of matters for ADR from the start. And we have to resolve those 
kinds of issues as well.
    Mrs. WALORSKI. I appreciate it.
    Mr. Shinn, did you want to add anything quickly?
    Mr. SHINN. Yes. And in response, that is why I think, 
especially in small business, that it needs to be a requirement 
of the steps, so that that way people aren't afraid of appeals; 
it is part of the process. The fast track is there and is part 
of the sign-off.
    Mrs. WALORSKI. I appreciate it.
    Thanks, Mr. Chairman. I yield back.
    Chairman BUCHANAN. I want to thank everybody for the 
opportunity, but let me run through--and this will be a 
question to all of us. We are trying to simplify the dispute 
resolution, trying to improve on the process. And I want all of 
you to take a minute on that.
    But before I do, I want to say a couple of things. I do 
agree, with big corporations--it doesn't mean that there is not 
work to be done in dispute resolution, but I have been in that 
world. And you have CFOs, you have plenty of cash, and you have 
to go to court, you go to court. You don't want to, but they 
have resources.
    What I am concerned about personally is individuals. I read 
in USA Today 62 percent of Americans--I use this a lot, but it 
was stunning to me when I read it--don't have $1,000 in the 
bank. So if you get a letter from the IRS that you owe $2,000, 
where are you going to go resolve that? A CPA, accountant, that 
is going to be a couple, $3-, $4,000. You probably are going to 
just say you are better off to write a check or get on a 
payment plan, just agree with the IRS and move on.
    Small businesses, a dispute resolution, if you ever think 
about going to court, you could be talking over $100,000, 
$50,000.
    Did you say, Ms. Wilson, you are in a law firm?
    Ms. WILSON. No.
    Chairman BUCHANAN. Okay, a CPA firm. But you know, when you 
hand it off to the tax lawyer, you are talking big money. And 
usually you just cave and say, you know, let's go make the best 
deal and get down the road. That has happened to me and others, 
I have heard of it, where they don't think they owe the money, 
but at the end of the day, the $10- or $20,000, the $5,000, the 
$30,000, it costs you more with accountants and lawyers to go 
try to resolve it.
    So the question I have for the individual taxpayer, the 62 
percent who don't have $1,000 in the bank, how do we simplify 
this dispute resolution where people can have their day in 
court but it doesn't take six months, a year? Because, as that 
meter is running, there is no way you can afford to go to court 
or, you know, arbitration or work with someone to try to 
resolve that.
    Mr. Shinn, I will give you the first opportunity from that 
standpoint. And I know you have dealt with that. But that is 
just my sentiment. That is what I have heard over the years.
    Mr. SHINN. That is why I said we have to have the 
opportunity to have access through phone calls and walk-ins. 
And, also, when the taxpayer doesn't follow the deadlines, 
there are repercussions. When the IRS doesn't follow their 
protocol, there needs to be repercussions, because, to the 
taxpayer, it is hard and fast.
    So I can give you one quick analogy that really struck me, 
is I helped an employee, a 90-year-old person of color who 
could not write. He was a night watchman at a packing house, 
worked several years there. Prior to that, he worked at another 
packing house, where they treated him as an independent 
contractor. And he got billed. And he didn't know what to do. 
It went all the way to collections, and they garnished his 
wages. He ended up with pancreatic cancer, and the employer 
asked me to step in.
    I tried to get the collection officer to settle, and the 
employer was going to settle. They wouldn't take a dime less, 
and he passed away 2\1/2\ weeks later. I called that collection 
officer, I sent him a copy of a death certificate, and I said, 
that isn't in the taxpayer's best interest.
    And that is what we are dealing with, and it is so sad.
    Chairman BUCHANAN. Yeah.
    Ms. Wilson?
    Ms. WILSON. You know, I now work at an accounting firm, but 
I was a local taxpayer advocate and worked with Nina Olson. So, 
you know, this is near and dear to my heart, as exactly what 
you are talking about, Chairman Buchanan, in the sense that----
    Chairman BUCHANAN. Let me just say with you and all, we are 
looking to do IRS reform, and this is one of the biggest areas. 
I think we have to find a way that people can get these 
disputes settled. So that is what we are looking for.
    But go ahead.
    Ms. WILSON. Yeah. And I think we need to simplify the 
process. I think it is intimidating, and I think, because it is 
intimidating, taxpayers feel that the only way they are going 
to resolve it and win is if they engage help. And, as your 
point, most taxpayers don't even have $1,000 in their account.
    So I think, you know, that we need to find a way to 
simplify the process. We need to find a way to make it less 
intimidating for the taxpayers. And we need to focus on that 
bill of rights that says you shouldn't have to pay more tax 
than you actually owe.
    Chairman BUCHANAN. Mr. Sepp?
    Mr. SEPP. We have to find a way to institutionalize 
alternative dispute resolution mechanisms. We have got to learn 
from the experiences in other countries, where millions of 
individuals have utilized the process, making it less formal 
but more actionable, with fewer delays, applying to a larger 
number of cases, with a more independent arbiter involved.
    If we do those things--and H.R. 1828 from the last Congress 
is only a starting point for this--if we do that, I think we 
will dramatically increase the access to justice that taxpayers 
need.
    Add to that things like the Low Income Taxpayer Clinics, 
add to that more resources for the Taxpayer Advocate's Office, 
and you have the beginning of a core of principles that will 
get to this point of giving taxpayers the justice that they 
need. And they still need it.
    Chairman BUCHANAN. You get the last word.
    Ms. PETRONCHAK. Okay, Chairman.
    So fast-track settlement, I agree, should be available for 
all taxpayers. Just to give a little history, Large Business 
and International developed this process 2002, 2003, but it 
didn't become final and actually institutionalized for small 
business and self-employed taxpayers until 2015.
    Chairman BUCHANAN. Yeah.
    Ms. PETRONCHAK. So when I commented on a couple processes I 
think could make things more transparent and easy for 
taxpayers, there are some things that they have there.
    Now, fast track isn't the answer to everything, because you 
may have reluctant IRS folks to use it. Pete mentioned, you 
know--I in my written testimony mentioned outside mediator or 
taxpayer. To them, hiring an outside mediator for $1,000, 
$1,500 is cheaper than taking this on to Appeals or Tax Court. 
I hadn't thought about the concept of a mediator group, you 
know, somewhere in Treasury or somewhere that serves as an 
independent mediator----
    Chairman BUCHANAN. The problem is, if you owe $2,500 or 
$2,000, you can't pay $1,500, because you just say----
    Ms. PETRONCHAK. Right.
    Chairman BUCHANAN [continuing]. You know, I am going to go 
ahead and just write the check or figure out a way to write it.
    Go ahead.
    Ms. PETRONCHAK. But, again, you know, IRS hasn't shown that 
they are extremely interested in this alternative dispute 
resolution. I would caution against saying, well, we mandate 
you to use alternative dispute resolution, because if they 
don't come to the table willing to settle and fast track, the 
taxpayer and IRS have to agree, or they just walk away and the 
taxpayer still has their appeal rights.
    So, somehow, I mean, maybe looking at some of the other 
systems, come up with, well, what is the happy medium here and 
how this could be changed. It is there; taxpayers would love to 
use it. Individual taxpayers need to be able to use it, which--
now it is available really to businesses, small and large. But 
it needs to be expanded and made available and at least cost 
and be successful once it is used.
    Chairman BUCHANAN. Well, I would appreciate for all of you 
to get your thoughts and your ideas to our Committee. We want 
to work together, the Ranking Member and myself, on a 
bipartisan basis, because this is an important issue.
    And I have been in that world where larger organizations 
have the resources. I am concerned about the person that gets a 
$1,000, $1,500, $2,000 small business or individual tax bill. 
How do we resolve that without putting them into bankruptcy or 
putting them in a bad situation?
    I agree with you--a lot of times you get that notice 
through the IRS. I have gotten more than my fair share; a lot 
of us have. You know, it is frightening to a lot of people. And 
this is an area we need to work on and get your thoughts and 
your ideas.
    So, in closing, I would like to thank our witnesses for 
appearing before us today.
    Please be advised that Members have two weeks to submit 
written questions to be answered later in writing. Those 
questions and your answers will be made part of the formal 
hearing record.
    With that, the Subcommittee stands adjourned.
    [Whereupon, at 3:24 p.m., the Subcommittee was adjourned.]
    [Public Submissions for the Record Follows:]
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