TAXLITIGATOR – Tax Controversy (Civil & Criminal) Report

The Treasury Inspector General for Tax Administration (“TIGTA”) recently issued a report suggesting that the Internal Revenue Service (“IRS”), by failing to properly implement its wage reporting matching program is leaving at least $7 billion on the table.

The IRS and the Social Security Administration have a computer matching program called the Combined Annual Wage Reporting (“CAWR”) Program which compares employee wage and withholding information reported to the IRS on employment tax forms to withholding documents filed with the Social Security Administration.  The purpose of the IRS-CAWR Program is to ensure that employers report the proper amount of employment taxes and Federal income tax withholding on their employment tax returns.  In today’s digital driven world, it is a program which makes great sense.

The TIGTA report found that in “most” cases where discrepancies are found, the IRS does followe-up with the taxpayer.  In 2013,  of  137,272 discrepancy cases, the IRS only worked approximately 17% or 23,184.  The remaining 114,088  (83%) discrepancy cases which were not worked had potential unreported tax difference of more than $7 billion.

In addition to not working all  the cases, the TIGTA report found that the IRS case selection process did not properly ensure  priority was given to discrepancy cases with the highest potential tax assessment.  TIGTA analyzed 114,088 discrepancy cases that were not worked to identify those with the highest potential unreported tax amounts case type.  Their analysis indicated that there had been total potential unreported tax of more than $6.8 billion.

TIGTA recommended that the Small Business/Self-Employed Division evaluate the current agreement and workload processes with the Social Security Administration to determine if changes could be made and  to revise its case selection criteria to include cases with the highest potential tax assessment.  TIGTA also recommended that the IRS take actions to include prior year discrepancy cases when the current year discrepancy case was selected for the same employer.

Interestingly, the IRS agreed with 6 of the 7 TIGTA recommendations.  IRS management did not agree to include the prior year discrepancy cases, but that it would consider employers that  had a prior discrepancy case as part of a selection criterion for current year cases.  The full report can be found at https://www.treasury.gov/tigta/auditreports/2017reports/201740038fr.pdf.

In today’s digital world, the only possible excuse for leaving $7 billion on the table is a lack of manpower at the IRS.  Some may blame the IRS, but the blame could with the Congress and  inadequate funding of the IRS.  This is a simple fix.  Resources should be put toward this $7 billion problem.  Hit a button, find   the discrepancies and  collect the additional employment tax liability.  A billion here and a billion there adds up.

STEVEN TOSCHER – For more information please contact Steven Toscher – toscher@taxlitigator.com Mr. Toscher is a principal at Hochman, Salkin, Rettig, Toscher & Perez, P.C., specializing in civil and criminal tax litigation. Mr. Toscher is a Certified Tax Specialist in Taxation, the State Bar of California Board of Legal Specialization and represents clients throughout the United States and elsewhere involving federal and state, civil and criminal tax controversies and tax litigation. Additional information is available at http://www.taxlitigator.com