Agency Activism as New Way of Life: Adminsitrative Modification of the Internal Revenue Code Through Limited Issue Focused Examinations
W. Edward Afield
Georgia State University College of Law
July 17, 2006
Florida Tax Review, Vol. 7, No. 7, 2006
In the name of increasing efficiency and better utilizing limited resources, the IRS has begun to adopt audit policies that overly favor taxpayers and greatly hinder the IRS’s ability to perform thorough audits. Highlighting this trend is a relatively new audit technique used by the Large to Mid-Size Business Division (LMSB), known as the Limited Issue Focused Examination (LIFE) Process. Under LIFE, the LMSB has attempted to involve taxpayers in the audit process by sharing responsibility for timely completion of the audit and has attempted to streamline the audit by reducing the scope of issues examined and applying materiality thresholds to limit scope expansion.
Although the LMSB has had success improving audit currency through the use of LIFE, it is paying too high a price for this result. By instituting LIFE, the LMSB has exceeded the audit authority congressionally granted to the IRS. Furthermore, the IRS is doing so without full disclosure to the public of how LIFE is implemented. In other words, the IRS is in effect legislating without any political accountability. In addition, although the LMSB believes that it will not be sacrificing much in the way of quality, this claim does not hold up, especially when one considers the potential for taxpayer abuse of the program. The fact that corporate America views tax departments as profit centers almost assures that LMSB “customers” will be able to exploit the lack of audit thoroughness to engage in questionable if not outright fraudulent activity. LIFE also greatly undermines the rule of law because the program misuses discretion and arbitrarily treats similarly situated taxpayers unequally.
Number of Pages in PDF File: 49
Keywords: tax, audit, procedure, limited issue focused examinations, administrative law
Date posted: October 8, 2010