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IRS mismanages some audits

By Kay Bell · Bankrate.com
Tuesday, July 8, 2014
Posted: 2 pm ET

Everyone fears an Internal Revenue Service audit. But many of us have been audited without realizing it. We've gotten a letter or notice from the IRS with questions about our tax returns.

We get the document in our snail mail box, answer the IRS questions and our tax return is left as filed or adjusted in the way that the IRS contends is correct.

This is known as a correspondence audit. Despite the fearful vision of going face-to-face with an IRS examiner over every detail of your Form 1040, correspondence audits are the most common method of reconciling filing issues.

And the Government Accountability Office, or GAO, says the IRS has been doing a terrible job of carrying out these audits.

Incorrect audit action time frames

The IRS has "misled" taxpayers in audit notices by providing "unrealistic" time frames on when the agency would respond to the information it requested, according to a recent GAO report.

The GAO found notices in which the IRS stated it would respond within 30 to 45 days, but instead the tax agency has "consistently taken several months to do so." As of early this year, according to GAO, the IRS' own data show that the agency had not responded in a timely manner to more than half of the correspondence taxpayers sent.

The only thing worse than having to spend more time than expected, even by mail, with an IRS examiner? Waiting for a refund.

The GAO report says that in many cases, refunds are held up until the audit is finished.

Trouble for IRS as well as taxpayers

Not only is the IRS inconveniencing taxpayers, the GAO says its mismanaged correspondence audit procedure is causing more work for IRS employees.

IRS tax examiners told the GAO that notices caused taxpayer frustration and generated unnecessary taxpayer calls to the agency.

The bottom line is in the GAO report's title, "Better management could improve tax compliance and reduce taxpayer burden."

The IRS told GAO it plans to take action on all nine of the recommendations detailed in the report, and said despite its budgetary challenges, "We have been working to improve this program."

But there wasn't any indication in the report as to a timetable on when the process improvements might be put in place.

So stay on the lookout for official envelopes from Uncle Sam. Answer the IRS questions. And hope for the best.

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You also can follow me on Twitter: @taxtweet.

Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and co-author of the e-book "Future Millionaires' Guidebook."

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