As reported in the BNA Daily Tax Report on January 14, 2015, IRS Commissioner John Koskinen said in an e-mail to employees and stakeholders on January 13, 2015 that the IRS won’t be able to close as many audits in 2015 due to budget cuts. For people unfortunate enough to have been through the IRS audit process, this statement should be concerning. Although the audit process has never been fast, the process has become painfully slow, with a recent taxpayer asking, “How is this possible the deduction taken on my 2003 tax return will not be decided until 2015?” The Commissioner’s statements indicate the process will only get worse.
It remains to be seen whether the budget cuts will result in substantially fewer audits, or just longer and slower audits. Depending on the answer, taxpayers and their advisors might need to rethink strategy-related issues, such as the advisability of signing statute of limitations extensions which give the IRS additional time to complete an audit. Further complicating the decision making process is the fact that the IRS will apply interest to any tax deficiency it ultimately determines. Due to the current relatively-low IRS interest rates, this is not currently a large problem, but the rates are subject to change quarterly.
If you have an issue with the IRS, all of these concepts should be thought through. Depending on the length of future IRS delays, the old way of thinking about the process may no longer apply.