IRS Audit Contractors: Why Is This a Problem?

The IRS Is Using Outside Contractors to Help With Audits: What Problems Could This Cause?

Underfunded and understaffed, the IRS sometimes looks to creative solutions for complex cases. Yes, audits and other concerns are typically handled by highly trained Tax Compliance Officers, but some taxpayers fear that outside assistance may also play a role.

Contractors are involved at the IRS to an extent, but their work is often difficult for ordinary taxpayers to understand. Below, we clarify so that you feel better prepared for your future interactions with the IRS.

When Are Contractors Allowed?

Technically speaking, the IRS is prohibited from using contractors for anything other than “expert evaluation and assistance.” That being said, the agency has been known to use contractors for a variety of services in the past.

For example: in a controversial situation in 2014, the IRS used the law firm, Quinn Emanuel, for legal services involving transfer pricing examination. Later, temporary regulations issued by the IRS allowed for the full participation of contractors in summons interviews.

The Taxpayer First Act

Once the agency’s work with Quinn Emanuel was discovered, the chairman of the Senate Finance Committee objected, claiming that such behavior defied federal law. Since then, Congress has made a clear effort to limit the ability of the IRS to work with outside parties.

The result? the Taxpayer First Act. This legislation prevents IRS contractors from questioning witnesses under oath. Additionally, the agency can no longer hire outside counsel for federal tax concerns. The IRS has proposed exceptions to this rule, however, so its work with contractors may continue to evolve in the next few years.

The IRS may be restricted from using outside experts, but you’re encouraged to work with representatives such as enrolled agents. If you’re having issues with the IRS, look to the Highland Tax Group for assistance. Reach out today to learn more about our services.