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Tax News Now Ep. 10 - Mastering IRS Challenges: Strategies for Advocacy, Tools, and Communication with Melissa Wiley
129 Plays8 hours ago
Mark Gallegos, Tax Partner at Porte Brown, and his guest, Melissa Wiley, delve into the leading tax topics. Gain insights from their expertise on the current tax landscape. Recognizing the many uncertainties tax professionals face this year, Mark and his guest each month emphasize the opportunities to strengthen client relationships and drive future revenue for tax practitioners.
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Transcript
Introduction to Melissa Wiley
00:00:09
Speaker
Hello everyone, and welcome back to Tax News Now. I'm your host, Marc Gallegos. Today's episode is extra special for me because my guest isn't just a nationally respected tax controversy attorney, she's also a friend and someone I greatly admire.
00:00:22
Speaker
I'm talking about Melissa Wiley, a partner at Castellanets in DC. Melissa has over 20 years of experience representing clients in tax disputes, audits, appeals, and litigation before US s Tax Court, the Court of Federal Claims, and the federal district courts.
00:00:37
Speaker
She's one of the true authorities on penalty defense, international reporting, voluntary disclosure, and controversy work. But here's the thing that sets Melissa apart. She's not only incredibly sharp technically, she's also one of the most thoughtful, practical voices in our profession.
00:00:52
Speaker
She's a frequent presenter at major conferences, a go-to resource for ethics and enforcement issues, and she's taken on key leadership roles across the AICPA, the American Bar Association tax section, the American College of Tax Council.
00:01:06
Speaker
And when big picture IRS advocacy isn't happening in our profession, Melissa's in the room helping shape it. And on a personal note, Melissa is one of those people who makes our profession better, not just with her knowledge, but with her generosity, her kindness, and her willingness to support others.
00:01:20
Speaker
She's smart, she's strategic, and she has a way of making even the toughest IRS issues approachable, which is great.
Melissa's Journey to Tax Law
00:01:27
Speaker
So Melissa, it's such a pleasure to have you on the Tax News Now podcast. I am absolutely blushing. That was maybe the nicest introduction anyone has ever given me. Thank you, Mark.
00:01:37
Speaker
Thank you. Thank you. Now, before we even get into any of the technical weeds and all that, I love to start with your story. Obviously, you've built this phenomenal career as a tax controversy lawyer, but start me from the beginning, you know, like, because I know that you didn't jump into just being a ah lawyer right out of the gate. Tell me tell me your story and let's get let's get to the where you are today.
00:01:59
Speaker
Yeah, I always love to tell my story to young people who are worried that like they haven't nailed every step of their career in the right ah order and and at the right time, because um it was some somewhat of a winding ah path to get to where I am today. and you know spoiler alert that's okay it still works out so um i grew up um very middle class in the very middle of long island um went to public high school uh and i very much loved math math was what i i loved doing and um
00:02:35
Speaker
I thought that I wanted to do something with that. And growing up outside of New York City, my my dream was to work for then one of the big eight in the In New York, in Manhattan.
00:02:49
Speaker
And so I started getting interested in accounting and in talking to college counselors about accounting. um They said, well, you know, if you really love the math aspect, um you should look at this thing called actuarial science. It's, you know, you still get to play with numbers, but it's much more statistical and math based than um sort of on the financial side of accounting. And so i was, you know, neither of my parents went to college. I didn't have a lot of um outside guidance. And i thought, okay, these people who seem to know what they're talking about think this is a good idea.
00:03:23
Speaker
um So I ended up going to college and majoring in actuarial science. I went to a college called, wait for it, the College of Insurance, um which actually no longer exists. It was bought by St. John's University some
Career Path and Decision Making
00:03:37
Speaker
years ago. But ah I graduated from there, 1998, I'll date myself, ah with a degree in actuarial science. um One of the nice things about the school, though, and the you know, this is sort of one of those other, I feel like i have enough gray hair that I can give advice to younger people now, is I don't really regret a lot of the detours because I got something really useful out of them. So the College of Insurance, as it may imply, is is really well tied to the insurance industry or or it was at the time. And so pretty much for most of my college career, um I was working either part-time or full-time in the industry.
00:04:19
Speaker
which gave me just really good insight and practice into how to be a professional. um And it gave me a really good insight into what the job was like and what the industry was like. And I got to know people. um And in in doing that, I realized that I didn't think I was meant to be an actuary. So...
00:04:37
Speaker
i I kind of bounced around a little. I worked on the actuarial side after I graduated. I worked at a reinsurance brokerage firm for a while. um of all things, trading weather derivatives.
00:04:50
Speaker
Can't make this stuff up. Wow. Wow. um And this, remember, is in like the late 90s, early 2000s and like the Enron era. So so it was kind of a a fun experience, especially for a young person. And then the more I thought about it, the more I just felt like I wanted something else. And I wanted more options, right? Because I had this very specialized degree from a very specialized school. So...
00:05:15
Speaker
So fast forward, I started thinking about what I want to do and law school is is pretty prominent. And I had always um loved politics and and government. And so I was fortunate enough to be accepted to Georgetown, came down here to DC for law school. And I like to say, i kind of forgot to leave. Like it wasn't really, um it wasn't the plan, but all these years later, I'm still here. And in fact, my office now is across the street from ah Georgetown Law School. So I feel like I either got very far or not far at all.
00:05:48
Speaker
So yeah.
Discovering a Passion for Tax Law
00:05:49
Speaker
And as to how I got into tax law, I mean, I honestly went to law school to do something ah very different. and And I ended up a tax lawyer because it turns out what you love is what you love.
00:06:00
Speaker
um And I love numbers. but But part of what I love about my job as a controversy lawyer is i get to help people. who are in kind of unpleasant situations, right?
00:06:12
Speaker
and And I very much fell into this in that it got to my third year of law school and I had a light schedule and also a light bank account. So I decided I needed a part-time job.
00:06:26
Speaker
And I was very strategic in my part-time job in that I knew I liked numbers and a lot of lawyers didn't. So I looked for jobs that were kind of finance numbers heavy. um I had a car and a lot of law students didn't. So I looked for non-metro accessible jobs. like this a When you say I'm practical, Mark, I'm very practical.
00:06:48
Speaker
um And i ended up working at this small firm in McLean, Virginia, just outside DC that just did tax controversy. And it turned out that I really, really enjoyed it.
00:07:01
Speaker
And more than that, I i really enjoyed the um the the the people who practice tax. you know more The more I learned about um the ABA, the AICPA, the just the organizations around the practice of tax.
00:07:16
Speaker
um I just really enjoyed meeting thoughtful people, fun, interesting people. um And now, gosh, what is it? 2025? I have to look at the calendar. um Over 20 years later, I'm i'm still here. yeah,
00:07:30
Speaker
you know that That is a little bit of the overview. that The details involve you know starting in a law firm with three people going to Skadden Arps after that, which is one of the largest law firms, um then thinking that was not big enough. So I went and I worked at Ernst & Young for eight and a half years, both in the general counsel's office and in the national tax group.
00:07:52
Speaker
um And then found my way back to the law firm side where um the the boutique kind of small to medium size is is where my sweet spot is these days. That's awesome. I mean, I mean, to go from, you know, the but the school of insurance to to law school at Georgetown and then here here you are. I mean, I I love that. And that's why i love to bring up the stories is because everybody's got a journey and, you know, everyone's journey looks completely different.
Advocacy and IRS Controversy Work
00:08:21
Speaker
And just because you think, oh, everything needs to be X, Y and Z. And so, you know, cookie cutter. I mean, honestly, most of us, like it we all come from various backgrounds and it's that's what makes it so fun.
00:08:32
Speaker
Totally. and And I find the people who have had those twists and turns, right? They have these things that they bring to their current practice and their current jobs that are so special and so unique.
00:08:43
Speaker
And it's what makes them interesting colleagues. at what It's what makes them effective advisors. Missed. Now, once you were in tax, what pulled you into the IRS controversy work?
00:08:53
Speaker
Was there a case or a moment early in your career that really got you hooked? Or is it just kind of like it just kind of evolved over time? Tell me more about that. I'm not going to lie, Mark, I like to argue. um It's so funny, too, because my husband will tell you, like, I am the most conflict-averse person in my personal life.
00:09:12
Speaker
Like, I don't like to argue with somebody who's doing work on the house and didn't do it right. Like, I'll be like, well, I mean, it's not, maybe we'll just pay for it, you know. um But when it comes to other people, when it comes to my clients, my friends, my family, I the just like, there's this mama bear that comes out.
00:09:28
Speaker
um and And I really enjoy advocating on behalf of others. um So controversy was sort of a no-brainer for me. um It's a little bit of the like the the nerd in me. And here I have to say that i was um i I was a very, very big nerd in high school, Mark. I i was all county math team.
00:09:55
Speaker
i um I did letter in marching band and I was president of the German club. So ah there's there's a really deep, deep nerd inside of me that loves, you know, winning those technical arguments. And really, i mean, that's what I love about tax is just the details and the technicalities of it.
00:10:14
Speaker
Yeah. But the advocacy piece is what drew me on the controversy side, because I get most often I get my clients and they come to me and they are stressed out about something. They are in a bad place. They want to fix something that they know is wrong or they're under audit and they're fighting with the IRS and they're terrified of what's going to happen.
00:10:36
Speaker
And i like to say, I only get to make it better. Right. i I get to take their problem and assure them that, you know, from the outset, one, you're not alone. Lots of people have been in your situation. That's
IRS Interaction Tips and Tools
00:10:48
Speaker
why i have a job.
00:10:49
Speaker
um But also there's a path forward here and I'm going to hold your hand through it. I'm going to get you through it. um And I found that, you know, even even in the beginning of my career, when I was working at Skadden and and to an extent at EY with much bigger institutional clients and not more individuals as I do now,
00:11:09
Speaker
You know, you're still dealing with people. You're still dealing with the head of tax or, you know, the associate general counsel who's been given this tax case to to figure out. And and they're stressed out about it, even if it's not personal, even if it's not their own money. um They're stressed. It's their job. They want to do a good job. And and that aspect of controversy is just always been really appealing to me.
00:11:31
Speaker
That's so good. and And I know that you know being a problem solver and being analytical, I mean, that is exactly who you are, but you come across as a way that you make all that complexity seem real easy. And I think that's why people really enjoy engaging with you and and hearing what you have to say.
00:11:49
Speaker
um Now, one of the things I really enjoyed is back at the AICPA Engage conference this past year, um some of the listening to you speak a few times, yeah there's a few notes that I took away from it um dealing with the IRS. And number one was you you mentioned know the IRM, the Internal Revenue Manual. Uh-huh.
00:12:07
Speaker
Number two, use the IRS self-service tools and three yeah and you just threw it out there. Just be nice. nice So I like to kind of unpack some of this. Why are there? Why these would be critical. So like, for example, on the IRM, the internal revenue. man um Why is that so important for people to know?
00:12:26
Speaker
Yeah, why should people have it bookmarked and read it for fun? right um So the IRM, for folks who are not as familiar with it, is is the Internal Revenue Manual, right? It is the IRS's employee handbook. It tells the employees how to do their job, and it is not optional.
00:12:42
Speaker
Um, so you're part of the reason that i tell people to know the IRM and use it affirmatively is because especially in this environment, you know, with so much flux and people coming in and out of the agency, right.
00:12:57
Speaker
It takes a really long time. Think about how long of a time it takes for somebody to become a really good tax advisor, right? It takes the same amount of time for somebody to become a really good auditor or a really good revenue officer. I mean, it,
00:13:11
Speaker
The jobs are different, but in so many ways, they are the same in that they are technical jobs that take a long time to get good at and to understand all the nuance. And so, you know, in in that way, it it only helps the person you're working with to say, you know, i think...
00:13:30
Speaker
I think we need to do it this way. And and the IRM says that, and and they can't fight back against that because it's their handbook. They have to use it. um And so that's kind of my my affirmative, nice version of it. And if you know that you want to get to you know point B and the IRM has a very easy trail to get there, you know I say this all the time when I talk about penalty abatement is,
00:13:55
Speaker
Cite the IRM that tells them they have the authority to do something. Block quote it, put in there so that you're making their job easier. um You know, think ah about the clients that we all like working for, right? They're the ones that, you know, get us the information on time. It's orderly. We understand it.
00:14:15
Speaker
People who work at the IRS are no different from us. And so if we're trying our best to use the materials that they have, that they have to follow, to show them how to get the answer we want, you know, you're you're much more likely to be successful.
00:14:28
Speaker
And then kind of the flip side of that is when things go wrong, which, you know, inevitably every now and then they do. um you know, I actually, I tell this story, you've probably heard this sometimes when I speak, where I i had this argument with this revenue agent who just kept issuing these these IDRs, these information document requests with like eight day turnarounds. And i I was like, no, we can't get you that in eight days. And we're not. And and don't even understand your questions. And you're supposed to have a conversation with me about this.
00:14:59
Speaker
You're not just supposed to issue these. And so long story short, she said, you know, you're not answering my IDRs. I'm going to send this for a summons. and And I said, you can't. These are improper IDRs and you cannot issue a summons based on them.
00:15:14
Speaker
And I kid you not, Mark, she said to me, show me where in the IRM it says that. And so I faxed it to her. And I said, it says that right here. If you don't follow the IDR issuance procedures, you cannot refer it for a summons.
00:15:26
Speaker
And lo and behold, all of those IDRs were reissued and they were reissued with reasonable timeframes after discussion about what they meant. So, um you know, they there's there's a kind of a more forceful, affirmative use of it, but also a like, let's use this to get what we and our clients want as aspect.
00:15:44
Speaker
Oh, that's so great. And and i mean, that is that is gold, what you're saying right there. And I think, like you said, bookmark the IRM. Because i I have people all the time that call me and say, hey, I got a taxpayer that's dealing with an issue. And how do we get this resolved? Or there's an audit going on.
00:15:59
Speaker
And you know they don't know what to do. you know They're just, Vila's like, oh I just want to keep moving with certain things. Now this is dragging me back, right? So now you all in and also- Sorry.
00:16:11
Speaker
Go on. um It also tells you what the process is, right? So we all have the clients that are like, okay, you've submitted the thing. What is next? Where does it go?
00:16:22
Speaker
Who's going to make the decisions? And often you can go to the IRM and find out. I mean, I just had a client who had an installment plan rejected because the agent decided that it was it was only issued for the purpose of delay.
00:16:35
Speaker
And um there's no appeals rights for that, but I dug into the IRM and there is a right to a conversation with the manager. So, you know, it's those things, just digging in and figuring out what the procedures are and and what the next steps are that can can really help you also.
00:16:52
Speaker
That's so good. It's such great advice. Now, also mentioned use of the IRS self-service tools. Can you elaborate on what you mean by that?
Challenges in IRS Technology and Workforce
00:17:01
Speaker
Yeah, sure. um i mean, over over the past, I would say 10 years, maybe, the IRS has started to make a real concerted effort to modernize in terms of what taxpayers and tax pros can do online. And um some people may laugh at that because they'll be like, have you seen what's available there versus what I can do on my bank account? Which, like, completely understood.
00:17:25
Speaker
um And I think if you asked anyone within the IRS, they would say, oh, Our goal is to have an interface that looks like what you can do with your bank. um Our goal is for you to be able to get on and look at all your notices, look at all your statements, look at your tax returns, have conversations. We want a chat bot. We want you know all these features. um there's There's a couple of complicating factors, obviously. One is the IRS technology is ancient.
00:17:53
Speaker
ah Their funding sources have not been stable or sufficient. And they are dealing with data that is highly regulated by our statutes in terms of, you know, how we have to lock it down and who can get access to it. So there are some there are some complicating factors that have have led us to the point we're at now where, you know, we're kind of dealing with like 1998 technology. But Given that we were previously dealing with like 1984 technology. So I think we we have come a long way. And it's one of the things that I'm hopeful as you know the IRS continues to see these funding sources move all over the place.
00:18:33
Speaker
So far, the technology funding has has stayed mostly intact. um and And I hope the IRS can continue to to move forward because they do have a vision that will make our lives easier. But even now, there are some things that make the world much, much easier. I mean, i'll again, i don't have to date myself. I already told you when I graduated college. But when I first started practicing, know,
00:18:58
Speaker
If you wanted any information, you to pick up the phone, call the practitioner priority line. And that was it. Like those were your only avenues available to get information, picking up the phone and calling the 1-800 lines.
00:19:11
Speaker
And now we have a lot more available to us. You know, there's the TaxPro account. There's the ability to do powers of attorney online. um The ability to even even if you're not using the feature where it it goes over to the client and the client says, yeah, which can be difficult.
00:19:28
Speaker
um You can submit things online now, which you couldn't. You always had to like rely on faxes. And if I have to explain to another IT department why I still need a fax in 2025, it's like ask ask your congressman.
00:19:42
Speaker
um But. You know, now if i if I need a transcript for a client, my first call is to the client and I say, pull up your transcript and send it to me.
00:19:53
Speaker
um Because i I don't want somebody to have to waste time on the phone to try to get information. You know, there's There's that sort of information available. There are various chatbots available for clients who want to deal with collections issues. And to the extent that you can go online and get that information, you're doing two things. One, you're saving yourself and your client time, um but also you're saving the IRS time so that they can focus the limited amount of resources they have on when you really do need them. You really do need that actual human.
00:20:26
Speaker
So good. And I agree. Yeah. I mean, i mean the IRS website is a phenomenal website for information and and there's lots of tools for you to be able use. So if you don't normally check it out, I recommend going irs.gov because there's plenty there for you.
00:20:39
Speaker
So the um my other recent discovery that I love on the IRS website, and this, again, like maybe i need more hobbies here, Mark, but um is is the IRS data room. um So this is where they have all the documents that they are required to make public via FOIA.
00:20:58
Speaker
Right. So you've got FOIA, which allows you to ask for information. But there's also an affirmative obligation under the FOIA statutes that say that agencies have to make certain information available, even when you don't ask for it. And so this is how the IRS does that.
00:21:15
Speaker
And so, yeah you know, i in my spare time for fun, I teach tax research and writing at Georgetown. And um one of the things I was going through with my students was like, look, you can get all the revenue rulings. Even if you don't have access to a research service, which hopefully most people do, you can get all the published guidance, everything that's been in the IRB.
00:21:37
Speaker
um There's just a ton of of that kind of information. But there's also really cool stuff like the um the Al Capone files are up there. Because one of the categories of you have to put it somewhere that people can get it even without asking under FOIA is things that are asked for a lot.
00:21:57
Speaker
And that apparently fell under the bucket of things that are asked for a lot. So if you um if you have those kind of interests and want to check those things out, know that that's that's a fun rabbit hole.
00:22:09
Speaker
Absolutely. And then you there's the nice factor or the be nice factor. It sounds simple, but you made the case that it's essential. How's that approach helped you get better outcomes, do you think? um Two ways.
00:22:22
Speaker
ah One is that I think we always have to remember that the people we're dealing with at the IRS, like they're not automatons. They're not bots. They're people. They're human people. but And- they form the same impressions and and biases and and reactions as we do.
00:22:42
Speaker
And so if you go into an audit and you are the grouchy, annoying, difficult one who's always trying to evade things, isn't returning calls, isn't giving information, um not only does that reflect on you, it it reflects on your client.
00:22:57
Speaker
And so For me, it's so important to start off an interaction with the IRS with my client wants to be cooperative here. We have nothing to hide. We want to get to the right answer.
00:23:09
Speaker
We may disagree on what that answer is, but but we're here in good faith. And I want you to give my client that presumption of good faith. And so in that way, I think it is essential to effective advocacy on behalf of your clients.
00:23:24
Speaker
The other piece of it is kind of what I alluded to before, which is think about your own clients and the ones that like you see the phone go and you're like, yeah I don't really feel like this one. I'm going to call him back later after I've had lunch or after another cup of coffee or whatever.
00:23:41
Speaker
You see the client or see the email come in, and it might be late at night. You might be in the middle of something, but it's a client you really like, and you want to help them. And so you kind of make the time, and and you look at it more immediately.
00:23:54
Speaker
right What do you want to be on behalf of your clients? Do you want to be that person that gets the attention, gets the benefit of the doubt? Or do you want to be the difficult person that goes to the bottom and the case is maybe not as fairly or or judiciously um resolved? So, ah you know, the the be nice thing is is just a no brainer to me.
00:24:17
Speaker
um And also just on a personal level, like, just be nice. Life is hard these days. Just be nice. Exactly. Now, you've also, we know the IRS has had their own challenges. i think we're on, what, the seventh acting IRS commissioner since January 25th. Not that I'm counting.
00:24:36
Speaker
um But, you know, we know that the workforce has shrunk, um you know, 20, 25%, whatever the number ends up being. yeah And the average years of experience of the average worker has shrunk, you know, from 25 years to 11 something less.
00:24:53
Speaker
So all this dramatic shift, um that we're dealing with. How do you see this playing out in practice for taxpayers and practitioners out there? And is this something that's an alarm? ah It is. It is definitely an alarm.
00:25:05
Speaker
um As we see more and more expertise leave the agency, that makes it more difficult for everyone. It makes it more difficult for the folks within the agency are you know, maybe brand new and are trying to learn, but there are a limited number of people to learn from now.
00:25:23
Speaker
um It makes it difficult for those of us on the outside who are dealing maybe with people who are not as well trained, not as seasoned, don't understand the issues as much, um and also have an increased workload, right? Because I, you know, yesterday I had a client complaining to me about how long something was taking. And I said, look, the agency is down 25% terms of headcount.
00:25:47
Speaker
They have the same amount of work. Actually, let me take that back. They have more work now than they did nine months ago, because now they're trying to implement a whole new series of legislation. So some of that will kind of automatically adjust itself um in terms of there will be projects that are put on the back burner that otherwise might move forward more quickly. um But some of it is just going to be it's going to take a lot longer to get things done and You know, the the best thing we can do for our clients, and I try to do this all the time, is explain that to them. Right.
Future of IRS Audits and Legal Involvement
00:26:20
Speaker
Because I don't want one, I don't want them thinking that I'm not doing my best to advocate, but I want them to have an idea of what this process is going to look like. And so when clients ask me, how long is this going to take? You submitted this appeals protest. When are we going to get an appeals officer? My answer to them is.
00:26:37
Speaker
Last year, I would have told you we would get an appeals officer within three to six months. I don't know what the answer to that is right now because appeals has 25% less employees. Right. um And so, you know, what, what can we do to deal with this? I think the easiest and, and for me, the most top of mind is setting reasonable expectations for our clients.
00:26:57
Speaker
um And the other is, it kind of goes with the be nice. Like every time I get on the phone with someone at the IRS, s I'm sort of like, how are you? ah Everything okay today? Like, are you, are you overwhelmed? Like what,
00:27:12
Speaker
and And I think that that sort of let me help you get to the answer I need is going to become even more important, especially as we're dealing with kind of more technical, more difficult clients. And so i let me let me, as part of an example, just a conversation I had yesterday morning, I was talking with a number of people who... um are involved in the insurance industry. Here we go.
00:27:39
Speaker
Everything goes full circle, by the way. um And and we' we're doing a panel on an upcoming insurance tax conference. And they were saying, you know, that the real problem is now we're going to be talking to these agents who don't understand insurance. They don't understand how insurance taxation works. Yeah.
00:27:58
Speaker
What does that mean for us? and And so in addition to the things I've mentioned, what it means is you're probably going to have to change your approach a little bit when you're representing your clients. It's not going to be jumping to step B. um It's going to be starting back at like pre A to say um insurance is taxed in this way.
00:28:17
Speaker
This is the part of the code. this These are the theories that are underlying it. This is what this means. This is how this law applies to our client, because we're not going to be able to assume the same base level of knowledge that we used to um given the the constraints on on people, the the knowledge that has left the agency.
00:28:39
Speaker
um So I think, you know, that is one thing in addition to what we already talked about, the using the IRM, the being nice, the using self-service tools um is really adjusting and and being cognizant of the person you're dealing with and the challenges that they're facing. And do you need to be a lot more organized in your presentation? Do you need to spend more time on basics?
00:29:02
Speaker
um and And we'll see how we have to adjust from there. I so agree. I mean, i I've had in the last week three different conversations with um people at the IRS. and And, you know, when you treat them with respect and you ask them how their day is going and thank them, the response is just kind of like, well, thank you. You know, like you could almost catch them off guard because I can imagine that every conversation is not like that, unfortunately.
00:29:27
Speaker
Yes. Yeah. Now, with limited resources, I know I get these questions all the time from people, practitioners outside, like, hey, so does this mean with the IRS and their issues that they're not going to be auditing anyone? We don't have to worry about any of that.
00:29:39
Speaker
And what what is your thought process? ah I mean, I know my answer, but I'd like to hear what you have to share about that. Yeah, I mean, are are audit rates going to go down? Probably. um Just it I think they have to unless we're going to be adding more agents. um that What the agency has been trying to move toward for many years, though, is being more productive in not only the audits that take place, but in choosing which audits take place.
00:30:07
Speaker
um And so I think, yeah, you're you're going to see a decrease in certain areas of audits. And and this one pains me a little bit is that, ah you know, the IRS over the past year or so had started building up this this expertise in partnership audits.
00:30:23
Speaker
and And there was this special team within LB&I who was going to deal with that. And There has been what I think is a mistaken impression in in the public discourse about those people going after rich people and targeting. And, um you know, on on my side of things and dealing with some of those people and in knowing some of those people personally,
00:30:45
Speaker
um What they were trying to do is introduce an expertise in a really difficult area of tax that previously was just not there and resulted in ineffective audits, audits that took too long, yeah the wrong questions being asked. And so i and I'm really sad to see that expertise and and expertise like that go because I think it not only benefited the agency, but it benefited taxpayers in that you weren't going to waste time on a needless round of questions or go down rabbit holes that didn't make a difference.
00:31:22
Speaker
um You were going to cut to the issues. And if they weren't if there weren't any issues, you were going to be done. You were going to get out, right? Which, of course, is always the goal. Right. Yeah, I mean, look,
00:31:34
Speaker
look I think, yes, audit rates are going to go down. i don't I don't see how they don't when you lose a quarter of the the personnel who do those audits, particularly, you know, if you look at the numbers that came out from TIGTA, look at the numbers that came out from the Taxpayer Advocate Service over the summer about where those people were leaving from.
00:31:57
Speaker
it was It was over 30% of the SPSC employees that either left through retirement um you know, RIF, one of the deferred resignation procedures, either 1.0 or 2.0. Right.
00:32:12
Speaker
right I don't know how you keep audit rates flat when you've got that kind of departure. um That said, you know i i cross my fingers that what we are moving toward is a more efficient, effective audit method.
00:32:28
Speaker
you know I know it's it's what everybody wants. It's what the service wants. um And it's certainly what our clients want because I know they don't enjoy paying my fees for hours that don't need to be incurred.
00:32:40
Speaker
Yeah, no. And I think I think they're these are the things that, you know, is I would just say get educated, but also know how to handle the situation and who when to bring somebody in, which is a great segue and when to escalate.
00:32:55
Speaker
Controversy, right? So not every issue requires bringing in a lawyer, as you know, yeah but for CPAs and other tax pros out there. Where's that line between handling an issue themselves and then them saying it's time to bring in Melissa or controversy counsel?
00:33:10
Speaker
Like, can you speak to that? I can. um you know I think that all of us have a sense for what are run-of-the-mill audits, right? You've got a client, small business, they get audited.
00:33:22
Speaker
The requests are around you know substantiation for certain deductions. you This is going in a very normal way. Anybody who is familiar with the basic tax concepts and particularly the you know the return preparer who put those numbers on the the return They're going to be able to handle that and they're going to be able to handle it well.
00:33:44
Speaker
Where I think it it it is helpful to have somebody front with with a legal background, there's a couple. One, if you think this is an issue that is is not going to get resolved at exam, we're going to need to either go to appeals on this or and and maybe litigation.
00:34:01
Speaker
um i think it is important to bring in legal counsel early in the process on that. And when I say that, i'm I'm quick to point out that when you bring in legal counsel, half the time in those kinds of audits, I don't even show my face.
00:34:16
Speaker
You know, I'm in the background saying, don't do this, say this. I want this for the record later. um i'm not i'm not going to take over that audit. What I just want to do is make sure that what is getting done at the audit level or even the appeals level is um leaving the trail that I'm going to need to effectively advocate if it goes to litigation or if we're going to have to go to a more complex appeals process.
00:34:42
Speaker
um And so I think the earlier, the better. And and oftentimes clients and and even you know CPAs will say like, oh, I don't. I don't want to impose all those fees. I don't want another person on my turf. I don't want somebody, you know, directing the audit. And that if you pick the right controversy lawyer, that's not what they want to do either.
00:35:00
Speaker
um They're just really wanting to supplement what you're already doing so that if it goes down that path that is going to need legal intervention later, that they're involved in setting the stage and and laying the records.
00:35:15
Speaker
The other is obviously if there are privilege issues, if there are things that you want to be privileged. Yes, we have 7525 tax advisor privilege, but it's easy to bust and it's harder to prove.
00:35:28
Speaker
So i i think anytime you're concerned, particularly if there's any hint of fraud, if there's any hint that the IRS may be interested on a criminal level, um you know, drop what you're doing.
00:35:43
Speaker
And call a lawyer and get somebody in immediately. And again, even in those situations, I'm definitely not displacing the the accountant who's been working on this because we do different things and and understand different things and have different things to to add. And it may be something that's appropriate where I need your expertise.
00:36:04
Speaker
And this is a good time for us to have a Covell agreement to bring somebody in. Yeah. And then I guess the third one is you There are all sorts of familiarities with the process of controversy. If you are brand new to it, I really recommend not going it alone.
00:36:23
Speaker
um And the reason is that time and again, i see people, and this is true for lawyers too, not just accountants, um who are not familiar with the IRS procedures and processes the way that that someone like me is. And I see clients losing rights to various options because somebody didn't realize what a letter really meant.
00:36:45
Speaker
And so I'm thinking about the 30-day letters that give you you know the option to go to appeals. That gets blown. ah Even worse, the 90-day letters, the notices of deficiency, your tickets to tax court, that gets blown.
00:36:57
Speaker
And at that point, the only way you can challenge that is to go to district court and seek a refund. And those are like not ideal options. So um any it particularly if you are not familiar with controversy,
00:37:10
Speaker
And these letters and determinations start coming in, like phone a friend. And it can just be a quick consult. It can just be, I need you through for three hours. um But protecting the client's rights and making sure that everything that is available to them stays available within the timeframe is just critically important.
00:37:31
Speaker
Yeah, no, it's so important. And another one is penalty defense. we I see this all the time. So whether it's reasonable cause or first time abatement or even other paths, how do you go about trying which defense to try first or to deal with in the in that sense from penalties?
00:37:47
Speaker
Yeah, and here here's a situation where I think um somebody who's a specialist in this can really, really help to um streamline the amount of time and the process, right?
00:37:59
Speaker
ah The first thing I'm going to do if I get a penalty case is see if it's a penalty that's eligible for first-time abatement. And if it is, can I get it on the phone? And if it's not, can I get on the phone and fax somebody a letter?
00:38:11
Speaker
Because sometimes if you're nice to them, they'll assign it to themselves and work on it. um you know If that's not available because of the type of penalty it is or the client's um penalty history or any other reasons, you know i'll I'll move on to reasonable cause. Is reasonable cause available?
00:38:32
Speaker
ah You've heard me say this when I talk about penalties. not Reasonable cause is not available for everything. so um And the standards are different for different kinds of penalties. And so I've seen a lot of times people...
00:38:46
Speaker
who are not familiar with working in the penalty space, submit an abatement request for a client asking for relief that doesn't apply to that penalty, um which is wasted time and fees for that client.
00:38:57
Speaker
So so You know, my my first step always, it's it's kind of back to basics, you know, pull up the statute, pull up the regs and see what applies. If you're dealing with a, you know, late filing of W-2s, it's a very different process and standard than if it is a late filed 3520 or, ah you know, just a ah failure to timely pay for three months. I mean, these are all very different and nuanced approaches to those different kinds of penalties. Yeah.
00:39:27
Speaker
um And the the other piece of that is is sort of the the flip side, the more voluntary disclosure type um penalty analysis, which is we've got lots of ways to catch our clients up, right? we Everyone's had clients who come in and say, oh, didn't file this, I didn't file that, I might have misfiled this, this wasn't complete.
00:39:50
Speaker
Yeah. and It's really important to understand the penalty implications for each of those different procedures and also what happens if they don't avail themselves of them.
00:40:02
Speaker
So what I mean by that is that the IRS's penalty enforcement practices change over time. Right. For for folks who follow 3520 saga,
00:40:14
Speaker
um In 2015, you could send in a late thirty five twenty with a letter that said, we're really sorry. This is why it's late. Please don't assess a penalty.
00:40:24
Speaker
and And that would be the end of it. And then 2019, we all realized that the-
00:40:32
Speaker
2018, maybe that the switch had been flipped and now those penalties were automatic. And then if you were sitting in a ah ballroom at a conference in october last October in l a um you would have heard Commissioner Werfel say, well, we're unflipping that switch, at least for certain 35-20 penalties. And if you are not following that minutia, you're not going to be able to give your client the accurate advice about how to file what their penalty likelihood is, how you're going to minimize the possibility that they're going to end up with this in the case especially these penalties.
00:41:08
Speaker
um these huge penalties That's so good. Now you get a front row seat to all kinds of mistakes and penalties that get taxpayers into trouble with the IRS, good or bad, right?
00:41:20
Speaker
So what are some of the most common errors you're seeing right now um out there or things that maybe people need to be aware of what they're doing? Yeah. ah The IRS is hot and heavy on charitable contributions.
00:41:32
Speaker
Yeah. um And it is everything from do you have the letters that back up that $500 contribution you made to and ah we don't believe the value of any non-cash charitable contributions, especially as they get up into the five and and six figures and onward.
00:41:52
Speaker
Yeah. oh I think that for so long that had not been an area of significant inquiry that we as an industry got a little sloppy with it. Like as long as we knew that the contribution had occurred and we could back it up, that was that was going to be enough. That was going to win the day, um sort of throw some substantial compliance at it. And it's probably going to be all right. And what we're seeing now and this...
00:42:22
Speaker
I think is going to continue to be a trend as we see, you know, a reduction in the IRS workforce. And and they're going to focus on these things that are very easy to foot fault, right?
00:42:36
Speaker
It is very easy to get an appraisal that doesn't tick off the requirements of a qualified appraisal. And it is much more it is much simpler and much quicker for the IRS to come in, look at the appraisal and say, i found 15 errors. You don't get that deduction than it is for them to dig in on a legal issue that's going to take six months, right?
00:42:57
Speaker
So what I have been telling, especially people on the compliance side, is make sure you're ticking and tying absolutely everything. Client comes to you with an appraisal.
00:43:10
Speaker
Normally in prior years, I think people would have just said, good, looks good. This is somebody who seems qualified, smacked it on, sent it in. Spend the time taking a look and making sure that that appraisal meets the requirements.
00:43:23
Speaker
Make sure that those contemporaneous documentation letters have all the required information. Because, you know, i I've seen agents kick things and say, that's great. It doesn't have the EIN on it.
00:43:34
Speaker
And I'm like, come on, come on. Right. Right. and you know Some of that is also going to be on on the charities, right? you're You're going to have to look to them to to meet their obligations. But um those kinds of issues, I use charitable contributions as an example because I've been seeing a lot of it on my desk.
00:43:55
Speaker
um But those kinds of issues, those little ticky tacky, make sure you do everything that the instructions say, i think those issues are going to become more prevalent than they were in the past.
00:44:07
Speaker
in part as a result of this crunch of resources. Makes sense. And I know when I'm talking to people, um issues that come arise is people that are dealing with international reporting.
00:44:17
Speaker
Yeah. um And, you know, a lot when I talk to other practitioners out there, they're always like, well, I i know enough to be dangerous.
International Reporting and Compliance Risks
00:44:25
Speaker
And I get a little leery when I hear that because that probably tells me they don't know what they're doing.
00:44:30
Speaker
Right. So what I'm talking about is like form 5471, 8938, form bank account reporting. Are you seeing issues and penalties and controversy work in those areas? Right. A hundred percent. And that that has been for a long time now. And it's it's so much exactly what you're saying, Mark, which is somebody who is an excellent return preparer gets a client that happens to own a share in a partnership in France because that's how the family ah owns their second home.
00:44:59
Speaker
sure Right. And ah nobody thinks to report that on an 8865 because who has ever heard of that? um Or they try to do it and they use the wrong form. They use a 5471. They don't do the the they don't figure out exactly what kind of entity this is.
00:45:17
Speaker
um And then, God forbid, they touch a 5471. mean, i think a that has to be for me, one of the most complicated forms out there, just in terms of the amount of work that goes into every single line and the number of times that you could just get it wrong um or not pick the right category of filer and so miss a part that needs to be filled out. And as you well know, the dangerous part about those is one,
00:45:48
Speaker
the penalties, which are just $10,000 a pop, period, done. um And that is for late filed, not filed, or incomplete, right? So if you need to fill out a number of different parts, and this is the same for the 3520, you need to fill out two or three parts and you've only done one, that thing doesn't count and that's gonna be penalized.
00:46:10
Speaker
But the other piece of that is the 6501 C6 issue, which is that it's also going to hold open the statute of limitations on the return, and because that is an integral part of the return that isn't complete, hasn't been filed.
00:46:28
Speaker
And so the whole thing just sits there open. And so the The dangers of dabbling in that sort of stuff um is not just getting it wrong and having an annoyed client. It's monetarily. And it has that that statute of limitations effect, which when you get into an audit and an an auditor wants to get back to something, they're going to start looking for those things. And that's really, again, one of those footfalls that it's easy.
00:46:52
Speaker
It's easy to say this wasn't filed. You didn't do that part. These lines are not filled in. That's so good. Yeah. And i agree with that. i mean, just if you don't know something, bring in the experts so you can get some help, um not just try dabbling in something.
00:47:09
Speaker
Now, would be remiss if I didn't bring up a topic that I feel like over the last number of years, we could have created in Netflix drama series. And that is, and have you seen any issues arising from the fallout of the Corporate Transparency Act? i knew that's where you were going.
00:47:25
Speaker
ah my ah My rise to LinkedIn fame is due solely to the Corporate Transparency Act, and I will never get those years back. um No, the so the the poor Corporate Transparency Act that we we all made sure to go out and learn about and tell our clients about, and I can't even estimate how many of those returns I filed before before the the Trump administration decided to effectively gut it using using regulations. And I mean, it I will say it was such a fun intellectual exercise for a long time just trying to figure out I mean, it's not often that we get this brand new regime, right? It's not just a new law. It's a whole new regime. And what do these concepts mean? How do we file them? And who needs to find mean, it was it was fun.
00:48:15
Speaker
um So the fallout, yeah, I mean, there's, I think, a lot of angry um companies that filed returns ah that are kind of like, hey, where where is that now? It's all sitting there. And and I guess there has been some commentary from um Andrea Gacky, who's the the head of FinCEN, that they're going to take steps to, um i guess, delete that information. Yeah.
00:48:41
Speaker
Which, i you know, does seem like the fair thing to do. right um That said, if you believe that that information was valuable. Then we're deleting all this valuable information that was lawfully collected.
00:48:54
Speaker
Right. um But yeah, so so for the time being, if you are a domestic company, you are just completely exempt. And and I haven't i haven't had a lot of um foreign entities operating in the US, you know, raising their hand and knocking on my door and. and bringing my phone asking me to file file these reports for them. So you know I'd be really interested to see if they are still getting, if they are still trickling in at this point, because I think when when the... um
00:49:27
Speaker
proposed that i guess the temporary regulations were issued saying you know effectively no no reporting for domestic the the headlines were all corporate transparency act is dead and i think that is what people just said okay fine i can clear out that headspace corporate transparency act is dead and that there's not a lot of people thinking about except it isn't there there are some companies that still need to report um I don't know, i this it's clearly not a priority, Mark. And yeah I always tell people, if if you think the IRS is underfunded, um go talk to the 47 people who work at FinCEN, because it is um a very small agency for the amount of work that they have assigned to them. you know Recall that these are the folks, the nice folks that take in all our FBAR data.
00:50:17
Speaker
um and And they do so much more than that in in terms of anti-money laundering reporting. um They've got plenty of work to do. So this is just not going to be on their radar screen in terms of enforcement, even though there are still some reports that have to theoretically be filed.
00:50:35
Speaker
Yep. That's so good. Yeah, absolutely. and it's been a roller coaster of that. um But all things have to kind of somewhat come to an end, I guess. yeah um You've also taught extensively and told people about taxpayer advocate service.
Role of the Taxpayer Advocate Service
00:50:50
Speaker
And obviously for practitioners who haven't used TAS before, when should they consider reaching out and what are the criteria for reaching out? Yeah. um and And I think Taz is, they've always been important. um Their importance is only going to continue to increase.
00:51:05
Speaker
Unfortunately, they too have also been you know hit by by the reductions in force and and resignations. And um they're down the same amount, 20, 25% in terms of staffing. but um you know, if you've heard Erin Collins speak, and hopefully, um if you're a tax practitioner, you have either at Engage or National Tax or online, um you know, her office's job is really to be the voice of taxpayers um on both the advocacy side in in changing policies. I mean, that that
00:51:40
Speaker
That changed to 3520 penalty policy that I mentioned a little while ago. um That was largely due to the advocacy of of Aaron and then the Taxpayer Advocate Service.
00:51:53
Speaker
So they do tremendously good work that way. um What most people think of the taxpayer advocate for is the um adorably named Form 911. when you're asking for requests for help with a specific case. So um ah case specific work You know, the criteria are broadly, there's about to be some very significant financial harm incurred by the taxpayer if somebody does not help.
00:52:22
Speaker
You know, you've tried everything you can through the normal channels at the IRS, and it's just not working. um This isn't something for, i I disagree with the outcome, you know, Substance is not where where they live there.
00:52:37
Speaker
um Their role is to make sure that the procedures are working the way they should, or if there's a problem that can't be fixed within the normal procedures, that that they're going to try to get in there and fix it for you.
00:52:50
Speaker
um There's been some reorganization within the Taxpayer Advocate Service recently that I think is really going to help a lot. For those of you who are familiar with the the prior process,
00:53:02
Speaker
You know, you would fill out your form 911, explain what the issue is, explain what the relief is that you're seeking. My tip, be very, very thorough in documenting what has happened, what all of your efforts have been, what the results have been, so that, again, you want to make it really clear that you've done everything you can on your side and you're just asking for help now because nothing else worked.
00:53:27
Speaker
um But you used to fax that in to your local TAS office and they would assign a local advocate and and they would work it. um Given that TAS was hit harder in some offices than others, what what they've now done is ah really consolidated across issue teams. So you've got teams who are really well trained and understand the procedures around ERC claims.
00:53:53
Speaker
right And they're dealing with those, oh my God, I've been waiting for five years for my ERC you check. um You've got people who are really good with dealing with you know collections types issues if if those are making their way.
00:54:07
Speaker
So they are you know triaging in teams of expertise. And now if you look at the 911 instructions, you'll see it doesn't go to your individual offices anymore. It goes into a centralized system.
00:54:22
Speaker
Taz's office and then gets farmed out to where there's capacity and expertise. um And you can now email them, which let's just give a ah high five to Taz for for bringing us into the late nineteen ninety s So there is that avenue. And I can say I call on TAS all the time. They are incredibly helpful.
00:54:45
Speaker
The people who work there really have this attitude of like, I want to help taxpayers. That's what I'm here for. And they they are very, very good at it. um The other aspect of TAS, though, that I don't think enough people take advantage of is I'm always ah promoting the SAM system, right? And so that's the systemic advocacy system that they have. And if you go on the TAS website, it's just look for SAMs, S-A-M-S. And what you're able to do is say, look, and and this is so important for return preparers who are seeing patterns, right? Like,
00:55:22
Speaker
Somebody like me, i I do see patterns in my clients, but I don't have the same volume as as return preparers who are seeing very obvious patterns of this thing is going wrong.
00:55:33
Speaker
That thing is going, I'm seeing this same issue over and over with a lot of my clients. um And so you can go into the SAM system and not on a case-specific basis tell Taz, this is happening, and can you please help nip it in the bud? And they have very successfully addressed things like that.
00:55:51
Speaker
um Even if they aren't able to stop it, they're able to say, IRS, you need to go tell people that this is happening so that they know that you're fixing it, that they know what's going on.
00:56:03
Speaker
um And like there's there's one pattern that I've seen a lot now is I've got clients who are in appeals and say it's a penalty abatement. um It's still in appeals. Appeals has not yet decided whether they're going to abate or not.
00:56:19
Speaker
And the case is going to collections and they're getting collection notices. And they're my clients are like, what? i um And that's something I know that our firm raised in through SAMS and and pretty immediately got a response from Taz saying, can you send us redacted details? Like we need to look into this.
00:56:38
Speaker
um And I know they have been working with collection and appeals on that. So um don't lose sight of that piece too, because it is it is super important. And if something is a big enough issue, it may just show up in one of the reports to Congress as one of the 10 most pressing issues in tax administration. And I mean, that's the big game.
00:57:02
Speaker
Now, i will ah little plug. We have the AICPA National Tax Conference in Washington, D.C.
Upcoming Talks and Conclusion
00:57:08
Speaker
coming up this upcoming November. And I recommend anyone that ah wants to hear Melissa speak or anyone, i guess, great tax knowledge.
00:57:16
Speaker
This is a great conference you don't want to miss to bring yourself and your staff. But you specifically, Melissa, have two sessions at that conference. One is dealing with the IRS in the current era. You're doing that with Mary Selenina.
00:57:30
Speaker
And then you're also doing working effectively with Taxpayer Advocate with Rochelle Hodes. Can you give us an a little preview of what your kind of topic is? insights would look like on those ah subject matters. Yeah. um I mean, they will be deep dives into some of the things that you and I have been talking about today. So, you know, Mary and I will be talking about just trends with dealing with the IRS, how you can more effectively advocate for your client. What are the things that we're seeing in terms of big enforcement issues? Just those You know, ah Mary is at KPMG, so she gets to see the the accounting firm side of it. I, of course, have my legal practice side of it. And so um we'll be bringing those two together, not just to talk about trends that we're seeing, but also just to talk about, you know, the state of the IRS right now and and what we're dealing with.
00:58:18
Speaker
um There have been so many leadership changes and it's what, two months away. There may still be more. This is one of those like, I can't give you the slides because they'll change too many times. um So that'll be that session. the the session with Rochelle, again, will be um a lot of of what we're talking about here.
00:58:37
Speaker
with a taxpayer advocate about the different areas that you can leverage them for help. And you know same themes, ah how to how to make your kind of like how to make your resume stand out in a pool, but like how to make your Form 911 the one that the advocates want to work on because it's easy, it's well-organized, it's thoughtful, it's clear, it's you know you've you've done your homework to make it easy for them to work on. um And then, yeah, just different avenues for dealing with ah TAS on systemic issues as well, which um we know is is really important.
00:59:14
Speaker
and So great reminders there. So thank you. Melissa, thank you so much for joining me today. This conversation was not only insightful, but also a great reminder of why you're such a respected and trusted leader in our profession.
00:59:27
Speaker
You've shown us that dealing with the IRS doesn't have to feel impossible if we keep things in mind. You know the IRM, use tools, and And when you're talking to people on the other side of that phone line, we have some kindness, right?
00:59:39
Speaker
And on top of that, you've given us that practical wisdom about staffing realities with the IRS, enforcement priorities, common errors to watch out for, and bringing taxpayer advocate in because that can help make a difference.
00:59:52
Speaker
For our listeners, one of the things I love about Melissa is that she combines deep technical mastery with the practical human approach, as you've just heard. She's a fierce advocate for her clients, a respected voice at the table when policy is being shaped.
01:00:06
Speaker
And at the same time, she's someone who lifts up the profession by teaching, mentoring, and sharing what she knows. So, Melissa, you're truly one of the smartest people I know in this space, and I mean that. And it's been an honor to have you here as just a guest and a friend.
01:00:20
Speaker
Thank you so, so much, Mark. I loved our conversation. Thank you. And to everyone listening, thank you for tuning in to Tax News Now. If you found this episode to be helpful, please subscribe and share it with a colleague who can benefit.
01:00:32
Speaker
This show is about bringing you the best voices in tax, and Melissa is the perfect example of that mission in action. I'm Mark Gallegos. Stay informed, stay proactive, and as Melissa reminded us, be nice. We'll see you next time.