IRS HIRES OUTSIDE CONTRACTOR FOR MICROSOFT AUDIT

[Lee B]

COPIED FROM FORBES :

 

11/24/2014

  IRS Makes Novel Use Of Outside Contractors---To Audit Microsoft

Keith Fogg , Contributor

 

Earlier this year I wrote about the effort by some Senators to revive the private debt collector provisions that expired several years ago.  For the moment the revival of that bad idea seems to have lost steam.  A new and creative way to use private parties for what seems like a governmental function – the examination of a tax return – has surfaced and deserves watching.

 

The IRS has changed the regulation concerning who can participate in an examination to include private contractors.  It has hired a private law firm as an expert.  Microsoft appears to be the first examination using private contractors to become public.  The issue deserves attention in order to determine if this represents a new and better way to examine complex returns or a capitulation of what was previously considered a governmental function.

 

Today, Microsoft filed a FOIA suit against the IRS seeking to learn more about the terms of the contract between the IRS and Quinn Emanuel, a commercial litigation law firm (the complaint can be found here, along with the required declaration, and Exhibit I.a, Exhibit I.b, Exhibit I.c,  Exhibit I.d, Exhibit II, Exhibit III, and Exhibit IV).  It appears that the IRS examination team wants to use the law firm to assist it in conducting the examination and has hired the firm as experts.  If successful, the FOIA litigation will make clear the precise intentions of the IRS as it moves to a new method of examining tax returns.  Those intentions, if they become public, will allow a better understanding of what appears to be a new avenue of removing the wall between government and private contractor in the area of taxation.

 

Hiring private experts in tax cases does not present new or novel issues.  The IRS regularly hires experts to assist it in valuing property or other discreet functions where expert testimony or expertise in a particular subject not within the realm of the IRS is needed.  To my knowledge the IRS has not previously hired an expert to participate in the examination of a return but rather has hired experts to assist with discreet issues which turned up during the audit.  The hiring of Quinn Emanuel in conjunction with the promulgation of the new temporary regulation allowing private contractors to participate in questioning a taxpayer during the examination process suggests that the IRS seeks to try a new technique in the examination of large corporations presenting sophisticated issues that may test the capabilities of the IRS examiners and the Chief Counsel attorneys who assist them.

 

Considering the manpower shortage at the IRS, I wonder if the use of contractors will be

expanded ?

 

[Gail in Virginia]

I thought they had already expanded it by requiring all tax preparers to audit custody and EITC issues.

[Max W]

Maybe the outside firms will do a better job than the IRS.