Question

Discuss the real-time audit process for companies and how the IRS can monetize this program.

Since 2011, the IRS has put into place the Compliance Assurance Process, which provides companies the opportunity to be placed into a real-time audit process. This process allows companies to be constantly audited in real time, rather than being audited two or three years in arrears. Surveys have shown that companies love this program, as it relieves a company of stress from going back and remembering items that have happened in prior years. The IRS is considering removing this program, as budget cuts have caused rethinking of this concept.

Review the Compliance Assurance Process article, and comment on whether you think this would be beneficial for the taxpayer. Discuss how the IRS could monetize this process in order to show that it is a valuable program.

Answer 1

A Real-time audit process would definitely be beneficial for the tax payer. It relieves the stress of having to recall records from past years and re-engineering the transactions to understand their nature. A real-time audit would essentially result it:

a. Easier and Faster Tax Compliance - The IRS aims to complete the audit in 90 days under CAP as compared to the 60 month average under the normal audit programme. This not only reduces the tax risk for the taxpayer but also ensures more efficient utilisation of resources

b. Better identification of financial reporting issues - The CAP allows for guaranteed acceptance of material issues at filing date which can reduce corporate restatements and contingent tax liabilities. This allows for better financial reporting.

From the IRS perspective, there is clear evidence from year-on-year program growth and favourable survey results that this is a valuable program. In fact, the consideration of the IRS to pull-back the program was met with an unfavorable opinion from the participating taxpayers. Being a very useful program the IRS should consider monetizing the program in 1 of 2 ways:

a. Charging the participating taxpayer a fee to cover the basic audit fee costs.

b. Balancing out the cost of the audit using the quicker and larger tax collections resulting from better tax compliance.