Speaking at the Foundation forAccounting Education's Tax and Financial Planning for Individuals Conference on Nov. 10, attorney and CPA Frank Agostino presented an engaging overview of the new funding for the IRS and new developments in tax controversy, interwoven with some tips on how  tax professionals can improve their individual practices.

Founder and president of his own law firm, a former IRS district counsel and a former special assistant U.S.  attorney, Agostino is also president of Taxpayers Assistance Corp., which provides tax and legal advice to low-income taxpayers in the New York and New Jersey area.  

Agostino spent some time discussing the $79.6 billion allocated to the IRS under the Inflation Reduction Act.  He broke down some of the allocations, such as $3.2 billion for taxpayer services (“That’s like a rounding error,” he said) and the $4.8 billion for business systems modernization projects over 10 years. The latter figure is what Amazon spends in a year on software upgrades, he said.

Implying that the allocation won’t be enough to handle some of the tax collection agency’s more complicated tasks, he used one law, the Foreign Account Tax Compliant Act, as an example.

“Do you really think that with $4.8 billion, you’re going to be able to talk to every foreign financial institution, translate the currencies, and then match it to a taxpayer’s tax return?” he asked, rhetorically. “Big computer-data-driven businesses are spending multiples of that every year.”

Part of that allocation for improving customer service entails what Treasury Secretary Janet Yellen termed “using creating new digital tools to allow taxpayers to get information from the IRS instantaneously.” That includes artificial intelligence, which Agostino said that the agency will use more to capture what he said is still the biggest area of noncompliant taxpayers: the Schedule C taxpayer, who “understates their income and overstates their deductions.”  

“You know that’s where the enforcement is going to be,” he said. “The enforcement is going to end up being the middle-class mom and pop business, really around the $200,000 sweet spot, because that’s where the most prevalent amount of underreporting tax is.”

“You should expect that there will be much more information reporting, more attempts to match and examinations that may never need a live human being,” he continued. “But those are audits. It’s a computer doing it. The goal for them is to audit smarter.”

The goal, as he explained, is for the IRS to spend money on teaching taxpayers to do it themselves. Now, in the face of poor customer service, more taxpayers are doing to do their own returns. Because some will make mistakes, that will provide opportunities for tax professionals, he said.

Agostino also "gave a plug" to the U.S. Tax Court, encouraging the attendees to go to the court one day to observe the cases where, he said, 70 percent of the cases are by unrepresented taxpayers—that is, those who go to represent themselves without an attorney or accountant present.

Given the perception that IRS customer service has gone down, more and more cases are being tried, he said. Volunteer attorneys such as him are available to help those taxpayers who choose this route.

He encouraged lawyers and accountants to attend the court as a means of improving their practices. “You can sit in the audience and watch, and you will learn how the system works,” he said.

“The IRS just can’t say no, and the taxpayer walks away,” he said, anecdotally. “The Tax Court will often split the difference. … The taxpayer will say, ‘My accountant says I don’t have substantiation; I gotta give up—but I spent the money and I’m not giving up!’”

“Many preparers say, 'You’re going to lose. You don’t have any documents.' But the Tax Court judge will want to split it” because they can’t try everything, he said.

“I find if you come and watch a couple of cases go to trial, you’ll be better when dealing with a revenue agent or the IRS Independent Office of Appeals,” he said. “You can say, ‘I was here last Monday and they gave the guy 30 percent just for showing up. Give me 20 percent, and I won’t go down.’”

While Agostino said that the perception of worsening customer service from the IRS may be driving individuals to go to tax court, he also said he still believes that the U.S. tax system is something to be admired.

“The United States sent $4.9 trillion to the IRS and the biggest factor is voluntary compliance and self-reporting—that’s the marvel of tax professionals in this country—more than any other system on the planet,” he said. “The system only works if the IRS and tax professionals provide taxpayers quality service. Once the taxpayers think the system doesn’t work, we become like Italy, where tax evasion is a national sport.”

“We get the system we make. We have to make the system work for us,” he said. “What other group of people in the U.S. brought in $4.9 trillion to any other organization?”