While tax professionals have noticed the change in the IRS approach, many clients still view them as the enemy.

"Clients see themselves as settlers going through the desert and we're the scouts telling them whether they're going to be ambushed at the next canyon or if they've got another day's safe passage," said Gene Polley, a business advisor in Fiducial's San Diego office.  "They don't view the IRS as kindler or gentler by any stretch of the imagination. They're just holding their breath that they don't get audited."

Improvements in IRS enforcement ranks have helped tax professionals deal more effectively with some of their clients who are no longer intimidated at the prospects of meetings with tax collectors. Rather it's an opportunity for clients to take advantage of an atmosphere that's more conducive to finding a workable solution to lessen their tax burden.

A partner rather than a distraction

Polley has actually found the IRS a lot more amenable than some states which are financially strapped since there's more of an antagonistic relationship between state tax collectors, practitioners and clients. In contrast, he calls the IRS practitioner hotline frequently and has always found them helpful.

"I feel like they're trying to get the work done," he said. "They view us as a partner rather than a distraction."

Bob Sperling helps man Fiducial's Tax Hotline at its Technical and Administrative Support Center (TASC) in Columbia, MD. He says the IRS is now much more civil to deal with on the phone, noting that they list hotlines that bypass some of the usual time-consuming routes. He attributed the IRS changes to public pressure and professional need.

"They found out it's essential to spend less time dealing with tax professionals in getting something accomplished," said Sperling.

Bill Pound, district manager of Fiducial's Stark, OR, office, also finds the IRS much easier to deal with than the State of Oregon.

"The IRS makes it easier for the client who has questions," said Pound. "If you receive one of the letters from them for an audit or they are questioning something on a return you get a lot of help."

Last summer Pound called the IRS when one of his clients had a problem and the matter was taken care of in short order.

"More often than not you can get it resolved over the phone," he said.

For those who have tax liabilities, Pound says the IRS is working with them and offering some payment plan options. This way, they can recover at least some of the monies that are owed "instead of having them scared, running and hiding."

Committed to making real improvements

Following the Senate Finance Committee hearings of 1997 and the Restructuring and Reform Act of 1998, the IRS undertook an aggressive campaign to improve customer service by focusing its efforts toward becoming a first-class financial services organization.

"We have improved our interactions with taxpayers, extended more rights to taxpayers, and improved telephone service," said William Cressman, an IRS spokesman based in Philadelphia. "Over the past year, there has been a renewed focus and revitalization of our compliance activities while maintaining our focus on customer service."

Cressman noted that the IRS is not concerned about improving its image but is concerned about making substantive changes that result in real improvements to customer service and real improvements in the effectiveness of its enforcement activities.

"It's our obligation to reduce the burden on taxpayers and make the process of filing returns, getting answers and solving problems easier," he said. "It's also our obligation to make the tax system fairer by stopping those who would intentionally abuse the system. It's our obligation to do both of these tasks as effectively and efficiently as possible."

According to published reports on customer satisfaction rates regarding experiences with the IRS, many taxpayers find the encounter "more satisfying than several years ago," Cressman added.

That's not surprising to Randy Penn, branch manager of Fiducial's Arvada, CO, office who believes that the IRS is getting better at doing its job in a much more user-friendly manner.

"Those of us that have been in the business since those changes have been made are really starting to see it," said Penn. "Consumers both individual and small businesses are
starting to see that the IRS wants to portray themselves as a service organization. Clients are still trying to absorb that."

Penn admits that there were a lot of horror stories that people used to tell about the IRS but it's real hard to find those stories these days because when the IRS is required to take an action they take it professionally and not with any glee or joy.

"They are really acting as accounting and legal professionals and that's very refreshing," he said. "They've got a job to do. In my experience with the IRS, all the folks just want to do a good job in tax administration."

New tax law changes

The IRS says it has used technology to better handle inquiries, including but not limited to its improved and expanded web site offerings. Where needed, the IRS has redirected employees that were assigned to compliance activities to customer service activities during peak periods in the filing season. They've also made easier tax filing rules and new tax law changes that should help improve the filing process for millions of taxpayers this year. The IRS expects more than half of the nation's 29.5 million taxpayers to file electronically this season with e-filers expected to get their refunds in half the time.

On its website, www.IRS.gov, the IRS has added simpler forms for the self-employed with the limit on business expenses for this group in Schedule C-EZ increasing to $5,000 from $2,500. This change will mean 500,000 more small business owners and self-employed taxpayers can use the simpler version of the expense form as well as a savings of five million hours of paperwork burden for small business taxpayers.

The biggest change form-wise this year, Penn says, is the K-1 form that partnerships and S corporations use to report their information to the owners, shareholders or partners.  Every owner of an S corp and partnership receives a K-1 so if an entity has 10 owners they would have 10 K-1s.

"The form does not look like any other form in their repertoire," he said. "They've gone to a form that allows them to do either bar scanning to identify what client it is, who the company is and who the recipient is so they catch all that with one shot—that's really good because it makes it much easier to match up the information and make sure people aren't having to type in tax identification numbers."

One big tax law change this year concerns business start-up costs and organizational costs of corporations and partnerships paid or incurred after October 22, 2004, which can be deducted up to $5,000. This amount is reduced by the amount by which the start-up costs exceed $50,000. Also, the amortization period for certain business start-up costs and organizational costs paid or incurred after Oct. 22, 2004, has been increased to 15 years.

Other tax law changes that affect returns include the new sales tax deduction. Taxpayers who itemize deductions will have a choice of claiming a state and local tax deduction for either sales or income taxes on their returns. The IRS says an optional state sales tax table may be used in lieu of receipts for sales taxes paid. Sales taxes paid on a motor vehicle may be added to the table result, but only up to the amount paid at the general sales tax rate. Sales taxes on a boat, plane, home, or home building materials may be added if taxed at the general sales tax rate.

Some experts believe this will be confusing to many filers.

"The sales tax issue is causing a lot of confusion for small businesses," Polley said. "They just don't know how it's supposed to be handled or whether they're eligible. But if they had a major purchase it may be useful if they paid a whole lot of sales tax on an expensive car or boat."

With the IRS making a concerted effort to improve their customer service efforts, tax professionals are able to spend more time assisting their clients with their specific tax needs. Polley recently convinced one of his clients who owns multiple sandwich shops under a S corporation designation to finally become a C corp instead.

"I sat him down and told him he should revise his payroll for last year and take the money the corporation owes him and take that off his salary for the year," he said.

That's what happened which reduced the client's tax obligation to a point where he's going to have zero personal tax obligations. The owner had gotten into huge debt and owed $19,000 in payroll taxes. Thanks to Polley's expertise, that liability was whittled down to a more manageable amount.

"When he walked out the door he owed $3,000," Polley said. "He was very happy because I saved him a lot of money on taxes."

STEPHEN PAREZO is the Media Manager for Fiducial.