Internal Revenue Service employees are beginning to go back to their offices to deal with the mountain of paperwork awaiting them, even as some are testing positive for COVID-19, but they quickly adapted to working remotely in recent months, according to a group of top IRS officials.
IRS employees in Utah, Texas and Kentucky began reporting back to their buildings in the first week of June, according to the National Treasury Employees Union, and more facilities in other states began opening this week. However, at least three IRS employees tested positive in Austin, Texas, according to
“We continue to gradually reopen our operations across the country,” said IRS Commissioner Chuck Rettig in a message Wednesday. “As of Monday, thousands of employees have returned to facilities in seven states, and four more states and Puerto Rico will reopen on June 29. The IRS continues to focus on nonportable work and will reopen facilities in remaining states on July 13.”
IRS employees have mostly been working from home in the past three months while trying to deal with the demands of delivering Economic Impact Payments to taxpayers’ accounts and grappling with the various pieces of legislation passed by Congress. During the NYU Tax Controversy Forum, which was presented online on Thursday via CPA Academy, a panel of IRS officials discussed the many changes in recent months at the agency and what to expect going forward.
“We worked with the Treasury and [the `Department of Financial Services] to send out about 259 million payments, which amounted to $268 billion,” said Sunita Lough, deputy commissioner for services and enforcement at the IRS. “That’s a lot of money that has gone into the economy. Eighty million of those transactions were done within two weeks of the CARES Act passing. Making these payments was a huge, herculean task for the IRS. We understood that these payments were much needed by our fellow citizens, so our goal was to get them out as rapidly as possible, but as accurately as we could do it.”
The IRS also had to scramble to create a new Form 7200, “Advance Payment of Employer Credits Due to COVID-19,” first for the Families First Coronavirus Response Act and then quickly adjust it for the subsequent CARES ACT.
“Almost all IRS offices shut down in the third week of March,” said Lough. “Starting June 1, we have started to reopen our offices again, slowly. Kentucky, Texas and Utah opened on June 1. Georgia, Minnesota, Tennessee and Missouri opened on June 15. Two of them will open on June 29. We will have a few more states opening as we go along, and by mid-July, we hope to be in business. But we are ensuring that when our employees do come back, they come back to a safe and a clean place where they can social distance.”
Over the past few months, the IRS was able to make much of its workforce telework-capable. While some employees were able to simply bring back their laptops, others needed equipment such as large monitors delivered to their homes, along with headsets. Meanwhile, the IRS has needed to deal with an avalanche of paperwork that has accumulated, especially paper tax returns that weren’t electronically filed.
“We've had 136 million returns filed and we've processed 134 million, but there are a number of paper returns that are in the mail that need to be opened and processed,” said Lough. “We estimate that we receive 1 million new pieces of mail each week. Think about all of the weeks that we were closed. Our mailrooms are opening 5 million per week. We’re working really hard to open them. We currently have about 11 million pieces of mail that are unopened, but we are continuing to make progress.”
The IRS was able to offer some more flexibility for communicating with taxpayers and tax professionals by enabling secure email to be sent. “We created a way for people who are in compliance contact with us or have applications pending like the exempt organizations to be able to communicate with us through email, which is something we have never done,” said Lough. “That's another change that was good that came out of this because we are concerned about unsecured emails and disclosure issues for taxpayer information. We were able to work with our cyber and privacy people to set up secure emails where we could send information to the taxpayer, like information document requests, or receive information back from the taxpayer so we could keep working on their cases or their exempt organization applications or employee plans.”
The IRS also delayed many of its compliance actions until July 15 in tandem with the extension to file and extension to pay provided under the CARES Act. “In parallel with that, we put a sort of moratorium on installment agreements that people weren't able to pay,” said Lough. “We stopped the liens and levies for the time being. We stopped opening audits other than for when there was a statute of limitation issue, or an issue of egregious noncompliance that can’t wait.”
Eric Hylton, commissioner of the IRS’s Small Business/Self-Employed Division, said he has seen more collaboration than he’s ever seen before in his 30 years at the IRS. “We've been extremely busy,” he said. “A lot of long conversations, late-night conversations about a lot of issues as we move forward. We had to reduce our presence to some degree over the last few months as related to examination, collection and enforcement actions. But we still were out there a little bit with some egregious taxpayers.”
For example, the SB/SE Division needed to deal with some high-income nonfilers with “jeopardy assessments” and make some referrals to the IRS Criminal Investigation division.
“We looked at this as an opportunity to turn a crisis into an opportunity,” said Hylton. “Yes, we were hit with the crisis, but we also thought about what is the opportunity that we can take advantage of. I think we did yeoman's work as it relates to getting our nonportable workforce into a telework environment. With SB/SE, we increased our numbers by 40 percent, which was outstanding. We had a lot of different efforts and a lot of different managers doing outstanding work to try to assist employees to get telework ready. Ultimately, that's going to be a paradigm shift for us as we move forward.”
He believes telework will offer more flexibility with new seasonal hires, as well as office space. “There are certain pockets around the country where we could actually have more employees if we have the space, so it gives us an opportunity to look at this environment and turn this crisis into an opportunity,” said Hylton.
SB/SE also set up a new agencywide Fraud Enforcement Office, headed by Damon Rowe from IRS Criminal Investigation. SB/SE has been looking at various forms of fraud, including digital currency, and building up its portfolio as it relates to civil fraud, while discussing when to make criminal referrals to CI when appropriate. The IRS has become more open to allowing digital signatures during the pandemic and overcoming other operational barriers between the different divisions.
Doug O’Donnell, commissioner of the Large Business & International Division, is seeing more collaboration across divisions, and his group adapted easily to working from home. “We were accustomed to working in a telework environment,” he said. “99.9 percent of our employees were equipped to do so. Only about a dozen of our employees faced any real challenge with being able to telework.”
O'Donnell also highlighed the new secure email system. “This really improved our ability to work in a telework environment. In addition to being able to send and receive documents, we also had an improved capability to accept signed documents,” he said. “We greatly improved our ability to operate in that environment and are actually progressing on work from our homes, which was a significant change from where we've been operating previously.”
The LB&I division has started a Tax Cuts and Jobs Act compliance campaign and another campaign targeting global high-wealth individuals. Other areas of focus are micro-captive insurance companies and syndicated conservation easements.
On the TCJA campaign, the LB&I Division is going to have more flexibility to examine returns. “We'll start those examinations soon after the July 15 conclusion of the People First initiative,” said O’Donnell. “This campaign is very different from campaigns in the past where we focus on a specific transaction or issue or line item. This is looking at the entirety of a return, giving examiners the authority to look beyond any specific issue. … We're asking our employees to go into returns and understand how taxpayers have implemented the TCJA. What did they actually do? Is there something about the returns that lend themselves to a greater likelihood to have one type of transaction versus another transaction? Is there something specific we can say about entities that are smaller, that have fewer controls, that are closely held? Which controls are different? There are a lot of opportunities to learn here.”
LB&I will also be looking at S corporations and partnerships. “Obviously, some of those will be controlled by high-wealth individuals, so that will touch on our global high-wealth program as well, and we’ll understand better the linkages to what those individuals may be up to,” said O’Donnell. “We're going to be collecting this examination information and using a very robust feedback mechanism to do this. We put in place a number of subject matter experts to keep in touch with the teams to understand what they are seeing.”
Tammy Riperda, commissioner of the IRS’s Tax Exempt and Government Entities Division, said her group was able to pivot easily to a telework environment. “The impact of the evacuation order as the pandemic spread and the mandatory telework of our employees had less impact on our field operations and our examination functions. It had more impact on our service functions, where most of our determination employees and our compliance employees actually do work out of the office. However, much like [the Wage & Investment Division], we were able to pivot very easily and quickly to that telework environment because the great majority of our employees are also telework-able.”
Some of the managers in the TE/GE Division would retrieve applications for tax-exempt status that arrived in the mail and deliver them curbside to the determination specialists who were driving up in their cars. The employees could then take the applications home and work through them in a telework environment. “Kudos to those managers and the ingenuity that they had and the ambition that they had to keep things going,” said Riperda.
But she acknowledged there is still a delay with paper-filed information returns, such as the Form 990 series. “We're still trying to proceed with the processing of those as best we can,” said Ripperda. “But even those, as well as the processing of the applications, we’re unable to get them uploaded to TEOS, the Tax-Exempt Organization Search tool on IRS.gov, because of some back-end processing requirements for those uploads. That must be done in the office and by our folks who have primarily not-portable work. But really it can almost be seen as fortunate timing that we stopped accepting paper applications for 501(c)3s on April 30 of this year.”
Lough pointed out that the Form 1023 application for tax-exempt status was mandated to be electronically filed after that date.
“It was just kind of dumb luck,” Riperda agreed. She noted that her division is continuing to process exemption applications on a first-in, first-out basis, but nonprofits can still ask for expedited handling through the electronic process. “We have seen some of those come in for newly created relief organizations like for COVID-19 relief, and we are moving those to the front of the line,” she said.
However, the determination specialists are also on the lookout for any scammers who are trying to take advantage of the pandemic to set up fake charities. “I'm happy to report that we have not had a lot of instances where they are just blatantly bad,” said Riperda. “They are looking at them closely and they have identified a handful that were more questionable and they were pulled out for additional questioning. But by and large, there have been some really good organizations come through for COVID-19 relief.”
Criminal Investigation has helped her group come up with indicators to spot the scammers.
Don Fort, chief of IRS CI, noted that many of his agents are used to working in the field, which has been difficult to do during the pandemic. But they have been adjusting. “The work of a special agent is a field job,” he said. “If they're doing their job correctly, they don’t spend a lot of time in the office. With the exception of a handful of people, we were quickly able to get up and running. We didn't completely cease our fieldwork, although obviously depending on the locations where agents were located, we weren't able to do a lot of field work. What we focused on was getting agents and supervisors to spend time on some of what they consider administrative paperwork that they don't always have the time to do when they're running around doing their casework — writing up special agent reports, writing up memos, things like that. By nature the job has slowed down just because grand juries have not been meeting. Courts have been closed, and all of our counterparts for the most part in the other agencies are pretty much doing the same thing.”
In the meantime, Fort has been trying to keep up the morale of his line employees, staying in touch with his team through video and phone conferences. They have tried to continue to keep cases moving forward.
“You are going to see special agents more actively out in the field here in the very near future,” said Fort. “Agents need to be in the field meeting with witnesses, taking witnesses into the grand jury, gathering evidence, meeting with their [Department of Justice] counterparts and law enforcement counterparts to build cases. It’s a difference in mindset in terms of not worrying so much about where the work is physically done, in terms of whether an agent's doing that in a home office or an office office, but making sure that when we start reengaging the public and start back to work, using common sense and good judgment.”
IRS CI is continuing to work closely with other law enforcement agencies and the Department of Justice on combating fraudsters, including those who are trying to take advantage of the trillions of dollars going out in the CARES Act and other recent stimulus legislation. “We are seeing a lot of fraud,” said Fort. “That's no surprise to anybody. Whenever that volume of money goes out, you've got a lot of fraudsters that are just waiting to take advantage, unfortunately, of people that really need the money the most.”
