Newly appointed IRS Commissioner John Koskinen is concerned about a lot of things. In a wide-ranging press conference in early January, Koskinen, who was confirmed by the Senate on December 20, said that his concerns for the "front end" of his tenure have to do with the current filing season; the issues surrounding applications for tax-exempt status; improving tax compliance; implementing the tax provisions of major legislation, especially the Affordable Care Act; and rebuilding employee morale.
"As the new kid on the block, with all the experience [that IRS employees] have, one of the things I can probably do most profitably to help them is to stay out of the way," he said. "I marvel at what they accomplish every filing season."
"Another priority for the agency is to address all the issues and concerns surrounding applications for tax-exempt status," Koskinen said. "Management problems associated with the 501(c)(4) process have shaken the public trust in the IRS."
It is critical to build upon the important work the IRS is doing to improve tax compliance, Koskinen said: "Recently the IRS has made great strides in enforcement in a number of areas, including the fight against refund fraud, especially fraud caused by identity theft. Also, progress has been made to improve international tax compliance, particularly efforts that have been made to combat offshore tax evasion."
"Along with tax enforcement, we must continue improving taxpayer service," Koskinen emphasized. "For compliance, you need to have uniform enforcement. But to the extent that you make it harder for taxpayers to figure out what the right amount is and to get the information, then compliance is going to suffer. So I think they're wrapped up together."
"Finally," Koskinen said, "the challenges that all federal workers have faced the past three or four years, along with the more recent adverse publicity about the IRS in the past few months, have understandably undermined employee morale. We won't turn the situation around overnight, but ultimately I want our employees to again view the IRS as a great place to work, where their accomplishments are appreciated and supported, and I will do whatever I can to ensure that every employee has the leadership, systems and training to support them in their work and allow them to reach their full potential."
FIGHTING FOR MONEY
Koskinen signaled his intent to fight for a more realistic budget for the agency. "To be successful in all these areas the IRS needs to receive adequate resources," he said. "I'm extremely concerned about the deep budget cuts the IRS has had to absorb over the last few years. It's critical that we find a solution to this problem and I will do everything I can to make sure that we do. I hope that one of my legacies of my four years as IRS commissioner will be that we put the agency's funding on a more solid basis."
"It is encouraging that the commissioner has come out strongly with respect to resources for the agency, and that he raised the issue that funding actually provides a positive return on investment," said Robert Kerr, senior director of government relations at the National Association of Enrolled Agents.
"Funding is the 800-pound gorilla. He acknowledged that the issue exists, notwithstanding exhortations that the agency needs to do more with less. The fact is evident that the only thing the agency can do with less is less," said Kerr.
"The identity theft issue is a large and growing problem, and requires the agency to pull resources from elsewhere to address it. Ultimately it finds itself in a completely defensive posture, which doesn't help," said Kerr. "When it guards against ID theft, it siphons resources away from the type of enforcement the agency would like to do. "
Koskinen suggested that the IRS would support voluntary certification for tax preparers if it loses its appeal of the decision in the Loving case, which held that the IRS lacked the authority to register tax return preparers. (At press time, a decision on the appeal was still pending.)
"If you could require certification of preparers and some educational requirements, it would help taxpayers feel some level of confidence that preparers actually know what they're doing, and the vast majority of them do," he said. "My sense is that we should be able to provide that same educational training and that background to preparers. If you can't require it, offer it, and if you complete the information, you get a certificate that says, 'I have completed the IRS preparer course.'"
Unless and until the Loving decision is reversed, you still need a Preparer Tax Identification Number, but the CPE and testing are out, observed Roger Harris, president of Padgett Business Services and former chairman of the Internal Revenue Service Advisory Council. "If you want to take CPE, it's still tracked within the system, but there's no requirement for the RTRP. The infrastructure is still sitting there waiting to hear from the courts," he said.
"If they lose the appeal, Plan B is to get legislative authority for the program," he added. "There have been numerous attempts to do legislatively what the IRS did on its own, but there's never been a consensus bill that everyone would sign on to and pass, so the IRS went ahead and did it internally. If they lose the court case and go back to the legislative process, all those issues will resurface."
In the past, the various bills seeking to legislate the regulation of preparers couldn't get consistent support, largely due to the issue of grandfathering, Harris indicated. "Other issues creep in, such as what's the right experience, how much education, and how many tests there should be. Everything that makes taxes complex makes regulating the profession complex, and when you mix it with the politics of it, you can understand why there's been no legislative fix up to now."
MISSIONS SUFFERING EQUALLY
Harris agreed that the budgetary issue was critical to the IRS mission. "There's a tension between enforcement and service," he explained. "At some point you may have to prioritize which of those two functions is the most important."
In some instances, Harris noted, technology can help control costs. "For example, there are the YouTube videos taxpayers can watch. That's in exchange for people to talk to on the phone, but you can't do an audit on YouTube," he said.
Harris sees a connection between the regulation of preparers and the utilization of the preparer profession to do more policing on the front end of returns. "There has been so much fraud in the Earned Income Credit program, and the IRS recognized that it couldn't do all the work by itself. They engaged the practitioner community to hold back the fraud in the EIC program, and they did it by imposing more due diligence requirements. There's a danger that this could be expanded to other areas, and ensure that what gets put on the tax return is accurate. It's a smart thing to do, to put more work on practitioners. We should always make sure the returns we prepare are accurate. But there's a danger if you cross the line too far, people won't come to preparers if they feel they're being audited every time. You don't want to have to say, 'Come and get your taxes prepared and your audit done all in one trip.'"
The concept requires a regulated community so that all play by the same rules, Harris observed: "Taxpayers will somehow find a way to preparers who are less stringent in following the rules. It all ties in with the regulation of return preparers. If the IRS leverages their existence, it has to make sure that everyone they leverage is qualified."
