IRS chief reports to Congress about tax season amid new push for his ouster
IRS Commissioner John Koskinen testified at a Senate hearing Thursday about tax season, a day after a group of House Republicans wrote to President Trump asking him to fire Koskinen.
Koskinen told the Senate Finance Committee that tax season has gone well to date, and the extra time the IRS took to process tax refunds for taxpayers claiming the Earned Income Tax Credit and the Additional Child Tax Credit, as mandated under the PATH Act of 2015, actually helped.
“I am pleased to report that the 2017 filing season has gone well thus far in terms of tax return processing and the operation of our information technology systems,” Koskinen said in his prepared testimony. “In fact, I believe this has been the smoothest filing season since I became Commissioner. As of March 31, the IRS received more than 93.6 million individual returns, on the way to a total of about 152 million. We have issued over 74.1 million refunds for more than $213.5 billion, with the average refund totaling approximately $ 2,900. The smooth operation of the filing season is a testament to the hard work and dedication of the IRS workforce.”
He praised IRS employees for planning in advance for filing season and administering it effectively. “The 2017 filing season is notable for certain Protecting Americans from Tax Hikes (PATH) Act changes that were enacted in 2015 and took effect this year,” Koskinen added. “One of those provisions requires the IRS to delay the payment of tax refunds until February 15 each year to taxpayers who claim either the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC). Although this change slowed the overall pace of refunds at the beginning of the filing season, that pace accelerated once the IRS released approximately $51 billion in EITC and ACTC refunds after February 15. The new requirement to hold EITC and ACTC refunds , and another change enacted by Congress to accelerate the filing date of Form W-2s, have together helped the IRS improve its ability to spot incorrect or fraudulent returns. Receiving W-2s earlier has also assisted in the quicker release of refunds for those returns that appear suspicious but where we are able to verify the taxpayer’s identity, which reduces unnecessary delays for compliant taxpayers.”
However, Koskinen acknowledged that the personal information of up to 100,000 taxpayers might have been compromised this tax season in a data breach involving the Free Application for Federal Student Aid, or FAFSA, tool, which the IRS was forced to shut down last month (see IRS student loan link goes dark).
"Fortunately, we caught this at the front end," he told lawmakers during the hearing, according to The New York Times. "Our highest priority is making sure we protect taxpayers and their identity."
Senate Finance Committee chairman Orrin Hatch, R-Utah, discussed the challenges facing taxpayers who deal with the IRS in his opening statement. “While I know the people at the agency often point to limited funding, there are other matters that have contributed to the current level of dissatisfaction, including outdated collection practices and bureaucratic wrangling as well as a number of poor management decisions,” he said. “This committee has conducted oversight on a number of those poor decisions, including the politicization of tax administration, excessive spending on executive travel, and improper contracting practices. Congress needs to look closely at the IRS and work to modernize and streamline its operations. This should include changes to the bloated and poorly managed technology used by the agency and the elimination of bureaucratic waste.”
Republicans on the House Ways and Means Committee went further in a letter Wednesday to President Trump urging him to remove Koskinen, complaining about his response to the Tea Party targeting scandal that emerged in 2013 before he was in charge of the IRS. “Trust in the IRS is hitting rock-bottom under IRS Commissioner John Koskinen,” they wrote. “Not only was key evidence relevant to this Committee’s investigation destroyed under his watch, but he also misled Congress in the process, intentionally degraded customer service at the agency, and has since lost the trust of the American people. We believe that trust cannot be fully restored under Commissioner Koskinen’s leadership. For this reason, we are writing to request the removal of John Koskinen as Commissioner of the IRS and to request that a new leader be put in place as soon as possible.”
However, Rep. John Lewis, D-Ga., the ranking Democrat on the House Ways and Means Oversight Subcommittee, defended Koskinen, whose term ends in November. “When will the good of the people of this nation become the concern of my colleagues on the Ways and Means Committee? In the first few months of the 115th Congress, Republicans have worked to derail their health benefits, continue IRS private debt collection that wastes their money and exposes them to fraud, and now at the height of the tax filing season they ask for the firing of the IRS Commissioner,” he said in a statement. “How does this serve the American people? It seems some of my colleagues are aggravated by the insistent professionalism of Commissioner Koskinen, and his determination to inspire his employees and improve the agency, in contradiction to their efforts to tear it down. Ways and Means Committee members should be focused on giving the IRS the long overdue resources and direction it needs to operate with greater efficiency and capability, instead of engaging in posturing and political maneuvering. The people of this nation are struggling to make ends meet while we waste time trying to fire the IRS commissioner a few months before his term ends. We should turn our attention to the more important business of the people of this nation.”
Koskinen told lawmakers that he plans to stay on until the end of his term. "Where I come from, if you sign up for a commitment, you complete that commitment," he said, according to the Times.
Sen. Ron Wyden, D-Ore., the ranking Democrat on the Senate Finance Committee, preferred to focus on restoring funding to the IRS, contending that further budget cuts would threaten the security of taxpayer information. In a letter he sent Wednesday to Koskinen, he noted that President’s budget request for fiscal year 2018 cuts the IRS budget by $239 million.
“The fewer tools the IRS can use to combat cyber threats, the greater the risk for taxpayer information to be compromised and taxpayers’ identities and tax refunds stolen,” Wyden wrote. “Moreover, slashing IRS funds for enforcement enables bad actors to avoid paying their taxes, which is money that could be put to good use shoring up critical programs like Medicare. We need action, not lip service, to ensure the IRS has the resources they need to protect taxpayers’ personal information and prevent tax dodgers from gaming the system.”
The IRS acknowledged that the chance of a large corporation being audited declined by nearly half between 2006 and 2016, Wyden noted.
The IRS has reported that during the 2016 tax filing season, it has seen a 400 percent increase in phishing attacks in which criminals impersonated IRS employees. Wyden encouraged Koskinen to adopt better cybersecurity prevention measures at the IRS in a separate letter.
“You’d think that an administration that talks about running government like a business would want to invest in cybersecurity when it discovers a hack,” Wyden said during Thursday’s hearing. “But that’s not what’s happening in this case. Instead, this administration is repeating the same old pattern: cut after cut after cut to IRS resources, meaning taxpayer service and data security could get worse and worse and worse.”
AICPA Weighs In
The American Institute of CPAs submitted its own recommendations for the record at the hearing, although it did not have a representative testifying. The AICPA conveyed its members’ reports about the problems they encountered when filing their clients’ 2016 tax returns. “We hear a resounding echo of confusion from tax practitioners as our members advise clients and continue to work on filing 2016 returns,” the AICPA said in its statement. “The issuance of delayed guidance has been a significant factor since it increases compliance uncertainty. As a result, many taxpayers are in a state of confusion regarding not only how to comply with this season’s new rules but also how to proceed with tax planning.”
The AICPA recommended the IRS establish a new dedicated practitioner services unit to centrally manage the various separate programs, processes and tools affecting tax practitioners. In terms of information reporting and Form 1099, the AICPA said the IRS should provide a de minimis error safe harbor for taxpayers. The AICPA also said the IRS should allow overseas taxpayers to use community-based Certifying Acceptance Agents to obtain or renew their Individual Taxpayer Identification Numbers, as proposed in the Tax Technical Corrections Act of 2016, which the AICPA believes should be reintroduced.
On the matter of due diligence requirements, the AICPA suggested the IRS should consider whether the information obtained from Form 8867, Paid Preparer’s Due Diligence Checklist, warrants the additional administrative burdens on professional tax preparers and the IRS.
In terms of IRS deadlines related to disasters, the AICPA encouraged Congress to give the IRS the authority to postpone certain deadlines in response to state-declared disasters and emergencies. The Institute also urged Congress and the IRS to develop simplified tax rules and guidance on the so-called "sharing economy" and crowdfunding.
On the matter of tax-related identity theft, the AICPA suggested the IRS consider some alternatives to reduce the need for submitting personal identification information, such as drive license numbers, in the tax compliance process beyond the personal data that is typically requested, such as Taxpayer Identification Number, employer address, and so on.
And on the topic of the recently revived IRS private debt collection program, the AICPA wants Congress to repeal the requirement that the IRS use private debt collection agencies.