IRS improving e-filing and technology for tax-exempt orgs
The Internal Revenue Service is rolling out new systems and expanding the number of forms that can be electronically filed by tax-exempt organizations, while also dealing with some technology glitches resulting from the COVID-19 pandemic.
One of the first steps is a new Enterprise Case Management System that’s initially being piloted at the Tax Exempt and Governmental Entities, or TE/GE, division and its customer support operation (see story).
“We are constantly working to modernize our operations, monitor internal controls and drive efficiencies,” said Edward Killen, acting commissioner of the IRS TE/GE division, during a press conference last week. “An exciting and significant example in the new fiscal year is TE/GE’s participation in the Enterprise Case Management initiative. Enterprise Case Management is an IRS-wide initiative to modernize and consolidate our case management systems by creating a single integrated platform. At full deployment, we will have modernized a more efficient and effective case management across IRS. The TE/GE correspondence unit will be the first business process within IRS to be integrated into the Enterprise Case Management system, or ECM.”
The IRS is leveraging new technology such as robotic process automation, or RPA, to help make its ECM technology more efficient, while also training its employees on the latest systems.
“We will also continue with the Enterprise Case Management, which is an example of how we will use the robotic process automation to retrieve taxpayers’ information from multiple systems, most of which cannot talk to one another and then deposit that information into a single system for use by authorized personnel,” said Phil Lindenmuth, acting deputy commissioner of the IRS TE/GE division. “Among our list of priorities is to develop our workforce. That will continue to be a high priority in fiscal 2021. We are actively assessing our employees’ training needs and we’ll develop methods and secure resources to meet those needs. We will also support employees and manage their development through training, development assignments, coaching and mentoring. TE/GE’s knowledge management program remains a very high priority and we’re in the process of migrating our knowledge management content to the IRS virtual library where it will be maintained and readily available to employees throughout the IRS.”
TE/GE’s team has been working with the IRS’s IT organization and program management office to launch the new system, and release 1 is scheduled for a Dec. 1 deployment. “After the December launch we will continue to support development of additional releases that will be coming through in the coming months and years here at IRS,” said Killen.
The IRS has been working to modernize its aging computer systems, some of which date back to the early 1960s. It received some extra funding for this goal thanks to Congress’s passage last year of the Taxpayer First Act, which requires the IRS to improve taxpayer service and its technology. Among the initiatives is the continued expansion of electronic filing of various tax forms, such as the recent introduction in August of e-filing of Form 1040-X for amended tax returns (see story). Those capabilities have become even more important this year as a result of the coronavirus pandemic, with both tax professionals and many IRS employees continuing to work from home.
“During the new fiscal year, we will strive to maintain a taxpayer-focused organization by continuing to focus on accomplishing goals and requirements of the Taxpayer First Act of 2019,” said KIllen. “In keeping with those requirements, TE/GE is working to implement mandatory e-filing by exempt organizations of certain tax and information forms and expand e-filing of forms beyond the ones that the law currently requires. In FY ’20 we implemented the electronic filing mandate for Form 990, Form 990-PF and 8872. We will continue that work this year with electronic filing for the Form 992, 990-EZ and the Form 4720. We are also continuing to develop applications for recognition of exempt status. In FY ’20, we released the electronic Form 1023, and this year in FY ’21 electronic Form 1024A is scheduled to go live.”
The IRS also plans to bring an interactive tax assistance tool online in December to help taxpayers avoid making excess contributions to their 401(k) plans. “We are also excited about the expansion of taxpayer digital communications, which offers the secure exchange of messages and documents with taxpayers and their representatives, something that’s particularly timely under the current circumstances,” said KIllen. “Throughout the new fiscal year, we’ll expand into more products and services to heighten taxpayer understanding and improve voluntary compliance.”
Nevertheless, the IRS is facing continuing hurdles with improving its systems to leverage the latest technology. Last week, the Treasury Inspector General for Tax Administration released an annual report on the IRS’s IT program and found the IRS still has work to do. “The IRS has made progress in many information technology program areas, but additional improvements are needed,” said the report. “TIGTA and the Government Accountability Office identified a number of areas in which the IRS can more efficiently use its limited resources and make more informed business decisions. For example, in the area of system security and privacy of taxpayer data, TIGTA rated three of five Cybersecurity Framework function areas as ‘effective.’ However, taxpayer data could be vulnerable to inappropriate and undetected use, modification or disclosure until all areas of the IRS security program are fully implemented in compliance with the requirements of the Federal Information Security Modernization Act of 2014.”
The IRS’s TE/GE division recently faced criticism from some members of Congress for sending out automatic notices revoking the tax-exempt status of more than 30,000 organizations, including over 28,000 charities, during the pandemic because it didn’t receive their Form 990 filings for three years in a row (see story). The IRS is still dealing with a backlog of millions of pieces of mail that arrived during the pandemic and may contain paper copies of the filings, the lawmakers pointed out, and the organizations were supposed to get a two-month extension from May 15 until July 15 to file the forms due to the pandemic. In response to the outcry, the IRS quickly backtracked and said it would review those notices, while giving the organizations a way to fax in their documents (see story).
Killen acknowledged the error in response to a question from Accounting Today and indicated the IRS is going even further to rectify the situation. “This issue was really an administrative hiccup caused by the extension to file,” he said. “Back in the spring we granted an extension to file through July 15. The revocation issue really applies to organizations that have not filed for a period of three years, and by statute, there’s a revocation that takes place. There was a programming error caused by some system limitations that we have from programmers that unfortunately did not properly suppress the revocation notice that we sent out. When we discovered this issue, we immediately took steps to attempt to mitigate it.”
For groups that received an automatic revocation notice, the IRS took some further steps. TE/GE made sure that organizations wouldn’t show up as having their tax-exempt status revoked on the Tax Exempt Organization Search, or TEOS, function on the IRS website. The IRS also contacted the groups a second time to inform them about the mistake.
“Additionally we took the step of sending a communication and correspondence directly to those taxpayers, so although some taxpayers may have received that auto revocation notice, they should have received or will receive a second correspondence from the IRS that really clarifies that issue and essentially says to disregard that initial notice that you have seen because of administrative error,” said Killen. “Now, the filing requirement still exists, but as we work to get through our return processing, those situations should be rectified in good order, so at this point taxpayers should not be adversely impacted.”
The organizations’ tax-exempt status will still be recognized as far as any paper filings that have been submitted and filed, despite the backlog of unopened correspondence. “As we work our way through those returns, we will process those returns in good order as well,” said Killen. “That is the current situation where we stand, but taxpayers should not be adversely impacted by this. It was an administrative error, and we are taking steps to communicate directly with taxpayers who have been impacted.”
In case they haven’t been contacted since receiving the automatic revocation notice, tax-exempt groups can also communicate with the IRS by fax at (855) 247-6123. “There’s not necessarily a need for taxpayers to initiate contact with us, because we have been proactively communicating with taxpayers on that issue, but we did certainly provide that additional channel so that taxpayers can have direct interaction with TE/GE to the extent that they have been negatively impacted,” said Killen. “That is the most efficient way, given the situation in the mail right now with the direct interaction, but we are being proactive and responding directly back to taxpayers, so they have received or will receive something from us directly in the mail on that. But I think it’s important to note that this was really an issue that was caused by the increased filing flexibility that we provided in the late spring. It’s just unfortunately an administrative glitch that occurred there.”