by Roger Russell
Washington — The Internal Revenue Service has unveiled an updated strategic plan that outlines three broad goals for the agency through 2009: improved service to taxpayers, enhanced enforcement of the tax laws, and modernized business processes and technology.
“In recent years, the IRS has made significant progress in improving service,” said IRS Commissioner Mark W. Everson. “While the agency’s commitment to service continues, the IRS must now sharpen the focus on enforcement.”
The IRS anticipates a dynamic world filled with new demands for service, according to the plan’s vision statement. To achieve its vision, the plan suggests, the agency must be re-centered to provide the proper balance of service and enforcement poised to meet customer expectations and to respond quickly to technological and demographic change.
The IRS intends to improve service options by offering products and services to address the growing needs of taxpayers with limited proficiency in English, including multilingual products and services. It plans to launch a Spanish Free-File page, and will post additional translated products and services to enhance the Spanish services on its Web site.
Ultimately, it will offer the ability for taxpayers and their representatives to conduct nearly all of their interactions with the IRS electronically.
The IRS noted that, while it administers the tax code, it is Congress that passes the legislative additions. Its objective in simplifying the tax process includes an effort to simplify tax forms and publications and make them more suitable for a computer-based system. In addition, the current e-file system will be modernized to provide a single standard for filing electronic tax returns. This will allow preparers to transmit multiple return types in the same transmission.
The IRS said that it intends to shift emphasis over the next five years to increase audit coverage of the most egregious abusers, especially corporations and high-income individuals. It will focus on the promotion and use of abusive tax schemes and avoidance transactions, the misuse of offshore transactions, non-filing by higher-income individuals, and flow-through income.
A key element of its enforcement objectives is to ensure that attorneys, accountants and other tax practitioners adhere to professional standards and follow the law. Practitioners who engage in “misbehavior” will be more widely publicized, and will be subject to a broad range of coordinated actions.
To that end, the IRS said that it would establish “clear, robust, current and meaningful standards of conduct for tax practitioners.” Circular 230 will be modified to include “best practice” examples, and the IRS “will continue to monitor the effectiveness of Circular 230 in light of emerging trends in the tax arena and propose modifications as appropriate.”
“Practitioners will benefit from the effort to establish and communicate fair standards of conduct,” said Bob Scharin, editor of RIA’s Practical Tax Strategies.
“There’s a lot of gray area there, and if the IRS will be tightening its enforcement of what it deems abusive situations, then clear guidance will be all the more important,” Scharin said. “This is very important for practitioners who are trying to balance their responsibilities to serve their clients’ best interest within the boundaries of the law.”
Modernization times
The plan’s third priority is to improve the efficiency of the tax administration system through modernization efforts that build upon the success of the e-file program and other electronic tools for individual and business taxpayers.
In addition to its emphasis on technological improvements, the IRS said that it would aggressively recruit new hires to replace its maturing workforce, and will seek to become an “employer of choice” for talented college graduates.
The plan was reviewed and approved by the IRS Oversight Board, which was created by the IRS Restructuring and Reform Act of 1998 to oversee the tax agency. A majority of the board’s members are from the private sector.
“The board compliments Commissioner Everson on this new five-year plan,” IRS Oversight Board chair Nancy Killefer said. “This is a balanced plan. It will help the IRS to continue to build on its customer service successes while addressing troubling deficiencies in enforcement and business systems modernization that the board has previously noted in both its annual and budget reports.”
The IRS also received feedback from other groups, including the IRS Advisory Council, the Information Reporting Program Advisory Committee and the Federation of Tax Administrators.
“It is clear that in developing the plan, the service has given careful attention to all the competing needs of tax administration; we expect that this plan will serve the agency well in coming years,” said Harley Duncan, executive director of the Federation of Tax Administrators. “The strategy addresses all of the key challenges facing tax authorities.”
However, some observers are skeptical of the IRS’s ability to follow through on its major goals.
“They promise increased efficiency and fairness, but time will tell how effective the plan implementation will be,” said Sharin.
“They’re telling us on the one hand that they’re focusing on enforcement, and I’m sure they will,” said George Jones, managing editor of the CCH Washington office, “but they describe an unprecedented growth in the appreciation of capital and other forms of non-verifiable income, together with correlated increases in tax avoidance.”
“They don’t have the resources to deal with the result, which they call ‘an unprecedented volume and variety of noncompliance,’” he continued. “They’re not spending nearly enough to meet this unprecedented volume and variety of noncompliance.”
“The budget negotiations seem to be heading to their receiving a lot less than they claim they need at the outset, and their technology program is so far behind that they need to dump more money into that to make it succeed,” Jones said. “All the while, the number of returns being filed continues to increase as the population increases. Certainly the will is there and their focus is better, but without the money and the resources it will be difficult for them to succeed.”
