National Taxpayer Advocate Nina Olson’s Objectives Report to Congress, delivered in early July, continued her examination of the Internal Revenue Service Future State plan, which she initially cited in her 2015 Annual report to Congress as the “No. 1 Most Serious Problem” for taxpayers.
The Future State plan of the IRS envisions how the agency will operate in five years and beyond. A central component of the plan is the development of online taxpayer accounts, aspects of which Olson praised. However, she expressed concern that the IRS intent in developing the accounts is largely to save money in light of recent budget cuts by reducing telephone and face-to-face assistance.
She also cautioned that many taxpayers will not conduct business with the IRS through online accounts because they lack Internet access or skills, cannot complete the authentication process required to set up an account, do not trust the security of the IRS system, or would prefer to speak with an IRS employee. As a result, she expressed concern that critical taxpayer needs may go unmet under the Future State plan.
Olson conducted eight public forums to allow direct feedback from the public on the Future State plan, with excerpts from the transcripts of the forums included in the report.
Concerns about the Future State Plan that arose consistently in the public forums or that she identified in her annual report include: the continuing trend away from person-to-person and face-to-face taxpayer service and compliance activities, as well as a declining geographic IRS presence and increased centralization; the benefits and limitations of online accounts; the lack of clarity around what will be offered as self-service online options; the implications of online accounts for taxpayers with limited online access or digital expertise, and the impact of security concerns on taxpayer online account usage; and the implications of granting access to taxpayers’ online accounts to unregulated return preparers.
Vivian Hoard, tax partner at Atlanta-based Taylor English Duma LLP, agreed with Olson’s opposition to the access of client information. “It should be someone who is governed by Circular 230, or someone that can demonstrate tax proficiency in some manner,” she said. “Taxpayers shouldn’t have to trust people who haven’t demonstrated proficiency in tax preparation. At least, if a preparer is governed by Circular 230 there would be sanctions — you want a preparer to be accountable.”
Preparers can already access client transcripts if they have a power of attorney, she noted. “It all sounds wonderful if you can transact business with the IRS like you can with a bank. Millennials and people who are computer-savvy will love it, but there are times when you really have to talk to somebody,” she observed. “Even practitioners get clients with problems that need a live person at the IRS to resolve.”
“There has always got to be a balance between the use of technology and human interaction,” agreed Roger Harris, president of Padgett Business Services. “You’ve got to find the right balance between the two, but you can’t ignore either. The service should focus on the places where it would be most effective.”
The focus should be on practitioners first, according to Harris. “If they focus on Circular 230 preparers, they can continue to separate the good from the bad preparers by offering them enhanced services,” he said. “They will have more resources than people who choose not to be subject to Circular 230. People who use a paid preparer are likely not to use online accounts in the first place — they will go back to their preparer to transact business with the IRS. Why would someone who won’t prepare their own return use an online account?”
“Her concern is that the IRS will completely move away from human interaction,” Harris said. “If you go to a pure electronic world they will be left out in the cold. I agree that you can’t ignore them when you have a limited amount of money — then reserve the expensive resources of face-to-face for those who need it the most.”
“The Taxpayer Advocate has said that this will develop a ‘pay-to-play’ and a two-class system," noted Marty Davidoff, principal at E. Martin Davidoff & Associates LLC. “Not only is she right, but that system is already here. Those who are represented are getting different services than those who are not represented. The representatives know how to get to people at the IRS to have substantive conversations, and that’s the issue. Those who are not represented have an 800 number, but that’s it — they can’t get through, and when they do they don’t know how to interact. It’s what she calls a ‘concierge’ system. More and more you can’t get service at a walk-in center. Even Appeals wants to do everything over the phone.”
“Those who are noncompliant will get service, but it will be in the form of a revenue agent contacting them wanting money,” he said. “The government is not paying enough attention to the 97 percent who are compliant or trying to be compliant. If that number dropped to 95 percent, we’re in trouble.”
“The thing the IRS is trying to develop is a robust set of online e-services,” Davidoff said. “I agree with the basic point that these services should be a supplement to person-to-person help, not a replacement. So many things require a conversation. We can’t continue with a view of the future of an IRS that will eliminate in-person communication. The way we’re headed, only the person who can pay will get person-to-person service.”
Aside from the continuing emphasis on Future State, ID theft is the No. 1 issue facing the IRS and practitioners, according to Beanna Whitlock, a Reno, Nev.-based practitioner and educator, and former director of National Public Liaison for the IRS. “ID theft is crucial not only to taxpayers but is critical to effective tax administration,” she said. “They held a security summit, and said that tax practitioners should be doing certain things, but they have to understand that someone’s ID doesn’t get stolen for tax purposes until it gets inside 1111 Constitution Avenue [the IRS building in Washington, D.C.]. Someone can get my taxpayer‘s SSN but it’s not tax ID theft until it’s used and the IRS allows them to file a return. The issue is not me as a practitioner.”
“ID theft happens for one reason, and that’s to get a refund,” she said. “What the IRS should do is program their computers to spot certain changes in returns from year to year, such as bank accounts for automatic deposit, and address changes. If critical things change — for example, if income jumps from $100,000 to $300,000, or a refund goes from $1,000 to $15,000 — those should be a red flag. Once the crime is committed and the money is out the door, they’re not getting it back.”
The IRS re-engineering of its identity theft victim assistance procedures is a “step in the right direction but does not go far enough,” Olson said in her report. Hoard agreed: “It’s a good example of how sometimes you need to talk to a human because the filters are so good that they hold legitimate refunds for people. If you’re a victim you may have a hard time convincing the IRS of who you are. I tell people it’s easier to go in person to the IRS than to call a number that no one answers. I know people who have been held up for more than a year.”
“You don’t want to pay a CPA or a lawyer to keep calling for you,” she said. “The quickest way is to take a morning off from work and go get it done. Take your driver’s license, or a passport, Social Security card, birth certificate and a utility bill with your home address on it to prove you live where you say you live.”
The report says that the IRS delivered a generally good filing season in 2016. It substantially improved taxpayer service on its toll-free telephone lines compared to 2015, and nearly doubled the percent of calls it answered, while reducing wait times by more than half.
The report identifies 14 other issues that the Office of the Taxpayer Advocate will focus on during the upcoming fiscal year, including ID theft victim assistance procedures, the FATCA burden, private debt collection and Earned Income Tax compliance.
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