Testimony Before the Internal Revenue Service Oversight Board February 8, 2006

February 8, 2006

Testimony of Francis X. Degen, EA
President, National Association of Enrolled Agents[i]
before the Internal Revenue Service Oversight Board
February 8, 2006

Thank you, Mr. Chairman and members of the IRS Oversight Board for asking the National Association of Enrolled Agents (NAEA) to testify before you today on the customer service needs of taxpayers. My name is Frank Degen and I am President of NAEA, which is the premier organization representing the interests of the 40,000 Enrolled Agents (EAs) across the country. As EAs are the only tax practitioners for whom the IRS directly tests and regulates, our membership stands at the forefront of providing ethical and accurate tax preparation and representation to the public. Our members collectively represent millions of hours of experience working with taxpayers at almost every level of tax administration. With this background, we believe EAs are uniquely positioned to provide insight on the customer service needs of taxpayers.

Mr. Chairman, the IRS Oversight Board was the brain child of the National Commission on Restructuring the IRS, and as you know NAEA worked closely with the Commission in developing its recommendations both in regard to this board but also its findings on IRS customer service. We supported the creation of the board as a defense against the tendency of policymakers to swing wildly back and forth between two policy extremes of service and enforcement, as if they competed in a zero-sum game. Ultimately, both of these strategic objectives must be adequately funded for the system to work correctly. While our organization applauds the strengthening of enforcement measures at the agency over the last few years, including the newly released IRS budget, we would urge this board to fulfill its mandate from Congress by ensuring that there is not a corresponding decline in customer service.

I would like to quote here from the Commission’s report because I would like to provide context for our testimony today:

 

As a guiding principle, the Commission believes that taxpayer satisfaction must become paramount at the new IRS and that the IRS should only initiate contact with a taxpayer if the agency is prepared to devote the resources necessary for a proper and timely resolution of the matter.

 

We contend that helping taxpayers file accurate, timely returns, having a plan of response when the agency requests some action on the part of the taxpayer, and encouraging respectful, resolution-oriented action on the part of the IRS during the collection process builds respect for the system and ultimately better compliance on the part of taxpayers.

 

Too often over the last few years, we have witnessed the agency’s return to its old school process of conducting business. No situation better illustrates this trend then the recent Criminal Investigation-led program freezing tax returns. We applaud the initiative of the agency in attempting to identify and respond to possible systemic fraud in the tax administration system. What was alarming was the old school approach the agency used in planning and implementing the program. First, it struck a blow at the underpinning of the self-compliance pillar of our tax administration system by leaving thousands of compliant taxpayers in tax refund limbo. We question what analysis was done to compare the up-side of revenue protection with the down-side of leaving these taxpayers scratching their collective heads over the seemingly black hole that had swallowed their returns. Second, we question how much thought the agency devoted to the possibility that these incredibly-disappearing refunds would burden its customer service staff. Did anyone ask how many additional calls IRS representatives would field from taxpayers and practitioners, or how would customer service identify and respond to these calls? And these are only a few customer service questions that the Service apparently gave short shrift.

Third, and just as important as the previous issues, we wonder what consideration, if any, the agency gave the basic due process issues that would be raised by essentially seizing the property of these taxpayers. How would they be notified? What would be the procedures for protest, review and disposition of these cases? After three taxpayer bills of rights, one would think that CI would have had a clear plan in place for ensuring due process under the program.

Further we ask why the IRS Oversight Board did not review and approve this program (and any number of other high level programs). I will go one step further by asking what role did you play in the development of the agency’s goals laid out in the President’s current 2007 budget? There is clear Congressional intent, if not an outright statutory mandate, that the IRS Oversight Board be responsible for asking the tough questions on strategic plans. We assert that a system that only catches large program errors at the backend is broken. The National Taxpayer Advocate should not have been in a position to expose the refund freeze mess. While we appreciate her efforts, we still believe that an ounce of prevention is worth a pound of cure.

While the refund freeze program is a poster child for the agency’s return to its old school procedures, it is not the only example. Enrolled agents are very concerned with the quality and availability of many basic customer service programs. Specifically, the IRS should never underestimate the importance of its publications on increasing compliance. In the past, the agency provided many quality publications free to the public. Recently, it has decided to discontinue a number of important publications. This is shortsighted and unfortunate. Once again, we wonder what analysis, if any, IRS conducted on the compliance effects of this decision?

Another important example of back-sliding has been in the area of building partnerships with practitioners at the local level. Under the previous commissioner, the agency’s mantra was to consult and then decide. There are those who believe that the agency is now in “decide and then explain” mode. NAEA urges the IRS to continue its local liaison activities. These forums provided both practitioners and the IRS a valuable resource: an arena to work collaboratively to spot problems and seek common sense solutions at the front end.

NAEA has worked closely with the IRS in planning and implementing its internet-based customer service solutions, particularly e-Services. While we applaud the technology advances and look forward to working with the IRS in this area, we remain extremely disappointed that the agency insists on creating a nexus between e-filing and its e-Services program. We have been concerned by the decision to limit e-Services to those who file five or more returns electronically. By denying access to e-Services to Circular 230 practitioners who engage only in representation, the Service misses out on a tremendous opportunity to enhance tax administration and problem resolution using its own enrolled practitioners. By allowing Circular 230 practitioners without respect to the number of income tax returns filed electronically access to e-Services, the agency would take a significant step forward in increasing taxpayer service.

The electronic applications developed to date have only scratched the surface for increasing taxpayer service. The agency has been a leader in this area and it is clearly the future for tax administration. However, like many private sector corporations, the IRS must continue to support it brick-and-mortar assets. Too many people, especially the elderly and low income, rely on walk-in centers for help and advice, paper returns and publications. The IRS will lose many otherwise compliant taxpayers if it attempts to drive everyone to the internet. We suggest that the agency’s strategic plan must maintain both approaches for the foreseeable future.

Before I conclude our testimony, I would like to make a short pitch in favor of a pending piece of legislation, S. 832 (The Taxpayer Protection and Assistance Act of 2005, sponsored by Senator Bingaman). This important legislation would significantly improve taxpayer access to competent and ethical return preparation by testing for basic knowledge and requiring mandatory continuing education. At the same time, it would provide a dedicated source of revenue for administering the program and promoting all Circular 230 preparers. Enrolled agents believe that if enacted and fully implemented, this program could be one of the most significant legislative contributions for improving upfront compliance to come along in many years.

In conclusion, the NAEA and it members echo the words of the IRS Restructuring Commission’s report by saying that we believe that good customer service and taxpayer education, which assists taxpayers in meeting their tax obligations, leads to increased compliance. It does this in a cost efficient way by encouraging that things are done right from the beginning as opposed to relying too heavily on backend fixes. As always, we stand ready to work with the Internal Revenue Service and the IRS Oversight Board to improve taxpayer customer service and the tax administration system.

i. The National Association of Enrolled Agents (NAEA) is the professional society representing Enrolled Agents (EAs), which number some 40,000 nationwide. Its 11,000 members are licensed by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service (IRS), including examination, collection and appeals functions.

While the Enrolled Agent license was created in 1884 and has a long and storied past, today’s EAs are the only tax professionals tested by IRS on their knowledge of tax law and regulations. They provide tax preparation, representation, tax planning and other financial services to millions of individual and business taxpayers. EAs adhere to a code of ethics and professional conduct and are required by IRS to take Continuing Professional Education. Like attorneys and Certified Public Accountants, Enrolled Agents are governed by Treasury Circular 230 in their practice before the IRS.

Since its founding in 1972, NAEA has been the Enrolled Agents’ primary advocate before Congress and the IRS. NAEA has affiliates and chapters in 42 states. For additional information about NAEA, please go to our website at www.naea.org.