Internal Revenue Service Reform: Recommendations of the National Association of Enrolled Agents

IRS Oversight, Governance, and Management Reform

The Report of the National Commission on Restructuring the IRS (the Commission) in 1997 highlighted an issue that once again plagues the agency: its inability to set and maintain consistent long-term strategy, develop and execute focused plans for improvement, and ensure its budget, staffing, and technology are aligned with organizational success.ii The Commission recommended comprehensive changes to IRS oversight and governance. Most have been set aside or ignored over the last five to ten years. NAEA urges Congress to reassess these recommendations and make changes where necessary.

• Reduce the IRS Oversight Board size to five private sector members – representing tax, legal and business expertise. The members would continue to be appointed by the President to 5-year terms as under current law and not be subject to Senate approval.

• Increase the power of the board to review and approve all operational plans of the agencies and any modifications to those plans.

• Require the IRS Commissioner to certify annually to the Board that the IRS DOES NOT use any enforcement or approval criteria based on political, religious or racial standards.

• Empower the Board to direct TIGTA to investigate systemic issues involving customer service, enforcement resources and modernization.

• Allow the Board to award top executives bonuses based on specific success criteria established by the Board in consultation with Congress.

Workforce Reform

An organization’s culture produces its results. The wrong culture produces the wrong results, the right culture
produces the right results. The power of an organization’s culture is pervasive.

The agency needs to have a dialog centered on its values and its approach to providing service to the public. We believe the IRS’ adopted Taxpayer Bill of Rights is an excellent starting point. We also believe clear and consistent training is an essential element in moving the IRS towards a service orientation.

• Focus on culture and leadership: Create and fund a dedicated training division within the IRS to increase competency and create the appropriate culture.
  • streamline the IRS education process, ensuring that tax law and administrative policies be taught consistently throughout the country while guaranteeing that experienced personnel will not have to be taken offline to train new employees.
  • research state-of-the-art tax administration techniques at the state, local and international levels and incorporate these approaches into education materials and the Internal Revenue Manual.
  • focus IRS training on early and fair resolution of tax disputes.

• Provide the agency executive level flexibility: grant the IRS a reformed Streamlined Critical Pay Hiring Authority, stipulating the areas of expertise covered by the program.

IRS Budget Reform

The agency is handicapped by budgeting that is not only insufficient to meet its large—and growing—portfolio, but also inefficiently structured. The IRS for years has met the constraints of a shrinking real budget through attrition, yet shrinking through attrition is, to put it kindly, a suboptimal management technique. The Service has not controlled of much of its staffing for years and presently faces demographics that should concern alliii.

• Re-establish an annual joint Congressional hearing, charged with providing a detailed congressional statement on levels of service and compliance, as well as oversight of: strategic and business plans; taxpayer service and compliance; technology and modernization; and filing season.
• Authorize the Joint Committee on Taxation, in cooperation with the Congressional Budget Office, to provide an annual report on the Joint Hearing issues and estimates on the funding necessary to carry out these priorities.

• Make IRS user fees appealable to GAO. The agency must be able to provide clear, detailed costing estimates to those who are charged user fees and must not charge user fees for services that largely improve the organization’s own operations.

• Provide funding necessary to meet mutually agreed upon levels of service and compliance, or in the alternative, explain to the American people why these funding levels were not provided. Special funding attention should be provided to timeliness and efficiency, for instance:
  • Require an IRS decision within 30 days of a taxpayer response to an IRS notice or letter.
  • Provide compliance staff greater authority to settle cases early (IRS should also evaluate settlements based on a singular focus on early and fair resolution of disputes).

• Provide appropriate staffing at the points of significant taxpayer contact (such as all call centers and TAC counters) and training at all levels.
  • Charge the IRS with exploring technology options (e.g., video-conferencing) to improve communications.
  • Provide adequate funding when increasing the agency’s workload (e.g., to implement the recent Tax Cuts and Jobs Act).
    • Taxpayers will need IRS guidance quickly
    • Frontline employees will need to be retrained in all aspects of the legislation.

Taxpayer Service/Dispute Resolution Reform

Both tax administrators and taxpayers are ill-served by delayed or protracted compliance activity. Taxpayers who are unable to address promptly positions taken on returns run the risk of compiling penalties on similar positions taken on subsequent returns. Further, taxpayers who enter the collection stream late are harder pressed to pay full balances due and the payments often cause greater hardship. IRS Taxpayer Advocate Service is at the forefront of problem resolution within the IRS.

• Provide collection staff wider discretion to reach early agreements on payment plans and training to resolve quickly cases deviating slightly from the financial standards to facilitate payments by taxpayers.

• Require IRS to reevaluate the National Standards for Collection Information Statements, either by adjusting the allowable living expenses for regional or local cost of living variations, or by returning to use of a dollar range, based on gross monthly income.iv

• Increase the authority of and set higher standards for appeals personnel.
  • While we welcome and applaud IRS for a recent addition of video conferencing as a substitute for some in-person appeals hearings, we suggest additional provisions be implemented.
  • The knowledge, experience and authority of the appeals personnel should meet a higher standard than the campus appeals technical employees, who may have very little authority and may not grasp the intricacies of cases assigned to them.

• Incorporate a number of taxpayer rights changes from the National Taxpayer Advocate’s 2017 Purple

Book recommendations, including:

• • Authorize IRS to work with financial institutions to reverse misdirected deposits.
  • Revise the “Mailbox Rule” to apply to electronically submitted documents and payments in the same manner as it applies to mailed submissions.
  • Amend IRC § 6654(c)(2) to adjust estimated tax payment deadlines to occur quarterly.
  • Harmonize reporting requirements for taxpayers subject to both FBAR and FATCA by eliminating duplication and excluding accounts a U.S. person maintains in the country where (s)he is a bona fide resident.
  • Codify the rule that taxpayers can request equitable relief under IRC § 6015(f) any time before expiration of the period of limitations on collection.
  • Authorize IRS to release levies that cause economic hardship for business taxpayers.
  • Extend the time limit for taxpayers to sue for damages for improper collection actions.
  • Require IRS to waive user fees for taxpayers who enter into low-cost installment agreements and evaluate potential revenue/compliance costs of future user fee increases.
  • Hold taxpayers harmless when IRS returns funds levied from a retirement plan or account.
  • Continue to limit IRS’ use of “math error authority” to clear-cut categories specified by statute.
  • Clarify that taxpayers may raise innocent spouse relief as a defense in collection proceedings.
  • Require taxpayer consent for IRS counsel/compliance staff to attend appeals conferences.

• Ensure compliance staff clearly understand that bypassing an active POA is a taxpayer rights violation.
  • Congress should reemphasize and reaffirm the consequences of violations of 26 USC § 7525, to ensure that IRS personnel shall not ignore valid powers of attorney by directly contacting taxpayers by telephone or at their residences or places of business.

• Require IRS exam and collection personnel to offer alternative dispute resolution options.
  • IRS’ expansion of Fast Track Settlement earlier this year is a step in the right direction, bringing the opportunity for small business and individual taxpayers to resolve unique examination issues through appeals, allowing for consistency with large and mid-sized businesses.
  • We recommend IRS expand alternative dispute resolutions options to all taxpayers and that exam and collection staff be required to offer these options at the appropriate time.

Future State

We commend IRS for looking at formulating strategies to meet taxpayers’ needs in the future. Technology and preferences are changing rapidly—and the significant perils of identity theft and fraud are, unfortunately, keeping pace. On the one hand, the agency needs support and encouragement as well as resources, while on the other hand agency leaders must remain mindful of taxpayer rights and resist the temptation of one-size- fits-all solutions.

Ultimately, the success of any future vision will be judged by whether it protects the right to a fair and just tax system. Part of any future state must include access to secure online communication for both taxpayers and taxpayers’ representatives. To facilitate earlier and more efficient dispute resolutions:

• Congress should require the IRS to provide guidance on which widely used private sector electronic signature options will be acceptable for Forms 2848 and 8821 used by Circular 230 practitioners.

• The IRS should debut tax practitioner online accounts that include a robust and secure means of communicating with IRS employees. Correspondence audits cannot rely upon taxpayers or their representatives putting stacks of supporting documentation into the mail. Individual online accounts should display a Publication 1vi equivalent when taxpayers use account payment options.

Practitioner Reforms

A focus on taxpayer rights is essential to any effort to reform the IRS’ culture. The right to representation is one of those rights and we have several recommendations—that would help both tax administrators and taxpayers—to strengthen that right.

In 2017, taxpayers filed 132 million returns electronically and IRS categorized 79 million of those as paid preparer returns.vii As of March 1, 2018, 728,000 individuals held current PTINs.viii IRS’ website is inarguably one of the most trafficked federal websites. Yet tax professionals—including some 300,000 enrolled practitioners—lack even an entry point on IRS’ landing page, far from an organization dedicated to the proposition that the professional preparer community is part of the solution if the goal is a well-run, efficient IRS. The Service is making efforts, to be sure, yet is missing significant opportunities to assure taxpayers that their preparers are at least minimally competent, and to leverage the tax professional community, well under a million souls who file 60 percent of all electronically filed returns.

• The IRS should create a dedicated, executive-level practitioner services unit that would centralize and modernize its approach to all practitioners. All administration and oversight of third-party stakeholders (e.g., Circular 230 practitioners; unenrolled preparers; tax software providers; e-filing; payroll providers) would be consolidated under the new executive.

• The Office of Professional Responsibility should be empowered to issue cease-and-desist letters to any person or corporation improperly using the EA credential, or using it in a fashion that could reasonably be construed confusing, and granted authority to enforce the letter through the federal courts.

• Congress should provide IRS with the authority to establish minimum standards for unenrolled tax preparers.ix Congress should override Lovingx and all subsequent cases relying on its holdings and provide specific authority for the IRS to require all non-credentialed paid tax preparers to meet minimum standards. Such standards should include passing a one-time competency exam administered under the auspices of the Department of Treasury, requiring tax compliance background checks, setting continuing education requirements, and requiring compliance with strict ethical standards.