Oral Statement of Lonnie Gary, EA, USTCP
Chair, Government Relations Committee
National Association of Enrolled Agents
before the Internal Revenue Service Oversight Board
May 1, 2013
Good morning Mr. Cherecwich and Mr. Tobias. I am pleased to be here on behalf of NAEA, which represents enrolled agents, America’s tax experts.
First, let me thank you, Mr. Tobias, for continuing the board’s efforts to look over the horizon—to consider both opportunities and threats our tax administrators may be required to address. Former IRS Commissioner Doug Shulman challenged his senior staff during the last year of his tenure to consider a state of the art, real time tax system. We shared our thoughts with him during a December 2011 testimony at IRS’ headquarters and appreciate the opportunity to continue the discussion.
As we indicated then, checking tax return accuracy in real time is conceptually appealing. Enrolled agents are supportive of agency efforts to reduce notices and to increase efficiency, and a real time system as Commissioner Shulman envisioned it would accomplish both.
We are coming off of one of the most challenging filing seasons I’ve witnessed in my many years as a tax professional. While the ever increasing complexity and instability of the tax code provides the assurance that even a “good” filing season will prove challenging, the unprecedented lateness of the American Taxpayer Relief Act of 2012 made planning impossible for many Americans and also compressed a filing season that is already all too brief.
With this frame, I frame my comments by stating the obvious: we simply cannot move to a real time system at the cost of further truncating the filing season.
The question before us is how the Service will acquire the information return data in a timely fashion. Something will have to give. Either the filing deadline will need to shift later or the Service will have to require an aggressive due date for the information return data that will be matched. Each of these provides its own challenge—on one hand, the April 15th filing date is deeply entrenched in the American psyche while on the other hand information document providers have struggled to meet the current deadlines.
Moving on, we’ll assume the Service has timely information return data and appropriate programming to perform real time matching. One of our most fundamental concerns is that the Service must determine what information it plans to share on a pre-filing basis, as well as when and how it will share that information.
Would tax practitioners have access to the same information IRS is using in its matching program, and if so, how? The most obvious approach is to use e-Services, but sharing this data currently requires an executed power of attorney. Does the Service envision practitioners holding valid powers of attorney for each person whose return he/she prepares? Or does the Service envision a special, limited use “mini” PoA?
Apropos of questions of what IRS would do with the information return data it receives in real time, we believe a return-free filing program, which would be tempting to tax administrators and legislators both, fails to receive the public discussion it merits. A mere two weeks ago we saw The Simpler Filing Act Act of 2013 (S. 722) filed in the U.S. Senate—and at a time the agency would not be able to “pre-prepare” a tax return in a timely fashion!
IRS is charged with informing, educating, and assisting taxpayers as well as with the significant responsibility of ensuring enforcement. How could the agency reconcile those duties with proposing the actual content of an individual’s tax return? Leaving aside that fundamental issue, what would such a plan mean for voluntary compliance?
Shifting to a more prosaic issue, we cannot help but be concerned by the question of what happens in a real time tax system to tax returns that do not match. Commissioner Shulman’s Real Time Tax System Initiative document cited reduced taxpayer burden as a key long-term benefit. We wonder whether a more accurate description is that a real time system shifts tens or hundreds of thousands of contacts (usually by CP 2000 notices) from 12 to 18 months after the filing of the return to the very beginning of the filing process. The decisions the agency makes about how to address mismatches are critical to ensure that these filing season mismatch contacts are not in fact more burdensome than the CP 2000 notices IRS is trying to replace.
Real time processing is going to require real time access to IRS data and, particularly if IRS plans to reject non-matching returns, real time solutions. In other words, a real time processing system that is sensitive to the needs of taxpayers and tax professionals requires real time customer service.
The significant challenge is that return volumes are nonlinear, with peaks in early February and mid-April. AUR work is largely performed outside the filing season, allowing at least theoretically for IRS to service the calls and letters that result from CP 2000 notices. If only three percent of returns on IRS’ peak filing day fail to match IRP documents, how will IRS manage any significant volume of calls? Using this math, on peak days the Service could easily reject 100,000+ returns merely because of IRP mismatches. Increased call volumes would strain the Service’s current capabilities and place an added burden on tax practitioners at a time they are working at full capacity.
Notwithstanding the laundry list of practical questions, we support changes that make the tax administration system more efficient and less burdensome on all stakeholders. Ultimately, though, the details of the program matter. The Service must balance the costs of the current, though admittedly imperfect system, against the costs and benefits of a real time processing system.
We suggest that the IRS Oversight Board consider three stakeholders as IRS explores real time filing options:
- tax professionals, and
- tax administrators.
A change of the magnitude under discussion today will impose costs (and, we hope, benefits) on all three.
We thank you for taking the first step by inviting NAEA and our co-panelists to this public forum.