In tax procedure class at Villanova Law School I tried to explain that in much of its operations the IRS relies very heavily on computers rather than well trained collectors or auditors and the computers operate like drones in the battle against ISIS. I hope to tease out the analogy. Because we do not want to pay for knowledgeable employees to actually work cases at the IRS by applying knowledge gained through experience and training, we must rely on computers to do most of the heavy lifting. While computers certainly play an important role in tax administration just as computers and drones play an important role for the military, at some point a need for boots on the ground and the exercise of judgment manifests itself as certain recent CDP losses demonstrate. See Madoff Fallout Continues in Tax Court (Dec. 9, 2014); Appeals Fumbles CDP Case and Resulting Resolution Demonstrates Power of Installment Agreement (Dec. 1, 2014).
I view the opposite of drone-like behavior by the IRS as those situations in which one individual, well trained in their particular area of expertise, actually looks at the facts of the case and applies the law. Those situations still exist at the IRS but they seem to occur with less and less frequency. Most taxpayers dealing with the IRS in an audit setting will deal with correspondence exam and most dealing with collection will work with the Automated Collection Sites. The people working in these divisions serve a function similar to the individuals sitting in a windowless room somewhere in the US directing drones in hot spots around the world. See James Fenton, Retired Military Drone Operator Shares Experience of Remote Piloting, Daily Times (Nov. 25, 2013) (describing the challenges of piloting drones in a “windowless ‘box’ stateside” and recognizing that, “[a]s with the ongoing technological changes in the world, technology also is changing the perception of combat service. ‘It’s not the fear of being killed but what you are doing, the responsibilities you are carrying are just as real as any other combat operator.”). Like the drone operators, the correspondence examiners and ACS employees work in windowless rooms, facing a computer speaking to people they never meet and passing them on through the system in a setting in which they will not touch that case again even if more work needs to occur in their division. Also like the drone operators, the responsibilities that correspondence examiners and ACS employees carry should be just as real as any other IRS operator.
In addition to Correspondence Exam and ACS, taxpayers also receive drone like treatment in the expanding math error notices, in the notice stream in general (a separate segment of the IRS) and in offset. These functions using computer matching to generate action on a taxpayer’s account that requires a taxpayer’s attention yet the interface from the IRS will take the form of paper correspondence followed with the opportunity to talk to someone in a windowless room after waiting an hour on hold. If a second or subsequent call is required, the person on the call at the IRS will differ from the first person with whom the taxpayer discussed the case.
Congress spoke about this in the Restructuring and Reform Act of 1998 (RRA 98). It passed section 3705, an off code provision. Section 3705 provides:
INTERNAL REVENUE SERVICE EMPLOYEE CONTACTS.
(a) Notice.–The Secretary of the Treasury or the Secretary’s
delegate shall provide that–
(1) any manually generated correspondence received by a
taxpayer from the Internal Revenue Service shall include in a
prominent manner the name, telephone number, and unique
identifying number of an Internal Revenue Service employee the
taxpayer may contact with respect to the correspondence;
(2) any other correspondence or notice received by a
taxpayer from the Internal Revenue Service shall include in a
prominent manner a telephone number that the taxpayer may
(3) an Internal Revenue Service employee shall give a
taxpayer during a telephone or personal contact the employee’s
name and unique identifying number.
(b) Single Contact.–The Secretary of the
Treasury or the Secretary’s delegate shall develop a procedure under
which, to the extent practicable and if advantageous to the taxpayer,
one Internal Revenue Service employee shall be assigned to handle a
taxpayer’s matter until it is resolved.
Section (a) has become a part of the fabric of dealing with the IRS. The changes it brought benefit all wishing to get back to the IRS employee who generated non-computer driven correspondence. Section (b) seems lost to history. See 2003 Annual Report to Congress, Nat’l Taxpayer Advocate p. 127 ( 2004) (revealing issue relating to lack of one-stop service and explaining that “use of an employee badge number to identify an IRS employee speaking with a taxpayer is not meeting the Congressional mandate to provide taxpayers with a single point of contact with IRS”). Congress’s intent in enacting section 3705 was to improve taxpayer service by requiring the service to provide taxpayers with contact information enabling taxpayers to easily contact the IRS employee that would be able to assist the taxpayer, with the expectation that the contact information would enable taxpayers to contact someone familiar with the correspondence or notice in question. Congress believed it would be beneficial for taxpayers to be able to discuss their issue with an IRS employee with whom the taxpayer previously communicated with, thereby encouraging continuity by requiring a single IRS contact until the matter was resolved.
However, the IRS has avoided the section 3705 single contact requirement by relying on the literal definition of “manually generated” to exclude computer generated correspondence from section 3705 requirements. The Internal Revenue Manual defines “manually generated” to include “correspondence issued as a result of an IRS employee exercising his/her judgment in working/resolving a specific taxpayer case or correspondence, or where the employee (Tax Examiner, Revenue Agent, Revenue Officer, etc.) is asking the taxpayer to provide additional case-related information.” The IRS’s position is that the IRS is not subject to the requirement to include IRS employee contact information when an IRS employee issues a request to a taxpayer through its automated system, even where an IRS seemingly exercises judgment in making a determination. TAS has continuously disagreed with this narrow interpretation of manually generated and it has argued that the IRS’s position in regard to section 3705 “subverts both the requirements and intent of RRA 98.” TAS explains that “[t]he IRS interpretation of this requirement means that in the 21st century, with the extensive use of electronic word-processing, almost no taxpayer will be provided the protection of direct contact information for an IRS employee working the taxpayer’s case, and no IRS employees will be accountable.” See An Analysis of the IRS Examination Strategy: Suggestions to Maximize Compliance, Improve Credibility, and Respect Taxpayer Rights, IRS (2011).
Yet, the IRS has not moved back to the days prior to correspondence exam or ACS since 1998 and relies even more heavily on these functions today than it did in 1998. See Bryan Camp, Introduction to Revenue Protection Issues: As the IRS Relies More Heavily on Automation to Strengthen Enforcement, There Is Increased Risk It Will Assume Taxpayers Are Cheating, Confuse Taxpayers About Their Rights, and Sidestep Longstanding Taxpayer Protections, IRS (2011). During the 2013 fiscal year, 81 percent of examinations of individuals were performed by correspondence. Trends in Compliance Activities Through 2013, TIGTA (2014). This percentage was generally in line with the percentage of correspondence exams since 2005, but from 2000 to 2005, there was a tremendous growth in the number of individual returns examined via correspondence (see Chart below).
Accordingly, more correspondence exams equate to less manually generated IRS correspondence, which diminishes taxpayer protection under section 3705 and reduces IRS employee accountability. Similar to how improvements in technology have allowed drone pilots to distance themselves from the wars they wage, the rise of correspondence exams and ACS has allowed IRS employees to distance themselves from the taxpayers they serve.
Individuals with significant income might be examined by an individual revenue agent and businesses usually have an individual revenue agent examining the return. Similarly, those with high dollar assessments get individual treatment in collection with the assignment of an individual revenue officer, which usually comes after some unindividualized handling of their case in the correspondence section of collection and ACS. See TIGTA Report on ACS Details the Impact of Shrinking Budget on Tax Collection Efforts (Nov. 13, 2014). Individuals with small issues to examine and low dollar liability will only work with the drone like segments of the IRS at the examination and collection level of the case.
Only when the case moves out of examination and collection does the taxpayer get the kind of service that Congress stated the IRS should provide. If the case moves to Appeals, Counsel, or the Taxpayer Advocate Service, a taxpayer gets individual service and a specific individual assigned to their case. Individual handling also exists if the taxpayer needs specialty assistance such as innocent spouse relief or an offer in compromise. Sometimes a case bounces back and forth between a portion of the IRS providing individual service and one that does not. A recent case, Mason v. Comm’r, demonstrates what can happen to a taxpayer caught up in a whirlwind of several divisions with no one managing the overall case. See Litigating the Merits of a Trust Fund Recovery Penalty Case in CDP When the Taxpayer Fails to Receive the Notice (Dec. 4, 2014).
The lack of a single individual to work the case falls heaviest on individual taxpayers and those least capable of working a system without guidance. The blame for the IRS development and expansion in the drone like approach to tax administration does not lie entirely, or perhaps even principally, with the IRS. If Congress wants taxpayers to have one employee to work with in their experience with the IRS , it needs to provide more resources or reduce expectations. This summer the IRS issued a list of rights taxpayers have. Perhaps, it should add to those rights the right to have one employee to work with during the handling of their case in examination or collection. If taxpayers had that right it would fulfill the promise of RRA98, make life generally easier for taxpayers interfacing with the IRS, and allow the IRS to make better judgments on cases. Maybe less cases would get worked but the cases that did get worked would get worked well.
Percentage of Forms 1040 Examined Face-to-Face or Through Correspondence