Earlier this week IRS published a 5-year strategic plan.The plan identifies the following six strategic goals.
- Empower and Enable All Taxpayers to Meet Their Tax Obligations
- Protect the Integrity of the Tax System by Encouraging Compliance through Administering and Enforcing the Tax Code
- Collaborate with External Partners Proactively to Improve Tax Administration
- Cultivate a Well-Equipped, Diverse, Flexible and Engaged Workforce
- Advance Data Access, Usability and Analytics to Inform Decision-Making and Improve Operational Outcomes
- Drive Increased Agility, Efficiency, Effectiveness and Security in IRS Operations
Here are some observations:
- The plan starts with a recitation of the IRS mission, and lists the taxpayer bill of rights. Including the taxpayer bill of rights so prominently in the plan is a very good sign, as IRS courts and taxpayers are all wrestling with precisely how and in what way those rights should manifest themselves in particular situations.
- The message from the acting commissioner is wrapped up with the challenges of administering the late 2017 tax legislation. That is less strategic in and of itself but certainly part of the IRS broader goals of empowering taxpayers to meet their obligations.There is tons on the IRS plate when it comes to getting guidance out; new procedures with OMB when it comes to issuing regulations, and many issues from pre-2017, such as more BBA guidance that my colleague Marilyn Ames and I are awaiting as we finalize the new partnership content in the Saltzman and Book treatise. (One example will no doubt be watched and litigated: just this past week IRS issued Notice 2018-54concerning state workarounds to avoid the $10,000 limit on SALT deductions. The Notice reminds taxpayers that federal law controls the characterization of payments for federal tax purposes, and that regulations will reflect that substance over form will control the outcome).
- On the goal of empowering taxpayers to meet obligations, the plan emphasizes a multi-channel approach that incorporates taking advantage of digital technology but also recognizes that face to face and telephone interaction are key. The plan also discusses the importance of educating taxpayers when communicating.
- On protecting the integrity of the tax system, the plan reflects that interactions with taxpayers, even when there is a suspicion that a return may be incorrect (especially among individuals), can be a chance to inform and educate taxpayers and nudge compliance. Audits, while crucial, especially for those intent on gaming the system by leveraging information asymmetry and the inability and undesirability of IRS auditing all suspicious returns, are costly, and IRS needs to think more robustly about ways to encourage better taxpayer behavior, an issue I have been thinking about lately and which I explore further in an article with Intuit’s Dave Williams and Krista Holub that was just published in the Virginia Tax Review.
- The report has an important sidebar about challenges associated with administering a tax system in a changing environment. The report flags for emphasis the growth in the gig economy and in multi-generational households as two key challenges that present difficulties for the IRS. Lots of income earned in the gig economy is not subject to information reporting. Credits like EITC which depend on income level and family living arrangements present a next level type of challenge for tax administration.
- The report emphasizes a need to reboot how “data is collected stored analyzed and accessed.” This is a key area that I suspect will be a challenge for the new Commissioner. Technology is changing so rapidly and there are many value choices that are manifested in the way data is used to inform agency practices. I am deeply interested in this area, and there is growing important research looking at how government agencies, under the guise of more efficient use of data in informing and driving compliance choices and procedures, have compromised the rights of those especially less able to navigate bureaucracy due to poverty and transience and other challenges facing the working poor.
- The conclusion emphasizes a world where more taxpayers will be able to resolve matters quickly and efficiently, while also recognizing that IRS faces substantial barriers to achieving its goals. Some of those challenges include “changes in tax law, aging technology infrastructure, staffing challenges, cybersecurity risks and fiscal uncertainty.” As part of its main goals, the report discusses the key role that a well-trained and motivated IRS workforce must play in a successful tax administration. While resources and technology and use of data are all key, I think that a trained and motivated agency is the best safeguard of the future for tax administration. The report notes that 27% of the IRS workforce is nearing retirement; and only half of 1% of the workforce is under 25. This is a major challenge for the new Commissioner.
- I think the report’s emphasizing collaborating with others (like the private sector and volunteer organizations and other government entities) is so important. Getting the right input from those who bring differing perspectives is a challenge but can in my view pay substantial dividends. There are signs of success in this area (like the Security Summit where IRS has partnered with private sector and states and others to drive down ID theft), and I think this is an area that has even great potential. With potential, there is also risk (e.g., agency capture), but with transparency and true broad stakeholder engagement the risks I think can be mitigated.