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Last Week’s IRS Touting of Private Sector Partnership to Combat Identity Theft Highlights The Private Sector’s Role in Tax Administration

Posted on May 2, 2016

This past week, Commissioner Koskinen touted the Security Summit at the Network Branded Prepaid Card Association conference. I was going to make a joke about how fun that conference sounds, but as someone who counts down the days to this week’s ABA Tax Section meeting I am aware that I live in a glass house. The Security Summit is a partnership of IRS, the private sector and state tax agencies in efforts to combat refund fraud and identity theft (the link above is to the IRS web page outlining the initial steps IRS has taken in its Security Summit as well as statements from third party partners). As we have discussed, refund fraud and identity theft present major challenges for the IRS.  Commissioner Koskinen has pointed to the IRS’s recent initiatives in that area and partnership with the private sector as a successful model for tax administration. That the IRS is partnering with the private sector to take on that challenge, including looking into better ways for taxpayers to authenticate their identities, is an interesting development that will hopefully help IRS fight the organized and often international bad guys that try to find soft spots in the IRS’s security.

This partnership between the public and private sectors raises some interesting big picture tax administration issues beyond that associated with refund fraud alone. We often in this blog get into the weeds on many issues of tax procedure and administration. Tax law is complicated, and tax procedure is at times arcane. Add into the mix the growing importance of administrative law, with its clear as mud principles, and you make for a complicated body of law.

In the blog in addition to identity theft we have discussed some of the issues that highlight the relationship between the private and public sector; for example, we have discussed private debt collection, the government’s use of outside counsel in the Microsoft litigation, the expanded whistleblower provisions, the IRS’s involvement with private market insurers as part of ACA, and the harsh penalties that the IRS can impose on third parties who fail to honor levies.  I also have discussed extensively in the blog (and elsewhere) the IRS efforts to more directly regulate unlicensed tax preparers and expanded due diligence rules for refundable credits that have nudged preparers ever so closer to doing pre-filing compliance checks for certain issues (though as last week’s updated tax gap figures show refundable credit noncompliance is s small fraction of the overall individual underreporting; a topic for another post). Just a couple of weeks ago we also reported on Senator Warren’s proposal to have the government play a much bigger role in the tax return prep space (generating headlines like Senator Warren Wants to Take Down Turbo Tax).

On May 13 in DC at the National Tax Association spring symposium Tax Policy at the Crossroads  I will be moderating a panel that examines the role of the private sector in tax administration. I am interested in teasing out principles that can help move the discussion away from the rhetoric that sometimes clouds the discussion of the private sector’s role in tax administration.  In times of reduced resources, partisan opposition to much of what the IRS does, and expanded IRS responsibilities the question is not whether the IRS has to rely on and work with the private sector; the real issue is how should that relationship evolve.  The panel will look at some specific issues associated with the topic, including the role tax return preparers and software providers  play with respect to individual tax return filing.  It will then shift gears and look at the role financial institutions play in combatting tax evasion, an issue that is front and center in light of scandals like the Panama Papers and expanded US and international efforts to uncover hidden accounts and get to true beneficial ownership.  It will include views from the industry, with Intuit’s Chief Tax Officer Dave Williams, former Block executive Bob Weinberger and E&Y’s John Staples, as well as academics Kathleen DeLaney Thomas and Tracy Kaye.  We will also try to identify some operating principles that can assist in situating the discussion in differing contexts.  It is an interesting and controversial issue that we will not resolve in 90 minutes.

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