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National Taxpayer Advocate Forum on Future State Highlights Challenges IRS Faces in Building A Modern Tax System

Posted on Mar. 4, 2016

An earlier version of this post originally appeared on the Forbes PT site on March 2, 2016

Last week the National Taxpayer Advocate convened the first of a series of public forums on taxpayer service. The impetus for the forums was the IRS’s Future State initiative. That initiative is based in large part on IRS wanting to ensure that people have “a more complete online experience for their IRS interactions.”

The IRS is still in the planning phases for its Future State. The IRS overview of the plan reveals the contours of what IRS would like the future to look like:

Taxpayers should expect the same level of service when dealing with the IRS in the future as they have now from their financial institution or a retailer. The idea is that taxpayers would have an account at the IRS where they, or those they authorize, can log in securely, get the information about their account and interact with the IRS as needed. This approach also has a goal of freeing up limited IRS in-person resources — such as our phone lines — to more easily serve people and tax professionals who need one-on-one assistance.

Planning for the future must no doubt take into account the challenges of today which will likely be with us for some time. For example, IRS is struggling with the aftereffects of last year’s cyber attack into taxpayer accounts, which we learned last week was more serious than originally reported, with the attacks hitting over 700,000 taxpayer accounts, more than double the IRS originally thought. (That was widely publicized; see e.g., an article in USA Today from last week, Cyber hack got access to over 700,000 IRS accounts).

The forum last week featured an introductory statement by the Commissioner and one from the National Taxpayer Advocate. As the NTA explained in her statement (and in her most recent annual report), the forums are a way to ensure that the public has a chance to comment on the IRS’s plans. The next public forum on taxpayer services is scheduled for March 9 in Chicago.

The NTA’s discussion of Future State in the report and her announcing the holding of public forums had the added benefit of spurring the IRS to release more information about Future State. For example, last week the IRS released vignettes of what a future state could like for differing taxpayers, including taxpayers from Tax Exempt Government Entities, Wage and Investment, Small Business and Self-Employed and Large Business and International.

There were three panels last week. The first panel included me and Pam Olson, the Former Assistant Secretary of Treasury (Tax Policy). In my testimony I discussed mainly the possible impact on a shift to an online service and enforcement based service model on lower-income taxpayers, with Pam’s testimony offering a perspective mainly looking at larger and corporate taxpayers. Despite our differing starting points there was much in common, including the importance of trust in a tax system, with Pam’s statement situating IRS plans to involve the public as a means to building trust:

As I see it, the IRS’s future state initiative represents an essential effort to find more efficient and effective ways of interacting with taxpayers, an effort that is to be applauded. There are two items that I think are critically important to designing the IRS future state: (1) opening the design process to the public, and (2) building trust. Each will lead to and reinforce the other: the greater the transparency around the design, the greater the trust; the greater the trust, the greater the willingness to engage and participate in the process. There is much to be gained from an open and collaborative process that includes taxpayers and tax professionals in the design. Our needs and capabilities have to be taken into account and the best way to understand them is through open and frank discussion.

Likewise, I emphasized the importance of building a tax system that takes into account taxpayer and stakeholder characteristics and how “a future vision of tax administration that sees the taxpayers as they actually are may lead to an approach that can increase trust in the tax administration and enhance voluntary compliance.” In my statement, in an article on taxpayer service that Keith and I have co-written for Tax Notes that should be out in a couple of weeks, and in an upcoming article in a special issue of Georgetown’s Tax Lawyer that will be home to a number of papers that were discussed at last year’s International Taxpayer Rights Conference, I have been building this theme out. In all of the pieces I focus on the administrative challenges associated with the IRS’s responsibilities as chief federal benefits’ administrator, in addition to its role of collecting about 90% of federal receipts. Congress has long used the tax system as a tool to achieve all sorts of social policy, but with the advent of refundable credits in the last few decades the IRS now has the added responsibilities of addressing a different aspect of tax administration that carries with it new challenges.

The second panel included representatives from the various IRS advisory committees and panels, and included statements from the Internal Revenue Service Advisory Committee (IRSAC), the Information Reporting Advisory Committee (IRPAC), the Electronic Tax Administration Advisory Committee (ETAAC), and the Taxpayer Advocacy Panel (TAP). The statements from the Committee are available on the TAS’s dedicated public forum page, available here. (Stay tuned: we hope to have some guest posts from these witnesses).

The final panel looked to social science research that offered insights into some of the challenges the IRS faces in interacting with tax return preparers and taxpayers themselves. With respect to preparers, Michael Best, a Senior Policy Advocate of the Consumer Federation of America, discussed some recent research suggesting that there is a strong preference among taxpayers for additional oversight over unlicensed preparers. Arturo Gonzalez, Chief, Consumer & Community Development Research, Board of Governors, Federal Reserve spoke about research into consumer preferences in using technology in financial transactions. The Federal Reserve research suggests that nonusers of mobile banking services identify security as a major concern but also suggests that there seems to be a preference for in-person services even when institutions make mobile banking readily available.

Aaron Smith from Pew Research Center’s Internet Project spoke about the limited internet access that restricts many lower-income Americans from communicating in an online environment. The Pew research suggests the presence of a deep digital divide, with many lower-income Americans shut out of broadband due to costs. That reality for Americans was illustrated in a NY Times article last month, Bridging a Digital Divide that Leaves Schoolchildren Behind. That article described how some lower-income children in Texas had to take extra steps to ensure that they had access to internet to complete homework, including doing homework on the sidewalk in front of a local elementary school to piggyback off that school’s wifi and taking three hour school bus rides home to use the bus wifi because the child’s parents could no longer afford it at home.

It is not easy to administer a tax system. When you add into the mix a society as diverse as ours, and a tax system that really is not just one system but many differing systems, the IRS has its hands full. The forums are an important way for differing constituents to present their voices and hopefully allow the IRS to design future service plans with taxpayer needs in mind.

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