IRS Commissioner Douglas Shulman is retiring this month, but in a farewell address of sorts, he spoke before an AICPA gathering listing his and the IRS’ achievements during the past few years, but also gave some ideas of what the future may hold.
The Commissioner listed these as his main achievements:
- Creating breakthrough strategies to combat international tax evasion;
- Transforming the IRS relationship with corporate taxpayers;
- Transforming the IRS’ core technology;
- Rethinking and reimagining the IRS’ relationship with paid tax return preparers;
- Leveraging data analytics for continuous improvement;
- Driving efficiency and taxpayer service improvements; and
- Positioning the IRS workforce to make sure that they are prepared for tomorrow’s challenges.
He then discussed the following, and what he felt should be future IRS focus and priorities:
A fundamental shift to a more global economy has created a real set of compliance challenges for the IRS. On the individual front, the IRS has made putting a big dent in offshore tax evasion a major priority.
During the past five years, the IRS has significantly increased resources to focus on offshore tax evasion, and the results have been substantial. They upped the ante in a meaningful way with their work with Swiss financial institutions, where for the first time in history, a bank secrecy jurisdiction turned over thousands of names and account numbers.
The IRS has also transformed its relationship with corporate taxpayers…many of whom operate in a global environment. One of the assumptions built into the dynamic was the so-called “adversarial relationship” between the IRS and taxpayers. This was one of those “givens”…the relationship would never change.
The Commissioner noted that the historic framework for the nation’s tax laws is a system of voluntary compliance. Our tax system is set up so that taxpayers fill out their own returns. Therefore it is the taxpayer, not the IRS, who possesses all the information relevant to tax liability. The IRS then uses information reported by the taxpayer to make judgments about issues to pursue, and returns to audit. Inherent in this system is the basic assumption that the taxpayer will be forthcoming and the government does not need to be an “adversary” in most situations.
The IRS now has a suite of different strategies, tools and programs that it has been applying during the past few years to transform this once unproductive relationship with corporate taxpayers. The tools include:
- The CAP program, where the IRS works with corporate taxpayers to resolve all issues before a tax return is filed, so that when the taxpayer files a return, there is certainty
- Fast track appeals process, where the IRS moves the administrative appeals process into an audit to try to resolve issues when they arise—rather than taking the issue through an appeals process after an audit is completed
- The industry issue resolution program where the IRS produces guidance to taxpayers, mostly in the form of safe harbors, so they need not worry about later controversy.
The IRS also asked taxpayers to be more transparent by disclosing their uncertain tax positions, which they book as reserves on their financial statements. The end game is a more productive relationship, Shulman said, which allows the IRS to focus on corporate taxpayers and issues that pose the greatest compliance risk—and not spend time on taxpayers who pose a lesser risk of non-compliance.
The strategic priorities also focused on critical foundational operations and infrastructure, without which the IRS could not fulfill its mission. One of our most critical goals was modernizing the aging technology, with one critical program in particular: the core customer account database.
Shulman said it “is enormously gratifying” that the IRS successfully migrated from a weekly processing cycle to daily processing this year. This was a multi-year, “incredibly complex undertaking” that went to the heart of systems that process trillions of dollars in tax revenue.
The payoffs from this change, Shulman argued, are quicker refunds for taxpayers, up-to-date information at the fingertips of customer account representatives, and a platform for more real-time analytics and compliance. It is already benefiting taxpayers this year, he said, and will produce major benefits for the nation’s tax system.
Working With Paid Return Preparers
The next key long-term priority, Shulman said, is an initiative that the IRS started more than three years ago to look at how the IRS interacts with paid tax return preparers.
In essence, the IRS shifted from a retail to a wholesale approach, shifting resources from dealing with taxpayers one-by-one to dealing with the intermediaries who deal with hundreds or thousands of taxpayers at a time.
Given the importance of paid return preparers to the integrity of the tax system, the IRS feels it is well into the process of ensuring a basic competency level for tax return preparers and focusing enforcement efforts on rooting out unscrupulous preparers. The IRS has registered over 850,000 return preparers and has begun administering a new competency test for any preparer who is not a CPA, attorney or enrolled agent. These individuals also have to complete 15 hours of continuing education each year using IRS-approved providers.
Once the majority of preparers are registered and have taken the test, the IRS will launch a public database so taxpayers can ensure that they are using a registered tax return preparer.