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Compilation of Legislative Recommendations to strengthen taxpayer rights and improve tax administration
The IRS Needs to Develop a Comprehensive Customer Service Strategy That Puts Taxpayers First, Incorporates Research on Customer Needs and Preferences, and Focuses on Measurable Results
The Taxpayer First Act requires the IRS to create and submit a comprehensive customer service strategy to Congress by July 1, 2020. As the IRS develops this strategy, the National Taxpayer Advocate has identified several concerns with the IRS’s current approach to customer service that the new plan should address. Most importantly, the IRS does not currently view itself as a service organization first and foremost. In addition, customer service decisions are not informed by using multi-disciplined, comprehensive research into customer needs and preferences. Forcing some taxpayers to use digital channels undermines taxpayer rights. Moreover, a service strategy would be incomplete if it did not address services to practitioners. Finally, the new strategy should correct the current absence of meaningful customer service measures to effect desired results and it should not be merely aspirational — it needs to include an implementation plan complete with cost estimates.
The IRS provides service through various communication channels such as the internet, phone, and in-person assistance. Taxpayers and representatives have different preferences for each of these channels and these preferences may vary depending on the specific needs of the taxpayer or the type of task the taxpayer or representative is trying to accomplish. The IRS must base service strategy decisions on research into customer needs, rather than on what the IRS thinks is best and lowest cost. The IRS’s reduction in staff and the number of Taxpayer Assistance Centers (TACs), the switch to appointments only in the TACs and the low percentage of telephone calls answered by live assistors, leaves taxpayers with little choice but to attempt to complete tax-related tasks on the internet (which often does not resolve the taxpayer’s issue) or to spend money for professional assistance.
The National Taxpayer Advocate includes both administrative and legislative recommendations to address this Most Serious Problem.
The IRS’s Modernization Business Plan’s Stated Goal to Improve the Taxpayer Experience Is Commendable, But the IRS Needs Additional Multiyear Funding to Bring it to Fruition
Aging IRS information technology (IT) infrastructure continues to plague the IRS and directly impact taxpayers. To address the IRS’s failing IT infrastructure and its need for updated technology, the IRS developed its Integrated Modernization Business Plan (Plan), which aims to improve “the taxpayer experience, by modernizing core tax administration systems, IRS operations and cybersecurity.” While this Most Serious Problem raises a few issues with the Plan, if implemented, the Plan would greatly improve the IRS’s IT infrastructure, make tax administration more efficient, and enable the IRS to provide better taxpayer service. While the Plan does not address all of the IRS’s IT issues, for the IRS to make any progress in modernizing its systems, its efforts must be fully funded.
In April 2019, the IRS released the Plan and a related Companion Document to address various components of the IRS IT strategy for the near future. This multi-year Plan will need to be further updated to comply with all of the requirements of the Taxpayer First Act, but the Plan is a great start, focusing in large part on updates to IRS systems to improve taxpayer experience and service.
The Plan’s success will largely depend on the funding it receives, and full, dedicated, multi-year funding is needed for the Plan’s complete implementation. A part of the IRS’s modernization will be major updates to IRS IT systems, which are some of the oldest still in use in the federal government. However, IT modernization projects are massive and generally span years. In order to be able to award funding for these projects, the IRS needs consistent multi-year funding. For example, the Plan includes the IRS’s existing efforts to standardize technology support for IRS business processes, creating an Enterprise Case Management (ECM) system. Through ECM the IRS plans to create a simplified infrastructure, hopefully eliminating the need to maintain or rebuild older IT systems. ECM is currently estimated to take six years to develop and implement, so absent continued multi-year funding, the IRS will be unable to make progress in its ECM efforts.
One concern TAS has with the Plan, is that while the Plan modernizes the Individual Master File (IMF) by implementing Customer Account Data Engine (CADE) 2, which will help the IRS provide better service and support to individual taxpayers, the Plan does not include modernization of the Business Master File (BMF). This gap in the Plan could result in an inability for the IRS to provide the same level of service to business taxpayers that it will provide to individual taxpayers.
The IRS has been rolling out numerous services to improve taxpayer service in the past several years and is looking at similar improvements to enhance taxpayer service in the near term. These improvements can help address current issues with taxpayer services.
The National Taxpayer Advocate includes both administrative and legislative recommendations to address this Most Serious Problem.
The IRS Does Not Have Sufficient Resources to Provide Quality Service
Due to antiquated technology, a smaller workforce, and an increasing workload, the IRS cannot provide quality service without additional funding.
Between fiscal years (FY) 2010 and 2019, when the number of income tax returns increased by about nine percent, the IRS’s appropriation (after adjusting for inflation) and number of employees declined by more than 20 percent. As a result, in FY 2019, telephone assistors answered only about 29 percent of the calls the IRS received, and most of the IRS’s adjustments correspondence in open inventory had not been answered within the timeframes the IRS has established for itself (generally 45 days).
Modern technology could improve service. For example, only a few of the IRS’s phone lines use customer callback technology, which frees callers from waiting on hold. Because the IRS lacks an enterprise-wide case management system, each function’s employees must transcribe or import information from other electronic systems, and mail or fax it to other functions.
Moreover, the IRS cannot reasonably (and should not) ramp up enforcement without additional funding for service and operations support. In calendar year (CY) 2019, the Return Integrity Verification Operation (RIVO) delayed more than seven times as many refunds as in 2017 (i.e., increasing from 219,210 in CY 2017 to 1,650,999 in CY 2019), resulting in a five-fold increase in taxpayers asking TAS for help (from 16,432 in CY 2017 to 89,584 in CY 2019). Between FYs 2018 and 2019, Automated Collection System levies increased by 114 percent (from 200,024 to 427,596) and lien filings increased by 93 percent (from 184,368 to 356,609). The IRS took these additional compliance actions without making sure there were enough telephone assistors to handle the resulting calls. Only about ten percent of taxpayers calling its lien lines reached a telephone assistor, and those who got through waited on hold for an average of 58.1 minutes in FY 2019. Enforcement actions like levies and liens can cause severe economic hardship for some taxpayers, so when the IRS takes these actions, it is critical it have the resources to assist taxpayers who call or visit the IRS.
The National Taxpayer Advocate includes legislative recommendations to address this Most Serious Problem.
Refund Fraud Filters Continue to Delay Taxpayer Refunds for Legitimately Filed Returns, Potentially Causing Financial Hardship
The IRS has designed a number of filters to assist in the detection and prevention of non-identity theft (non-IDT) refund fraud (the Pre-Refund Wage Verification Program or PRWVH). Despite improvements to this program for filing season 2019, issues persisted that affected both taxpayers and TAS, including: delays in releasing legitimate refunds; false positive rates (FPR) as high as 71 percent; and inadequate information as to the reasons for refund delays and what steps taxpayers can take to expedite the process.
Taxpayers whose returns are selected into the non-IDT refund fraud program often experience delays in receiving the refunds claimed on their original returns. About a quarter of the returns selected by a new filter for filing season 2019 took more than 40 days to be processed. This delay was due in part to the Social Security Administration’s (SSA) slow transmittal of paper Form W-2 information, which is used to verify information on returns. Further, half the legitimate returns that comprise the 71 percent FPR took more than four weeks to be processed. Additionally, out of a review of 309 TAS PRWVH case receipts between August 25 and August 31, 2019, 236 waited an average of 141 days from the date the returns were filed to be screened and determinations made that the information on the returns could not be verified. While it is essential for the IRS to prevent fraud and protect revenue, these processing delays caused a financial hardship for many taxpayers. Compounding taxpayers’ frustration is that not all taxpayers whose refunds are held as part of the non-IDT refund fraud program receive the same periodic update notices, and when taxpayers do receive a letter, it does not always provide guidance as to what they can do to expedite the process. The financial hardship caused by refund delays, along with inadequate IRS notices, contributed to a 405 percent increase in TAS non-IDT refund fraud inventory from January 1 through September 30, 2019, compared with the same timeframe in 2017.
The National Taxpayer Advocate includes administrative recommendations to address this Most Serious Problem.
Substantial Free File Program Changes Are Necessary to Meet the Needs of Eligible Taxpayers
To increase electronic filing (e-filing), the IRS partners with Free File, Inc. (FFI), a group of private-sector tax return preparation software providers, to offer free federal tax preparation software products accessible through IRS.gov to approximately 105 million eligible taxpayers. While the rate of e-filing has approached 90 percent for tax year 2018 individual returns, less than two percent (or about 2.5 million returns) were filed using Free File program software products. In addition, data on repeat usage suggests that taxpayers who use Free File have generally been dissatisfied with it. Among taxpayers who used Free File software in 2017, nearly half (47 percent) did not use Free File software again in 2018. Based on issues raised by ProPublica, an assessment of the program by MITRE Corporation, and previous concerns raised by the Taxpayer Advocate Service, the National Taxpayer Advocate believes that the current program is not promoting the best interests of taxpayers. FFI member companies are steering eligible taxpayers away from their Free File program software products and toward their commercial products. In addition, cross-marketing of fee-based services on Free File program software can confuse taxpayers and gives the impression of IRS endorsement. Moreover, the low usage rate of the program proves that the program is not meeting the needs and preferences of eligible taxpayers. Finally, the IRS does not perform routine quality testing of the Free File program software.
The MITRE 2019 Free File Report argues that the reason for the low usage rate of the program is that many taxpayers prefer to use other return preparation methods. The National Taxpayer Advocate believes that poor usage is attributable to little guidance and software options available to taxpayers when using the Free File program, which results in taxpayers selecting Free File software that lacks capability to prepare their returns. Only four of the 11 FFI members offer services to taxpayers of all ages, and even these have restrictions based on the taxpayer’s state of residence, income, or eligibility for the Earned Income Tax Credit. Four other FFI members have age limitations that start before the age of 60, and only one FFI member provided Free File software in another language (Spanish). The National Taxpayer Advocate believes that the IRS should ensure that the agreement provides an easy, assessable Free File platform for taxpayers to protect their right to be informed, to quality service, and to a fair and just tax system.
The National Taxpayer Advocate includes both administrative and legislative recommendations to address this Most Serious Problem.
