Budget Deal Includes IRS Changes
May 5, 2017
This week, the U.S. House voted 309 to 118, and the U.S. Senate voted 79 to 18, to approve legislation to fund the government through the end of the current fiscal year, through September 2017. Much analysis has focused on President Trump getting the additional defense spending he sought and Democrats avoiding domestic spending cuts and funding for a wall at the Mexican border.
However, the deal includes some language pushing needed changes at the Internal Revenue Service (IRS). From the House Rules Committee document verbatim:
Section 102 requires the IRS to maintain an employee training program on topics such as taxpayers’ rights.
Section 102 follows years of lobbying by the National Taxpayer Advocate, the IRS adopted a list of taxpayer rights in 2014, and Congress codified them into law in 2015. These include the right to know what taxpayers need to do to be in compliance, the right to quality service, the right to be heard on a challenge to the IRS’s position, the right to appeal, and so forth. Last year, the National Taxpayer Advocate complained that the IRS was not incorporating the rights into training materials and was just treating them as boilerplate. Now, it must do so.
Section 103 requires the IRS to safeguard taxpayer information and to protect taxpayers against identity theft.
Section 103 addresses an ongoing challenge for the IRS. After flimsy IRS website security allowed thieves to steal the identities and tax refunds of 100,000 taxpayers, they swung to the other extreme and slow-walked 1.8 million returns last year until identities were verified manually. The National Taxpayer Advocate praised the identity theft team for finally tackling the problem but suggested they be able to make suggestions beyond digital infrastructure, and that taxpayers flagged for further verification be assigned one case manager to work with (rather than getting someone new every time they call).
Section 104 permits funding for 1-800 help line services for taxpayers and directs the Commissioner to make improving phone service a priority and to enhance response times.
Section 104 tackles a major problem: the IRS continuing to scale back customer service. While average phone wait times in the 2016 filing season fell in half to 11 minutes, the IRS added new restrictions on what telephone agents can resolve, reduced walk-in help service at 375 locations, and ended an online tool where taxpayers could get answers to general questions. The IRS gets about 100 million phone calls every filing season. Instead of customer service, the IRS is investing in its “Future State” project, which would create online accounts for each taxpayer and emphasize taxpayer self-help rather than one-on-one communication.
Section 105 prohibits funds for videos unless reviewed in advance by the IRS’ Video Editorial Board for cost, topic, tone, and purpose.
Section 105 reacts to the IRS spending $60,000 producing Star Trek and Gilligan’s Island themed videos for an employee training conference in 2010. They also spent $1,600 to produce a dance video at the same event.
The next changes come in Section 106, which
requires the IRS to issue notices to employers of any address change request and to give special consideration to offers in compromise for taxpayers who have been victims of payroll tax preparer fraud.
Sections 107, 108, and 111 are presumably a response to the IRS targeting controversy, where Tea Party groups were subject to extra scrutiny before being granted tax-exempt status.
Section 107 prohibits the use of funds by the IRS to target United States citizens for exercising any right guaranteed under the First Amendment to the Constitution.
Section 108 prohibits the use of funds by the IRS to target groups for regulatory scrutiny based on their ideological beliefs.
Section 111 prohibits the IRS from using funds made available by this Act to contravene a provision of the Internal Revenue Code of 1986 related to the confidentiality and disclosure of returns and return information.
Changes also come in Section 109, which
requires the IRS to comply with procedures and policies on conference spending in accordance with IRS policies issued as a result of Treasury Inspector General for Tax Administration recommendations.
Section 110 follows a 2014 report by the Inspector General which discovered that the IRS had paid $1 million in bonuses and 10,000 hours in extra vacation time to 1,100 employees who failed to pay their taxes. Five employees had been disciplined for intentionally not paying taxes but received performance awards.
Section 110 prohibits funds for giving bonuses to employees or hiring former employees without considering conduct and compliance with Federal tax law.
Next is Section 112, which
prohibits funds for pre-populated returns.
Section 112 refers to an idea to shift tax preparation costs from the private sector to the IRS, by having the IRS effectively send a bill to taxpayers that they can then accept or challenge. A better approach to shifting around compliance with our complex tax code would be to simplify the tax code.
Finally, Section 113
provides $290,000,000 to be used solely for measurable improvements in the customer service representative level of service rate, to improve the identification and prevention of refund fraud and identity theft, and to enhance cybersecurity to safeguard taxpayer data. None of the funds are to implement the Affordable Care Act and the Commissioner is required to submit a spend plan.
The customer service improvements in 2016 and 2017 were a result of added congressional funding that required the money to go to customer service rather than enforcement. This continues that funding level.
The bill is H.R. 244.