How Could the IRS Improve: One Tax Attorney’s Opinion

A fellow Denver tax attorney asked me to provide some specific changes that I would make if I found myself in the position of being able to make administrative changes to the IRS. Given two to three seconds to think about it, I was able to come up with around forty such changes.

The other tax attorney apparently wasn’t expecting or didn’t have time for a long and detailed answer (or perhaps he lost interest in the topic), so I thought that I would just list a few of the changes in a blog post (maybe the other tax attorney can read it at his convenience in the future).

Here are a few administrative changes that I think the Treasury Department and IRS should implement:

The Treasury Inspector General for Tax Administration (TIGTA) currently audits and investigates the IRS to “promote economy, efficiency and integrity in the administration of the internal revenue laws.” Published TIGTA audit reports can provide very useful information about various IRS functions that it examines. However, the TIGTA’s audit function is limited in that it almost always investigates the IRS by reviewing past transactions by examining IRS records.I would suggest that TIGTA develop and actively promote a “mystery shopper” program where TIGTA employees pose as taxpayers who attempt to resolve various IRS tax troubles by contacting and working with the IRS.
This would allow the TIGTA to investigate and report on how the IRS really functions, it would help the IRS weed out “unprofessional” employees, and it might even “encourage” IRS employees to (1) provide high quality service and (2) adhere to IRS policies and our tax laws. As an added benefit, Taxpayers would be able to read TIGTA audit reports to get a real sense of how our IRS employees conduct themselves (be it good or bad news).

In the alternative, I would suggest that the IRS Office of Professional Responsibility take on this role. Similarly, and as a separate suggestion, as I have said before, I think that the IRS Office of Professional Responsibility should promulgate and enforce Circular 230-like ethical rules for IRS employees. Government employees should be held to a high standard, not no standard.
The IRS has recently taken some small steps to provide tax practitioners with online access to IRS records. I would aggressively expand online tools for tax practitioners (and for taxpayers).For example, all taxpayers must verify their financial information as part of the IRS collection process prior to being able to work with the IRS collection and/or IRS appeals function(s). In most cases, this process consists of the taxpayer or tax practitioner calling the IRS collection and/or appeals function, placing the telephone call with the IRS employee on hold, and submitting a Form 433 (along with the supporting financial records) via facsimile to the IRS employee.
Taxpayers or their representatives then have to wait on hold for the IRS collections and/or appeals function employees to receive the documents and manually enter the information into the computer. The IRS uses the word “verification” to refer to this process. This “verification” process can take more than two hours for some taxpayers (especially if the taxpayer is or owns a business).

In many cases, taxpayers or their representatives will have to call back and start the “verification” process from scratch if any particular information or record is missing. IRS employees often do ask for unusual documentation (in many cases I think that they do this in bad faith just so they can move on to the next case…).

This would not be as much of a problem if IRS employees could simply return phone calls (most ACS collections employees do not have this ability) and/or taxpayers could speak directly with the same IRS employee when the taxpayer calls the IRS back with the additional information or record (this is possible with most IRS appeals and IRS revenue officers, but that presumes that the case is in appeals or has been assigned to the IRS field collection function).

I suggest that a better approach would be to allow tax practitioners (or taxpayers) enter this information into an IRS maintained/hosted website (or even a third party maintained/hosted website). The tax practitioner could even upload and/or fax the documents into the IRS, prior to the IRS contacting the tax practitioner (or taxpayer) to “verify” the information that was uploaded.

This would save the taxpayer and the IRS a considerable amount of time, and it would allow the IRS to handle cases at their convenience (as opposed to when taxpayer and tax practitioner telephone calls come in).

While I am thinking about it, in the alternative, I would suggest that the IRS Form 433 be redesigned to track EXACTLY the computer fields that the IRS employees have to enter. The current Form 433-A does not contain all of the information that IRS employees must enter into the computer to “verify” the taxpayer’s financial information (remember my comment about having to call back and start over if you do not have the necessary information….) and the information that it does include is not listed in the same order (if you want to hear a frustrated IRS employee, all you have to do is send them a Form 433-A with a lot of supporting taxpayer information).

In the alternative to that, the IRS should get rid of the Form 433-A all together. The Form 433-A is used by many IRS functions – such as appeals, the field collection function, etc. There are three other versions of the Form 433 (the Form 433-B, D, and F). The Form 433-F is a much better and more recent form. I would suggest that the Form 433-F be expanded a bit and the other Form 433’s be eliminated.

In the alternative to that, I would suggest that tax practitioners (or taxpayers) not have to “verify” the taxpayer’s financial information with the appeals and/or field collection function if the tax practitioner (or taxpayers) have already (and recently) “verified” their financial information with the automated collection system.

And that only deals with the financial verification process. Don’t get me started about how the IRS could improve the IRS audit and other collection functions by using technology that is used by reasonable and prudent businesses that perform similar functions.
The IRS is pretty good about sending out taxpayer transcripts. However, the IRS is not very forthcoming with other taxpayer records. Taxpayers should not have to submit formal freedom of information requests to obtain their IRS files. If the taxpayer wants their information master file or if the taxpayer wants to see what is in the field function collection file, they should be able to see that information and to obtain copies upon request.Taxpayers often use the Form 4506-T to request their tax transcripts. The current IRS processing time for a Form 4506-T can range from one month to one year (or to infinity, in some cases). The RAVIS teams that handle these requests are no doubt flooded with transcript requests (Maybe taxpayers could submit their requests online, and, heaven forbid, the IRS could provide the transcripts to taxpayers online or via email). As a side note, the IRS processing time for transcripts requested by taxpayers using the automated telephone system takes about one to three weeks.
I would suggest that the IRS add the ability for taxpayers to request additional documents via the slow Form 4506-T method or via the other existing methods (or again, electronically).

The same issue often limits IRS employees. I continue to encounter IRS employees who are not able to locate files and who are not able to timely access records/information – and IRS employees who (I think, falsely) blame their inability to act on their inability to obtain records.

Lets be honest, how effective can an IRS examiner or collector be if he or she cannot obtain a copy of the taxpayer’s tax return, W2’s, 1099’s, etc. or even IRS records which reflect the contents of these documents?

My suggestion here should be self evident.
The Taxpayer Advocate Office can be very helpful in resolving unresolvable IRS cases. A major problem with the Advocate’s Office is that they will generally not get involved in matters when the matter is assigned to another function – such as the IRS appeals function. In those cases the Advocate will simply say “you need to follow up with Appeals Officer _________.”This ignores the reality that IRS Appeals Officer __________ may not be able to address the problem. Take the very common situation where the taxpayer is appealing the collection function, but the taxpayer is waiting on the examination function to “assess” a newly filed or amended tax return. IRS Appeals Officer ___________ may be assigned to the case, but he or she will not be able to process the case until the examination function “assesses” the tax.
The current wait time for “assessing” a tax obligation seems to average about thirty days. But there are some instances where the exam function will never “assess” the tax – despite IRS Appeals Officer __________’s request that they do so and despite the taxpayer request that they do so. The Advocates Office will not touch these cases. So what are taxpayers to do in these situations? Unfortunately the answer is “nothing, but send letter after letter and make phone call after phone call to the IRS.”

This same intra-function conflict comes up in a number of common situations. As such, I would suggest that the Advocates Office handle these types of cases.