Taxpayer Advocate Sheds Light on Service’s Makeover

By Simon Eskow

NEW YORK — A lean Internal Revenue Service is emerging from its mandated reformation, carrying the double-edged promise of better customer service with a resurgence of audits, officials said during a recent New York State Society of CPAs’ conference.

While the IRS finishes retooling its Offers-in-Compromise (OIC), audit and customer service programs, its Taxpayer Advocate has encouraged a shift in agency culture so individuals “take ownership” of problems.

“The most serious problem facing taxpayers right now is navigating the IRS,” Taxpayer Advocate Nina Olson said during the Society’s IRS Practice and Procedures Conference in June. “If I want to find someone to talk to about an issue, people run for cover. The task usually falls to the last person standing. People… wouldn’t own the responsibility. A clear message (IRS Commissioner Mark) Everson wants to be conveyed is taking responsibility.”

Mandated by a 1998 law to overhaul the IRS’ Byzantine and overbearing bureaucracy, the IRS has spent the last five years restructuring, reforming and rolling out new initiatives. Service officials updated more than 100 attendees at the all-day conference in New York City on such efforts, including, notably, a new feature that allows CPAs to get Employer Identification Numbers through the Internet, and an approach to audits that the IRS hopes will be less intrusive than of old.

But, Olson said, more needs to be done with what she calls her hot issues: improvement of the OIC process, regulation of return preparers and the transferring of debt collection to private companies.

Olson said problems with OIC stem from people in the agency who saw the program as a stepchild to the “frontline collection process” instead of a collection opportunity. Olson said her office would review every aspect of OIC—screening for returns and rejects, accuracy in collection potential—to make the program viable.

“Our goal isn’t to reduce OIC, but unwarranted OICs,” she said.

Hot Stuff: Regulating Debt Collection, Preparation

Olson also is scrutinizing a movement in Washington to transfer debt collection services to private contractors, who she said aren’t subject to the same restraints as a government entity such as the IRS.

Despite intense lobbying pressure, Olson opposed turning over all of the agency’s collection function to contractors.
Her alternative “hinges on selecting cases properly,” she said. “Calling the taxpayer, asking if they can pay their debt, and how long it will take them to do it, then enter(ing) an agreement.”

Issues like the imposition of liens are reserved to the government’s discretion, she said, and under her proposal, private collectors have a limited capacity.

Olson said she’s also developing a plan to regulate tax return preparers through a registration system that includes initial and annual testing of preparers who are not CPAs, enrolled agents or attorneys. The registration system would guarantee, for taxpayers, that the preparer complies with minimum standards. She pointed to the example of a car dealership, whose mascot was a duck, that offered to prepare a customer’s taxes. A sign on the dealer’s property said, “File taxes with this duck, use your refund for a truck.”

“That’s a different motivation” from that of preparers who develop long-term trust with their clients, Olson said. She suggested the method has been used as a “one-time sale meant to draw a big response” from potential customers of everything from that used car dealership to furniture stores.

The Once and Future Audit

Other conference speakers discussed the IRS’ restructuring progress, which has developed to the point where some expect a resurgence of field exams. Representatives of the IRS said that since 2000 the number of audits has dramatically decreased, but that they expect to see the curve rise again as new exam programs roll out in the coming months.

The IRS conducted two programs—the Field Exam Reengineering Project and the National Research Project—aimed at renovating the auditing process. Speakers said they expected to see a return of the audit as early as this summer. “They’re restructured and they’re coming back,” speaker Kenneth Farrell said.

The National Research Project was instituted to help the Service become more efficient in tracking compliance, and to prevent unnecessary “contacts” with acquiescent filers. The study resulted in 50,000 contacts with taxpayers, though without the overbearing rigmarole of a previous study that, among other things, required the contacted taxpayer to provide birth certificates if they listed any dependents.

The reengineering project, meanwhile, adapted corporate operating strategies to devise audit case management, including reducing the number of “risk assessments” that might have triggered an exam in the past. The project reduced the number to seven or eight risk assessments that are indexed so that only returns scoring a certain number will result in contact with a taxpayer.

Under the program, there will be more contact between the practitioner and the case manager through the audit process, according to Farrell. Agents must sketch out a timeline for their examination, and the scope of audits will be set up to limit the audit’s intrusiveness.

The reengineering pilot program ended on March 31, and there will be an official rollout some time this summer, though some details still need to be worked out.

Talkin’ About E-Generation

Meanwhile, the Service rolled out its long-discussed Web-based Employer Identification Number (EIN) system last May. The new system, according to IRS Field Director of Accounts Management Richard Creamer, allows practitioners to submit requests for an EIN over the Internet. The Internet EIN system immediately assigns the practitioner a temporary number, while the Service conducts a search of the applicant’s Social Security number to determine if a certain business already has an EIN, or if there is something wrong with the Social Security number itself.

Creamer said it would take five days to conduct due diligence. If the applicant’s information checks out, the temporary number becomes permanent.