The IRS Redesign, a bipartisan effort two years in the making, is meant to dramatically redesign the structure of the Internal Revenue Service to make it a “taxpayer-first” agency, according to Ways and Means Chairman Kevin Brady.
The legislation, which was working its way through Congress as we went to press, codifies the requirement of an independent administrative appeals function by establishing within the IRS “the Internal Revenue Service Independent Office of Appeals,” to be headed by a “chief of Appeals.”
Among other things, it would also require the IRS to submit to Congress a comprehensive plan to improve its customer service strategy, based on best practices from the private sector; require the IRS to maintain the Free File Program; ensure that taxpayers have access to the same information as the IRS during the dispute resolution process; require the IRS to submit to Congress a plan to redesign the structure of the agency to improve efficiency; enhance cybersecurity; ensure that the IRS sends notice to the actual taxpayer when conducting an audit before contacting friends, neighbors and clients; restructure IRS enforcement tools to ensure taxpayers do not have their assets seized without proper, timely and fair notice; and change the head position at the agency from a commissioner to an administrator.
“IRS departments will be reorganized to better support the needs of today’s taxpayers, with a focus on robust customer service,” Brady said. “For instance, in the case of identity theft, a centralized point of contact will be established that will be responsible for seeing cases all the way through, coordinating with other offices within the IRS as necessary. Milestones and measurements will be set in place to ensure that the IRS is returning to its quality service mission, and will be held accountable if it fails to do so.”
Begun in reform
The ideas for IRS redesign originated when Ways and Means Chairman Brady put out the tax reform blueprint, according to Liz Askey, national IRS practice and procedure leader at Top 5 Firm Grant Thornton: “Ultimately, the proposals got removed from the tax reform legislation as it moved through the reconciliation process. Although it was removed from the final Tax Cuts and Jobs Act, there is momentum for making changes at the IRS. It’s been 20 years since the 1998 Restructuring and Reform Act.”
The creation of an enhanced IRS Appeals would be welcome to practitioners, according to Alexander Reid of law firm Morgan Lewis. “This would have a salutary effect on IRS Examinations by creating an incentive for exam agents to improve the quality of their work in order for the audit results to withstand review by IRS Appeals,” he said. “Tax practitioners would welcome such a development as it could reduce the frequency of improper readings of precedential guidance by exam agents and the persistence of illogical positions that are never adjudicated by a higher authority. It would also be helpful for Appeals to serve as a safety valve to reduce instances in which the IRS may refuse to settle a case that it believes it can win, despite the bad precedent that may result. This is particularly so when the facts or law have been underdeveloped by the taxpayer due to constrained resources. Strengthening the autonomy and independence of Appeals would go a long way toward counteracting negative biases in the current system and increasing justice for all taxpayers.”
For lower-income taxpayers, the legislation would bring a number of material improvements, Reid indicated.
“First, they will no longer be targeted by private debt collectors who may be motivated by their self-interest to engage in unfair collection practices that under-represented taxpayers are helpless to defend against,” he said. “Second, taxpayers on the wrong end of a collection matter would have access to IRS Appeals for the first time, which is a lower-cost forum for sorting out their legal woes than courts. Third, IRS Appeals is akin to a court of equity as opposed to a court of law — their officials are able to take a broader view of the taxpayer’s situation and consider more information about the situation when deciding cases than are judges in other forums. This can only improve the fairness and equitable treatment. And last, making the Volunteer Income Tax Assistance program permanent is a great way to help those who find the tax system so bewildering and impenetrable that they make imprudent choices, like failing to file personal income tax returns, even when they are due a refund.”
“This would make Appeals more accessible,” observed Grant Thornton’s Askey. “Currently, the IRS is required to have an independent Appeals function, but there hasn’t been a statutory right to appeal. There’s been a feeling that the Appeals office has moved away from its core function of resolving taxpayers’ issues efficiently and effectively, and this makes sure that the protections that were there in the past are formalized.”
“It creates a qualified right to appeal, and ensures that taxpayers are given notice of the right to appeal if their case is denied,” she explained.
For Richard Levine, counsel at Withers Bergman, there is a question of where the IRS will find competent people to staff the new Appeals process: “Will they take people out of Treasury who are writing new regulations? There are only so many competent people who can understand the law in private practice, let alone at the IRS. Where are you going to find them, even if you have the money to hire at the government pay scale, to interpret complicated provisions of tax law?”
The limits on forfeiture are a good thing, Levine indicated. “There was the feeling that the use of forfeiture had gone a little too far, and that it was too easy for government agencies to seize private property,” he said.
More than a title change
The change from “commissioner” to “administrator” was welcomed by Beanna Whitlock, a San Antonio-based preparer and educator, and former director of IRS National Public Liaison: “The IRS needs someone who is not necessarily an expert in tax law, but who has the ability to manage an agency of thousands of people. We need someone to take people into a vision in terms of service to America’s taxpayers.”
The suggested changes in the law would impact how practitioners handle IRS examinations from the outset, according to Reid. “It would also likely create a growth opportunity for practitioners that specialize in representing taxpayers before IRS Appeals.”
“The most noteworthy implications of the bill are what it implies, but does not say, which is that Congress expects the IRS to become far more efficient and productive with its resources,” Levine explained. “The bill would have the IRS focus on taxpayer service, not just enforcement and collections, which is expensive. In addition, the bill would have the IRS make substantial and costly investments in technology, improving the user interface, enhanced free filing, and stronger data privacy, all the while requiring the IRS to continue performing all of its existing functions at the same or higher level of quality. Yet the bill does not appropriate funds to enable the IRS to do all of this. It is difficult to imagine that the IRS can achieve the level of productivity gains to enable it to set aside sufficient funds to make the investments in technology and taxpayer services contemplated in the bill.”