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November 28, 2012
Departing Shulman Warns Congress About Late Legislation

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Lame-duck congressional action on expiring tax provisions, credits, and extenders will not all affect the IRS and the filing season the same way, departing IRS Commissioner Douglas Shulman said November 7 at the American Institute of Certified Public Accountants National Tax Conference in Washington.

"Unlike a lot of the other provisions that are in the news on a regular basis, the [alternative minimum tax patch] expired almost a whole year ago," Shulman said. "Our systems are coded assuming that there is an AMT patch, and so if for some reason the AMT patch didn't happen, there would be significant delays in the filing season." (For a transcript of Shulman's remarks, see Doc 2012-22997.)

Shulman added that late congressional changes to the tax code could require delaying deadlines for some components of the filing season, although he declined to be specific. "It's also my desire that Congress keep a keen eye on tax complexity," he said. "The most elegant piece of policy . . . really means nothing if it can't actually be delivered on the ground to the American people." Taxpayers must be able to understand, and tax administrators need time and resources to implement, the laws Congress passes, he said.

The IRS has contingency plans for if Congress waits until the last minute to determine the fate of some 120 tax provisions that are set to expire or change at the end of 2012, according to Peggy Bogadi, commissioner of the IRS Wage and Investment Division, who spoke at a separate conference session. "Just the sheer numbers and the unknown on the timing and what they're going to look like is very worrisome for us," she said.

"We have 80 tax products that are impacted for the 2013 filing season," Bogadi said, but she added that "the alternative minimum tax and the nonrefundable credits that are associated with the AMT are the most significant challenge facing us as we go into this upcoming filing season."

The IRS is doing its best to prepare for unexpected or retroactive legislation, Bogadi said. "We've done as many what-if scenarios as we could possibly come up with, and I guess as long as they are consistent with that, we're probably in fairly good shape," she said.


Victory Lap

Shulman's address to the AICPA conference came only two days before his retirement from the IRS and covered the status of the initiatives he championed after becoming IRS commissioner in 2008, the interim IRS leadership, and his plans for the future.

The offer in compromise program has attracted more taxpayers than ever, Shulman said. "I think it's an incredibly important program," he said, arguing that taxpayers who will never be able to pay their full tax debts should not be burdened with them. To improve the program, the IRS increased living expense allowances for delinquent taxpayers, established a unit to help taxpayers who don't have records or resources to sort out problems themselves, and gave agents more discretion over which documents to request, he said.

Regarding international taxation, Shulman said the IRS has put a big dent in individual offshore tax evasion. High-stakes negotiations with the Swiss government and Swiss financial institutions resulted in the first ever agreement to turn over thousands of names and account numbers from a country renowned for bank secrecy. "I think that showed the world that we have a lot of resolve to actually break the back of bank secrecy globally," Shulman said. At the same time, the IRS expanded its voluntary disclosure program, bringing in roughly 38,000 disclosures from taxpayers who have paid more than $5.5 billion in back taxes and penalties, he said.

The IRS also sought to transform its relationships with corporate taxpayers, Shulman said. "When I arrived we had a pretty adversarial relationship with the corporate community," he said. "I have always challenged this basic assumption."

The IRS expanded the compliance assurance process program from 30 taxpayers to about 160, who work with the Service to remove risk and uncertainty from their tax filings, Shulman said. The industry issue resolution program offers safe harbors for controversial issues, reducing the costly and time-consuming back-and-forth between the IRS and corporate taxpayers, while final guidance on Schedule UTP increased taxpayer certainty and reduced IRS examination times, he added.

"My hope is that the end game of all of this is a much more productive relationship that allows us to focus on taxpayers where there is the greatest risk of noncompliance, and leave taxpayers alone who don't have much of a risk of noncompliance," Shulman said.


Business Systems Modernization Complete


The multi-decade IRS push for business technology modernization "is now complete," Shulman said, although he cautioned that an institution as large and complex as the IRS must continually invest in technology to meet ongoing service demands.

The Customer Account Data Engine 2 (CADE 2), the IRS's core account database of taxpayer information, now has a daily rather than weekly or biweekly processing cycle, Shulman said. "Last year, every single tax return, every individual return that came in, got processed and posted on a daily cycle," he said. "It's a huge deal for the tax system, because what this means is faster refunds for all taxpayers; it means up-to-date information at the fingertips of our customer service representatives; and it means we have a single sole-source database of records with all the key information that we can use for analytics purposes, both for compliance and for customer service."

Under Shulman, the IRS also took on return preparer registration and regulation. Nine out of 10 taxpayers use a paid preparer to file their returns, Shulman noted, but there were no federal standards for the qualifications, training, and continuing education of preparers until recently. "I think this initiative . . . will accrue to the benefit of all the qualified professionals who are in the tax community, to make sure that the unqualified professionals aren't in it," he said. (For related coverage, see Doc 2012-23024 .)


Real-Time Tax System Advances


The IRS is using data analytics to formulate tests and pilot projects that have produced important operational insights, Shulman said.

Linking CADE 2 taxpayer information with data about registered tax return preparers, the IRS determined that phone calls, rather than mail or personal visits, were the most cost-effective method for resolving discrepancies or disputes regarding tax returns and information reports. That program cost about $2.7 million to complete, but the IRS estimates its "deterrent effect" at about $200 million, he said.

Better analytics on refund fraud have also helped the IRS stop $19 billion in fraudulent payments this year, compared with $12 billion last year and $2.4 billion the year he became commissioner, Shulman said.

The initiatives were tied to the long-term goal of a real-time tax system that would be capable of fixing tax return problems when they are spotted, rather than waiting months or years to work through often inflexible IRS processes, Shulman said. The Service has conducted outreach and public meetings and has talked with industry groups, many of whom like the idea but are worried that "the devil is in the details," he said. "We are committed to moving forward as an institution," he said. "We are going to launch some very small pilots this year to test the concept, and then there will be a dialogue in the years to come with the community."

Shulman also declared that "world-class customer service is not an option for the IRS; it's something we have to do." He noted that the Service got its highest rating last year from the University of Michigan's American Customer Satisfaction Index.


Interim Leadership


Shulman said he feels "very confident" in the officials who will take over when he leaves. Steven Miller, IRS deputy commissioner for services and enforcement, and Beth Tucker, IRS deputy commissioner for operations support, "have a very strong team underneath them," Shulman said. "We've made sure we're not going to have major succession problems," he said, adding that the Service is "much bigger than any one commissioner, any one person."

After leaving the IRS, "I'm going to take a few months off, reconnect with my wife and kids, enjoy the holidays, and then I probably won't retire full time on my government pension," Shulman said. (For prior coverage, see Doc 2012-21034 or 2012 TNT 197-2.)


Refund Tool


A refund cycle chart providing generic, estimated refund dates will not be released in 2013, Bogadi said, noting that the 2012 chart wasn't accurate for most refund situations because it tended to provide best-case rather than most likely estimates. However, the IRS will still try to deliver refunds in 21 days or less, she said.

The IRS has improved the online "Where's My Refund?" tool, which provides personalized refund information based on the processing of an individual taxpayer's return, Bogadi said. The enhancements include a new graphic tracker to show the stages of the return -- return received, refund approved, and refund sent -- and details of the return's status, such as when an electronic deposit was transmitted or when a check was mailed, she said.

"Where's My Refund?" won't issue an estimated refund date until the IRS has actually processed the return and can confirm that a refund has been approved, but the IRS has been able to reduce the "dark period" between when the return is acknowledged as having been received and when information is made available online, Bogadi said.

"We have significantly shortened that time frame with a linkage to modernized e-file, and we will be vastly improving the time frame in which refund information will be available on a particular tax return on the 'Where's My Refund?' tool this upcoming filing season," she said.



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