Prepared Remarks of IRS Commissioner Douglas Shulman before the AICPA
by Terri Eyden on
Our next key long-term priority is an initiative that we started over three years ago to look at how the IRS interacts with paid tax return preparers.
And here's the reason why we took on this challenge. Paying taxes is one of the largest transactions that the average American family has each year.
However, over the past 20-30 years, the way that taxpayers go about filing their taxes has dramatically changed. Today, more than 9 out of 10 taxpayers use a paid tax preparer or tax software. When I arrived at the IRS, there were no basic competency requirements for tax return preparers. In fact, while in most states you need a license to cut someone's hair, just a short time ago almost anyone could prepare a federal tax return for any other person for a fee, regardless of their level of experience or knowledge of the tax law.
Now, as the leader of the IRS, I am always looking for points of leverage - and our tax return preparer initiative is just that. In essence, we shifted from a retail to a wholesale approach. We shifted resources from dealing with taxpayers one-by-one, to dealing with the intermediaries who deal with hundreds or thousands of taxpayers at a time. That's what I mean by leverage.
Given the importance of paid return preparers to the integrity of our tax system, we're now well into the process of ensuring a basic competency level for tax return preparers and focusing our enforcement efforts on rooting out unscrupulous preparers. We have registered over 850,000 return preparers and have begun administering a new competency test for any preparer who is not a CPA, attorney or enrolled agent. These individuals also have to complete 15 hours of continuing education each year using IRS-approved providers.
Once the majority of preparers are registered and have taken the test, we will launch a public database so taxpayers can ensure that they are using a registered tax return preparer.
Our next major priority is leveraging data analytics in order to continually improve our operations.
The IRS has always been an information intensive enterprise. But it's the organization of data and ultimately the knowledge and intelligence we extract from the information we receive that really matters. It can show us the areas of greatest non-compliance...and thereby, contribute to more efficient and effective compliance programs.
We have built a team of people with analytical expertise and connected them with our business units to continually improve our operations. They are working on multiple fronts, and the results have been impressive. Let me give you just one example of how we are leveraging data analytics, and how many of the strategic initiatives I have discussed come together.
Using better data on return preparers that we gained through our return preparer initiatives and faster processing cycles achieved through our technology modernization, we ran a pilot applying advanced data analytics to link tax returns that showed potentially serious compliance issues to the individuals who prepared them. We identified a number of preparers with apparently inaccurate returns and, depending on the type and severity of the issue, are applying different types of compliance tools.
Based on risk scoring, preparers with problematic returns received one of three treatments: due diligence visits, outbound phone calls, or letters with monitoring. One goal of the pilot was to measure the effectiveness of early intervention.
We estimate that through the treatments in this relatively small pilot, we generated almost $200 million of savings on improperly claimed EITC and Child Tax Credit/Advanced Child Tax Credit claimed on these returns. In other words, relative to a control group where no filing season interventions were applied, the IRS found that the early intervention techniques reduced improper claims by about $200 million. And the cost of the treatment was only about $2.7 million.
This new test-and-learn methodology is one part of a greater trend of success we are having in implementing new filters to detect fraudulent returns and new processes for handling returns. We are now an organization that is proficient at designing pilots to test new ways of doing business. When we see positive results, we then expand the techniques into our core operations.
So far this year, we have stopped approximately $19 billion in fraudulent payments from going out the door as compared to $12.5 billion over the same period last year. And these numbers dwarf the $2.4 billion that we stopped for all of 2009.
So as you can see, we are getting better at moving more quickly and using data to focus our compliance efforts. This is a key part of an overall strategy that the IRS is pursuing to move the tax system to be more real time. In addition to making internal IRS operations more real time, we've also opened a dialog with the practitioner community about how to engage practitioners and taxpayers in more real time issue resolution. If a taxpayer files a return reporting income from a primary job, but forgets about a part-time job held early in the year, why shouldn't the IRS be able to flag that for the taxpayer and let them fix it up front? The alternative is a notice from the IRS many months after the fact, when records are more difficult to find and interest has accumulated.
We've conducted extensive outreach, including public meetings, and we've heard consistent praise for the concept, with a lot of questions about how it would work. So we are continuing to work with the broader tax community to find ways to advance this idea and help taxpayers address issues much earlier in the process, while recognizing the inherent complexity of the undertaking. This will likely include some very small pilots this upcoming filing season to test the concept.
As you can see we have made great progress in making our compliance efforts more strategic using new tools, data, and capabilities. However, the IRS is not just about compliance. While popular culture generally links the IRS with compliance and enforcement, the truth is that the IRS interacts with the overwhelming majority of the population strictly on a customer service basis. Eighty percent of people file their returns electronically and receive an average $3,000 refund via direct deposit in 10-15 days. This is their only interaction with us each year, and it turns out that it is a quite pleasant one. And providing quality customer service is a key priority of mine...and every bit as important as enforcement.
Now, every year, the American Customer Satisfaction Index measures customer satisfaction across various industries and government agencies. While we have many measures of customer service at the IRS, this composite index is the main measure we use to track our overall performance.
In 1998, the IRS hit rock bottom with only 32 percent of respondents to the Index survey voicing satisfaction with how we were doing our job. But over time, the IRS pulled out of this downward spiral. Slowly, but surely, we regained taxpayer approval as the IRS improved its services, such as e-file, and began offering new ones through our Web site. All of this hard work paid off. The numbers tell the story.
For 2011, the American Customer Satisfaction Index survey of taxpayers showed satisfaction with the tax filing experience reaching 73 on a scale of 100 among all individual tax filers. That is our highest score since we began participating in the survey in 1994. I am especially proud of our continued progress in this metric, given the new responsibilities handed to the IRS in recent years...the increasing complexity of the tax code...and our continued drive to cut costs.
Speaking of which, it is incumbent upon all of us in government to be as efficient as possible and spend taxpayer dollars wisely. We have to be good stewards of these dollars.
Starting with fiscal year 2009 and running through our budget of next year, we will achieve nearly $1 billion in budget savings and efficiencies. And they come from a variety of sources, such as closing down paper return processing centers no longer needed because of increased electronic filing...offering voluntary buyouts to many of our employees...cutting back on non-case related travel and conferences.
You may like these other stories...
Legislation coming out of Washington just might reduce homeowners' burden for disaster insurance. It's a topic very much on everyone's minds since the mudslide in Oso, Washington. The loss of human life was...
Divorce is hard, and the IRS isn't going to make it any easier. The IRS generally says "no" to tax deductions that might ease the pain of divorce. In certain circumstances, however, you might be able to salvage...
IRS chief: New rule on the way for tax-exempt groupsIRS Commissioner John Koskinen told the USA Today on Monday that the agency will likely rewrite a proposed rule regulating the political activities of nonprofit groups to...
Upcoming CPE Webinars
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.