Last March the United States and the rest of the world basically came to a screeching halt. The Covid-19 pandemic swept through society forcing the biggest halt to business, government, and people’s lives in modern history. Many people were forced out of work and were in fear of not being able to pay their bills.
During this time, the IRS took a step back in their collection activity to take some pressure off taxpayers. The IRS since this time has slowly begun to restart many different processes. Now a year and a half later the IRS has announced that it will resume many of the collection processes that have been idle in the past year and a half.
In this article, I will start by explaining the efforts the IRS took to take this pressure off Americans that owed money to the IRS. I will follow that up by further explaining the collections activities that the IRS is immediately resuming and detail the future and proposals by the IRS and the President to seriously beef up the Investigation and Collections Departments within the IRS.
The People First Initiative
On March 25, 2020, the IRS began its People First Initiative to help people facing the challenges of Covid-19. The IRS announces that they would take a series of steps to assist taxpayers by providing relief on a variety of issues ranging from easing payment guidelines to postponing compliance actions.
IRS Commissioner Chuck Rettig said, ”The IRS is taking extraordinary steps to help the people of our country. In addition to extending tax deadlines and working on new legislation, the IRS is pursuing unprecedented actions to ease the burden on people facing tax issues. During this difficult time, we want people working together, focused on their well-being, helping each other and the less fortunate.”
The IRS made major changes such as postponing the filing deadline from April until July 15th. They also suspended payments for any taxpayers in agreed-upon Installment Arrangements between April 1 and July 15th, 2020. They agreed they would not default any taxpayers who fail to make these payments during this time.
They also suspended payments and deadlines for taxpayers in or applying for the Offer in Compromise Program. Also, all liens and levies either through the automated system or in place by active field agents were all suspended as well.
On July 15, 2020, the IRS slowly began resuming its processes. They announced to taxpayers that if you suspended your installment agreements you must make your first monthly payment due after July 15th. If you had your bank suspend direct debits, then you needed to contact your bank immediately to avoid a penalty. The same was required with all payments for people in the OIC program. At this point, they did resume some involuntary collections, but they kept most of the automated collections systems idle.
On June 14, 2021, the IRS announced that due to the recent progress the country has made in controlling the Covid-19 pandemic, economic activity is returning to normal. Therefore, the IRS plans to return to its normal collection casework processes in the summer of 2021 to support the integrity of the nation’s tax system.
Beginning June 2021, the IRS will start mailing balance due notices through the Automated Collection System. If taxpayers fail to respond to these letters they could be subject to levies or notice of Federal Tax Lien Filings beginning August 15, 2021.
Proposal to Double the IRS Workforce
Not only has the IRS resumed their normal collections but there have been proposals made to seriously expand the IRS budget to help reduce what they call the tax gap.
The tax gap is the difference between what taxpayers should pay and what they pay on time. The tax gap, about $458 billion based on updated estimates, represents the amount of noncompliance with the tax laws. President Biden plans to propose an $80 billion funding boost for the Internal Revenue Service over the next decade. This budget increase would allow the IRS to hire nearly 87,000 new workers which would double its enforcement staffing and give it new tools to combat tax-dodging by wealthy Americans.
This proposal being a multi-year commitment would allow the IRS to hire and properly train enforcement staff and ramp up audits with less risk of lawmakers stopping such an initiative halfway through. The plan would allocate about $30 billion of this money towards advancements for new tools and technology to execute collections and crackdown on avoidance.
Proposal to Change How Income Is Reported to the IRS
A big change to the system would be how income is being reported. Right now, with the way that individual income is reported, there is almost 100% compliance. Where the problem lies is with self-employed individuals and business income. Estimated compliance with these individuals and entities is around 50%. Under the plan, banks and other payment providers would be required to report to the IRS how much money is coming in and out of an individuals’ and business’ account each year. This information would give the IRS much more information as it decides who to audit.
Also, the proposal would increase oversight on all paid tax return preparers. This would give the IRS explicit authority to regulate all paid preparers of Federal tax returns, including by establishing minimum competency standards. Unfortunately, at this time in our industry, there are people without the educational background needed to correctly file taxes for people. Many of these types of preparers also do a lot on the tax filings to increase one’s tax refunds through erroneous means.
Most taxpayers are unaware of the methods these tax preparers use to help them get larger refunds and those same methods could get them into trouble with the IRS. Regulating this part of our industry will cut the tax gap down significantly.
What the Proposed Changes Would Accomplish
This major investment would be over the long term and the administration projects that the plan would generate over $700 billion over 10 years in net revenue. In the short term, the President included in his 2022 budget proposal $13.2 billion, an increase of 1.2 billion from 2021 for the IRS to administer the nation’s tax system fairly.
In addition to this base amount the budget also proposes another $417 million in 2022 to fund investments in expanding and improving the effectiveness and efficiency of the IRS’ overall tax enforcement program. This would be a total of $13.6 billion in funding for the IRS. The budget requests a total program increase of $915.5 million including the following:
- Taxpayer First Act (TFA): $176.1 million for implementing major TFA initiatives, including a Taxpayer Experience Strategy to improve the American taxpayer’s experience with the IRS through expanded digital services, increased multilingual services, and an increased presence in hard-to-reach, historically underserved communities. Another major TFA initiative involves enhancing identity proofing and authentication tools, to ensure taxpayers have secure access to online services.
- Enforcement: $340 million for continuing to establish enforcement strategies that will ensure a fair tax system, by allowing the IRS eventually to double its compliance efforts on partnerships and high-wealth returns and devote more resources to examining large corporations with balance sheet assets greater than $10 million. Other initiatives supported by this investment include The Cross Border and Treaty and Transfer Pricing Operations; expansion of oversight efforts against cybercrime; increased use of applied data analytics in enforcement activities; and enhancing taxpayer confidence in the tax-exempt sector.
- Taxpayer Service: $318 million to increase taxpayer assistance via the various communication channels taxpayers use to reach us, including phone calls, correspondence, and in-person visits. This investment provides a projected phone level of service (LOS) of 75 percent in FY 2022, assuming phone demand returns to pre-pandemic levels and the IRS is able to provide in-person services at pre-pandemic levels. These funds will also be used to reduce the current projected FY 2022 ending correspondence inventory by about 400,000 pieces.
- Modernization: $78.1 million for IT modernization activities. This investment will support IRS efforts to continue implementing its Integrated Modernization Business plan for upgrading IT systems and retiring legacy applications. With this funding, the IRS will be able to take the next steps on such significant modernization initiatives as Enterprise Case Management, Taxpayer Digital Communications, and customer callback on its taxpayer phone lines.
With all these changes coming to the IRS it is particularly important that all delinquent taxpayers have themselves into some sort of program to protect themselves. When it comes to owing taxes, a compliant taxpayer has a lot of rights that can be enforced to save them a lot of money. It is important that someone in this situation gets the proper representation. Enrolled Agents and CPAs have the educational background and licensing to best represent you in these types of situations.
With billions being funneled into the IRS to make sure that these tax dollars are recovered it is especially important that a taxpayer is proactive so the repayment of tax debt can be on their terms and so they are not seriously overpaying on their tax debt. It sounds like with these improvements to the IRS the days of flying under the radar are done and gone.