Filing Season Complications Loom, IRS Commissioner Tells AICPA

The 2015 tax filing season “will be one of the most complicated filing seasons we’ve ever had,” IRS Commissioner John Koskinen said in a keynote address Tuesday to hundreds of attendees at the AICPA National Tax Conference in Washington. He also held out hope of penalty relief for taxpayers affected by the IRS’s shutdown of its e-services over the Columbus Day weekend.

Two new provisions for tax year 2014 introduced by the Patient Protection and Affordable Care Act of 2010 (PPACA), P.L. 111-148, will figure prominently on many individual returns, Koskinen noted: the premium tax credit and the individual shared-responsibility payment, or “individual mandate” to maintain minimum essential health coverage. He said the IRS has so far attempted to ensure affected taxpayers get the word via a new webpage at irs.gov, plain-language tax tips in fliers and other publications, social media and YouTube, and organizations serving taxpayers.

Inaction or late action by Congress on legislation to extend temporary tax provisions—most of which expired at the end of 2013—could not only complicate filing season but delay its start, Koskinen said, repeating his other recent warnings, including to Congress directly. He thanked the AICPA for also writing to Congress to urge immediate action on the expired provisions.

“The continuing uncertainty about the extender legislation imposes stress not only on the IRS but the entire tax community, including everyone in this room,” he said.

If the legislative uncertainty persists into 2015 and/or contains new or modified provisions—as happened two years ago in the congressional “fiscal cliff” debates and resulting legislation—the IRS would be forced to delay the start of filing season, delaying the processing of returns, Koskinen said.

IRS budget issues

At the same time, reductions in the Service’s funding have imposed “serious obstacles” to its ability to fulfill its mission and provide adequate levels of taxpayer service and enforcement while improving its outdated information technology systems. That mission has expanded to include, besides the PPACA provisions, new responsibilities under the Foreign Account Tax Compliance Act (FATCA).

“Right now, the problem is trying to figure out how to survive with the constraints we are under and the obligations we have,” he said.

The IRS in fiscal 2014 and 2015 is operating under the same level of funding as in 2013, a total of about $11.3 billion, or $850 million below its 2010 funding, Koskinen noted. That means that its budget has declined 7% since 2010 and full-time employees dropped by 13,000, while the number of taxpayers it serves increased by 7 million, he said.

Taxpayer service

One result of the decrease in funding is that, while during the 2014 filing season the IRS was able to answer taxpayer’s phone calls 71% of the time—higher than in the year before, but “still unacceptable,” he said—that percentage is likely to drop to 53% in 2015.

The latter call-answering rate was also decried earlier Tuesday by National Taxpayer Advocate Nina Olson in a session on her priorities for the Taxpayer Advocate Service she heads. Olson also noted that taxpayers who do manage eventually to get a person at the IRS on the other end of the line in the upcoming filing season will have waited on hold for an average of 34 minutes. For the practitioner priority hotline, that average wait time is expected to be 52 1/3 minutes, making “priority” a dubious adjective, she said.

Questions from CPAs to Koskinen also homed in on the call wait times. Koskinen echoed Olson’s disapproval of the situation, but said the IRS’s obligations to process returns timely and implement law changes—without any increased funding—have necessarily reduced resources for taxpayer service.

For example, to implement the PPACA provisions, the IRS requested $430 million for processes, forms, and regulations and $300 million to adapt its information technology systems for fiscal 2014, he said.

“Of which we got zero,” he said.

In the upcoming filing season, the IRS will try “to do as well as we can,” Koskinen said. But, he added, “As well as we can is still going to be miserable.”

Online services

Besides hoping to improve taxpayer service in the near term, Koskinen said he has been advocating a longer-term goal of providing online taxpayer and practitioner services at least comparable to those offered by a typical financial institution—which he characterized as a comparatively modest and reasonable aim.

“We’re not trying to go to the moon; we’re not trying to be at the cutting edge of technology,” he said.

A sore point for many AICPA members present had been addressed by Olson and came up again in questions to Koskinen: the Service’s having shut down its e-filing system for maintenance during the Columbus Day weekend Oct. 11 through Oct. 13, on the eve of the extended due date for 2013 returns. Koskinen said the IRS perennially needs most holiday weekends, Columbus Day included, to perform such chores. But he also said anyone who filed a return “that week” would be given relief from late-filing penalties.

Identity theft

In response to another question, Koskinen outlined the IRS’s efforts to combat tax identity theft, calling it “one of the three or four most important issues we’re dealing with.” The problem “exploded” in 2010 through 2012. After criminal investigations, arrests, and sentencing of between 1,200 and 1,500 individuals, plus better refund safeguards, improper payments to identity thieves are now lower but still a significant problem, with an anticipated 3,000 to 4,000 victims likely this coming year.

“We’ve gotten most of the amateurs off the street; what we’re left with is organized crime here and organized crime syndicates around the world,” Koskinen said.

The IRS is also doing a better job than before of correcting victims’ accounts, reducing the time required from a year to under 120 days, “which is still too long,” he said. Ongoing initiatives to stem the problem include consolidating victim assistance in a single IRS unit and a pilot program offering identity protection personal identification numbers to all taxpayers in regions where identity thieves have operated. The pilot program is available in Georgia, Florida, and the District of Columbia.