At first blush, the IRS’s announcement that it will cease most unannounced visits seems eminently reasonable. But a closer look reveals a raft of unanswered questions—including whether the agency overlooked an opportunity to frame near- and longer-term changes in collections.
The IRS listed three primary decision-drivers behind the policy shift. The first was to help protect employees and taxpayers—one can see how unannounced visits by revenue officers could end poorly. Next was an effort to improve efficiency—knocking on doors hoping to catch people unaware is unlikely to create an environment in which well-prepared taxpayers work with revenue officers to create good outcomes.
Finally, the shift creates a clear, easy-to-communicate policy for all IRS civil actions. In place of unannounced visits, revenue officers will schedule follow-up meetings via letter 725-B. But a case can take up to a year to be assigned, and by the time it arrives in a revenue officer’s inventory, the taxpayer generally has received (and declined) plenty of invitations to engage. In light of this:
What if a taxpayer disregards the letter? Unannounced IRS visits, even if unpleasant, were deeply personal calls to action and made ignoring the agency much more difficult. Does the IRS expect an invitation to meet to change behavior? Is the plan to send the 725-B and then shelve the case if no response? Or will the IRS follow through on its stated consequences of failure to provide information with a summons, lien, or levy?
Is the IRS going to make other changes to increase efficiency? Will the agency change case selection criteria? Secure better addresses to reduce incidence of unable to locate/contact results? Collaborate more fully with state departments of revenue?
What metrics is the IRS using to measure success? How will it know if the policy change yields worse (or better) compliance outcomes? Is it creating multiple letters and testing effectiveness? How will it know the taxpayer experience improved? How does it plan to measure case closure velocity and volume?
A Missing Larger Frame
This could have been a chance for the IRS to combine this new policy with renewed, immediate efforts to unite with taxpayers (or their representatives) and close failure-to-pay cases. Skip tracing—which would allow IRS to reach taxpayers more quickly and reliably—could have been part of a more efficient agency and tied into the technology and data advances promised in its strategic operating plan. The IRS also could have suggested that victory over its paper backlog will allow it to issue substitutes for returns for, say, tax year 2021.
In an effort to reveal that the IRS understands small business owners work during business hours, it could have offered evening and Saturday appointments, or suggested that a benefit of representation is that taxpayers needn’t inconvenience themselves. The IRS also could have announced a training solution that wouldn’t rely on current revenue officers to train the new cadre? And, to improve the customer experience, the training would include soft skills and a focus on taxpayer rights.
Unintended Message
With its July 24 announcement, the IRS may have inadvertently sent a message that it’s pulling back from collection work and, by extension, green-lit more non-compliance.
An EA colleague recently shared she has a new collection client—a married couple who haven’t filed a tax return for 10 years and have changed addresses multiple times. He’s a retail manager earning $50,000 a year and has withheld at 5%. She’s a real estate professional earning $85,000 a year, with no withholding whatsoever.
Did IRS finally catch up with them? No. They became my colleague’s clients because they’d like to buy a house.
Such anecdotes are widespread in the tax pro community and, while we know multiple anecdotes don’t equal data, in no state of tax administration should Wells Fargo be a noticeable arm of IRS collections efforts.
After years of eroding post-filing presence, anything that reinforces the notion that the IRS isn’t fully present is far from desirable and, one would think, not good for any tax gap measurement.
IRS Commissioner Danny Werfel told reporters that “changing this long-standing procedure will increase confidence in our tax administration and improve safety for taxpayers and IRS employees.” The latter appears true on its face. The former, however, would be helped by a more complete picture of short-run collection program changes and how they support strategic operating plan long-term goals.
Such a picture would help taxpayers (and perhaps more importantly, tax pros) understand what to expect and prevent taxpayers from concluding they’ve gotten a free pass from their tax obligations.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Bob Kerr, EA, is principal of Kerr Consulting LLC, a tax administration and tax policy advising and consulting firm. He started his career at the IRS and has served on the US Senate Finance Committee and advocated for the National Association of Enrolled Agents.
We’d love to hear your smart, original take: Write for us.