Ways and Means Committee Hearing on 2017 Tax Season Highlights Progress and Challenges

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Last week the Oversight Subcommittee of the House Ways and Means Committee held its annual hearing to examine the IRS’s filing season performance. The testimony included opening statements from Chair Vern Buchanan and ranking minority member John Lewis, as well as testimony from IRS, TIGTA and GAO.

For those interested in the testimony itself, this link will take you to Committee’s landing page, with video and the written testimony. Here are some highlights.

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Chair Buchanan emphasized the IRS’s efforts to combat fraud, looking to specific programs that in his mind are characterized by high error rates; not surprisingly, the EITC was the poster child (“we are taking about big money here”) though the Chair did note that it was not clear how much of the error was due to fraud and how much due to mistakes.

Representative Lewis, after commenting on the upward trajectory in customer service this filing season, used most of his introductory remarks to criticize private debt collection, noting that he has introduced legislation to overturn its adoption.

The testimony of the IRS executive, Kristen Wielobob, emphasized that this filing season has been generally successful, pointing to reduced telephone wait times and implementation of PATH changes (like accelerating the receipt of W-2’s and delaying EITC and CTC-fueled refunds until February 15 to theoretically allow a match before release of those credit-based refunds).

The GAO testimony, while also noting many of the IRS successes such as reduced telephone wait time, looked to the challenges, including the somewhat surprising statement that even with the PATH acceleration of W-2 filing deadlines, IRS did not verify the wage information on about 2/3 of the EITC returns it received. That was due in part to limits IRS had in processing information it received from third parties (including the challenges of digesting paper rather than electronic W-2s). GAO did note however that the PATH changes led to an early identification of about $863 million in additional refunds as being possibly fraudulent.

The TIGTA testimony indicates that it is studying and will report soon on IRS compliance with the PATH requirements. It also highlights the IRS shift away from in-person service to alternative ways to communicate with taxpayers, (or in its parlance “technology-based assistance services”). The TIGTA testimony also highlights the ongoing identity theft challenges IRS has faced, the IRS efforts to assist identity theft victims and the challenges associated with private debt collection. On the latter point, most worrisome to me is the TIGTA warning that in an initial audit it felt that IRS seems to be setting itself up for major problems in administering the PDC program. According to TIGTA,

[w]e have identified numerous concerns during our audit, including the IRS’s lack of commitment to assist taxpayers concerned that the PCAs [private collection agencies] are part of an impersonation scam as well as our concerns related to the IRS’s process for receiving taxpayer complaints about PCAs.

Parting Thoughts

I am far removed from DC and do not have a good feel about the prospects for tax reform this year. The current administration’s proposals will, at least in the short-term, cost a great deal of revenue. While there is always a drumbeat to reduce the tax gap, those beats get louder when a legislature looks hard to find revenue offsets.

The opening statements of the Chair and ranking minority member of the Oversight Subcommittee to a large extent focused on tax gap issues. I suspect that there will be an increasing focus on ways to reduce the tax gap. While much of the individual tax gap is associated with small business income underreporting, small business taxpayers have powerful voices.  That suggests an increased focus on reducing errors associated with refundable credits, which, relatively speaking, account for little of the overall tax gap but credit claimants typically do not have the same clout with representatives. I would not be surprised if Congress expands the PATH model of delaying credit-based refunds to allow IRS more time to verify eligibility. In addition, TIGTA (as it has in years past) discussed the supposed benefits of allowing IRS to use math error authorities to disallow refundable credits in additional circumstances. I have previously raised concerns with expanding IRS math error powers  (which essentially deprives claimants of the usual pre-assessment notice and hearing rights), but I suspect that there may be increased interest in that approach.

 

 

Leslie Book About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.

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