“Empowering” Taxpayers: Reflections on the IRS Strategic Plan Annual Review

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I’ll forgive you if the IRS’s report on “Putting Taxpayers First” has fallen through the cracks of your reading list. The National Taxpayer Advocate’s report (recently covered here and here), the onset of the filing season, and the raft of legislative tax changes over the last year have left me feeling somewhat behind in my tax knowledge. And I get the feeling I’m not alone in that sentiment.

Yes, times are busy for us in the tax world. But that doesn’t mean we shouldn’t take a moment from our busy schedules to reflect on our larger goals. For the IRS, one way this is done is through their Strategic Plan Annual Review and mapping their progress to the myriad goals therein. In this post I’ll take a look at the first of those ten goals: To “empower and enable all taxpayers to meet their tax obligations.”

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A first step in mapping your progress towards a goal may be to clearly define what that goal really is. For example, what does it mean (or look like) to “empower and enable all taxpayers to meet their tax obligations?” I found the report a bit lacking on defining the goal, and even in discussing if the IRS has met it. Instead, the report mostly just discussed what 2021 looked like for taxpayers, and let you, the reader, draw your own conclusions about whether that meant the IRS was “empowering and enabling” taxpayers.

This reader would say that, towards the goal of empowering taxpayers, the IRS had some wins but also some pretty big losses (I will call them “obstacles”) that likely outstrip the wins. I’ll discuss both in turn.

The Wins:

It is hard for a taxpayer to be “empowered” to meet their tax obligations if they don’t understand what those tax obligations are. One way this might happen is if the taxpayer doesn’t speak English. On that front (making tax resources accessible to ESL taxpayers) the IRS deserves kudos.

For one, it was the first year the IRS made Form 1040 available in Spanish. Admittedly, I thought this already was the case but apparently that was only for certain Puerto Rico returns.

But an even bigger (and I think more consequential) change made by the IRS was the creation of “Schedule LEP.” Filing this with the IRS allows the taxpayer to choose from among 20 different languages to receive written communications from the IRS in. For those working with immigrant communities in particular, I’d be sure to take note of this. I commend the IRS for making it available. The next step forward, however, would be for the IRS to do more than just allow taxpayers to make their language preference known to the IRS… It would be to actually communicate with the taxpayer in their preferred language. According to this TIGTA report that is not yet happening. Instead, all Schedule LEP does at the moment is put a notation on the taxpayer’s account for their preferred language. One hopes the actually translated letters will be coming soon.

Another win for the IRS was the popularity of IRS.gov. Fiscal year 2021 saw 11.5 billion page views, which was a 24% increase from 2020. There were also 16.8 million people using the IRS2Go app at least once in FY 2021.

Maybe this is only “kind-of” a win for empowering taxpayers, since it is entirely possible that people had to rely on the website largely because they couldn’t get through on the phone (more on that in a bit). But like it or not, the IRS is going to have to rely on a greater online presence and online capabilities as a medium for connecting with taxpayers. Further, the IRS is statutorily required to “improve the digital experience for government customers” under something called the “21st Century IDEA Act” (which I just learned of and will now reference to my students as if it is common knowledge). There are some definite caveats to this “win,” but for now let’s chalk it up as “greater online presence = progress towards empowering taxpayers.”

Lastly, and really more as a matter of statistics rather than evidence of “empowering taxpayers,” the IRS notes that more taxpayers received more good news (i.e. refunds) last filing season. The refunds were both larger and more frequent than the prior year: an 8.6% increase in the number of refunds issued over 2019 returns, and a 2% increase in the dollar refund amount.

The Obstacles:

Let’s start with the obvious. A lot of people wanted to contact the IRS and a lot of people weren’t able to. I’ll list as “obstacles” the sheer demand of taxpayers as well as actions of Congress in late-season changes to the tax code. It is clear that these were impediments to the IRS “empowering” taxpayers with information on their filing obligations.

The report notes that “individual taxpayer telephone demand” (the report isn’t clear on exactly what this entails) was 24 million, a 456% increase over the prior year. That’s a pretty big number. But the number I really found jaw-dropping was this: 2,000%. As in, there was a 2,000% increase in disconnects over the prior year. See page 19 of the report. I note the specific page because this statistic was presented in a way that made it difficult to parse exactly what sort of “disconnects” were being referred to. In any event it is not a statistic that suggests the IRS is “empowering and enabling taxpayers to meet their obligations.”

Another issue is that more people than ever are filing returns. Makes sense since more people than ever have a filing requirement or are eligible for refunds when they weren’t before. But still there are some numbers I can’t quite make sense of. In particular, I’m hoping someone can explain why the IRS would see a 17.7% increase in the number of business returns filed from CY 2021 over CY 2020. One thought I have is that this could be a product of the “start-up boom” and that 2020 apparently saw more than 4.4. million new businesses created. But I would have thought the vast majority of those would be Schedule C filers… In any event, the jump in business returns has created a ton of additional work for an understaffed IRS and is greatly exacerbated by the fact that a huge number of those returns are on paper (20.7 million of the approximately 53 million filed).

A final obstacle worth mentioning is inherent to tax: it just doesn’t translate to other languages well. As the report notes:

Automated translation of languages remains a significant challenge, even for the most sophisticated software. The level of complexity of tax terms and the need for surrounding context means that automated translation tools need to be carefully evaluated to ensure that translations reach a consistently acceptable level of accuracy for users of the translated content. This portion of the project will be ongoing for the next several years.

It’s hard work empowering taxpayers. It’s even harder when you’re trying to empower them in a different language. But my concern has less to do with translating complex English to other languages. Rather, I’m worried about the first step of translating technical tax provisions to plain English -or any language other than tax, really.

The pandemic has augmented my belief that the more people try to self-research complex issues online, the more problems arise. I cynically believe that this is unavoidable until or unless the tax code is drastically simplified -which I have no real (or politically palatable) recommendations on how to achieve. I’m sure there is value to the IRS online resources (like the “Interactive Tax Assistant”). But there are limitations and on efforts to put in simple language things that are inherently complicated -the concept of “Simplexity” comes to mind. 

My Progress Report: Big Picture Thoughts

I’m not here to pile on the IRS. In fact, until the IRS receives some modicum of the funding it needs I am not sure that I really can criticize its customer service. That the IRS is woefully underfunded is perhaps the worst-kept secret in the tax world. The Congressional Budget Office has reported on it. The National Taxpayer Advocate has reported on it. Even HBO (via John Oliver) has reported on it… way back in 2015. And it has only gotten worse.

Without a doubt, there are areas that the IRS is performing sub-optimally even given their funding problems. But for now, I’m not going to focus on them. I think it is more important to keep a focus on the elephant in the room: the IRS had fewer permanent workers in 2021 than it did in 2010.

Think about that.

Among other things, in 2010 the IRS didn’t have to worry about (1) the Premium Tax Credit, (2) the Advanced Child Tax Credit, or (3) the Recovery Rebate Credits. Each of these credits vastly expands the population of individuals that now interact with the IRS. Each of these credits also becomes very confusing very quickly -particularly with their “reconciliation” processes. Further, in my unscientific opinion, each of these credits tend to implicate demographics that are most likely to need customer service (or “empowering”) by the IRS. This is going to require a serious reimagining of the IRS and its priorities if it is a road we continue down.

Increasingly, I conceive of our Internal Revenue Code as an unholy Frankenstein (or “Frankenstein’s Monster,” to the literary buffs/pretentious readers out there). There is some vestige of the original structure and purpose, but over the years we have tacked on appendage after appendage to the point that it really isn’t one “thing” anymore. And we should probably stop pretending that it is.

Scholars sometimes talk about the historical transition of American taxation from “Class Tax” to “Mass Tax” during World War II. We are living in something akin to a third phase now. It isn’t that more people have to pay federal income taxes (“Mass Tax II”). It’s that more people than ever have to file federal income tax returns. (I tried to find something that rhymes with either “Class/Mass” or “Tax” to cleverly anoint this third phase. I failed.)

The stated goal of the IRS was to “empower and enable all taxpayers to meet their tax obligations.” I think that goal, in itself, reflects part of the problem. In this third phase, I would bet so many of the phone calls the IRS gets have nothing to do with trying to “meet their tax obligations.” They have to do with receiving their tax benefits. The IRS (and perhaps Congress) needs to begin conceptually separating “delivering tax benefits” as distinct from “meeting tax obligations.” See Nina Olson’s post, walking through some of her advocacy efforts on that sort of reorganization.

Frankly, I have some reservations about the choice to go down that road with the tax code. But at this point one must acknowledge that we’ve already taken so many steps down it to begin with.

About Caleb Smith

Caleb Smith is Associate Clinical Professor and the Director of the Ronald M. Mankoff Tax Clinic at the University of Minnesota Law School. Caleb has worked at Low-Income Taxpayer Clinics on both coasts and the Midwest, most recently completing a fellowship at Harvard Law School's Federal Tax Clinic. Prior to law school Caleb was the Tax Program Manager at Minnesota's largest Volunteer Income Tax Assistance organization, where he continues to remain engaged as an instructor and volunteer today.

Comments

  1. Mandi Matlock says

    Great post, Caleb. I think you should solicit suggestions for a clever moniker for this (decidedly real) 3rd phase. The 3rd phase has been well underway since inception of the EITC. And even as IRS duties to deliver social benefits to taxpayers continue to snowball, IRS and Congress (when it talks about funding) remain stuck on the very limited idea that the IRS function is to ensure tax compliance.

  2. Anthony Rodriguez says

    The myth of the IRS as an underfunded agency will be with us as long as the IRS remains in existence. The unstated goal of the IRS and most important one is simple, “ spend every penny in the budget as quickly as possible so we can ask for more next year “. A subgoal is “follow every rule to the letter and maximize expenditures on the simplest tasks”. Government agencies can all show how their allotted taxpayer funds have been spent, with impressive charts that appear to show all the details. Just don’t look past the impressive sounding jargon and drill down to specifics. Proper planning and responsible execution eludes most government agencies but especially the IRS. It seems like most agencies are in competition with each other to see who can be the biggest engine of inefficiency, the IRS is winning. Sadly, the taxpayers are losing.

    • Caleb Smith says

      Hello Anthony,
      By your own test, however, it appears that the IRS is losing, not winning. You argue that the IRS will spend every dollar it gets (I’d agree with that) as quickly as it can (I’d reserve judgment on that) with the goal that by burning through the budget it can get a larger amount of money the next year… Only as noted before the IRS budget keeps actually going down (as detailed here [https://budget.house.gov/publications/report/funding-irs] among many other places). So clearly the goal of spending too much too quickly and asking for more hasn’t worked, at least for the last (literally) decade. Or perhaps the IRS just hasn’t learned that the approach you outline isn’t a “winning” approach year-over-year for the last (again, literally) decade?

      As for your contention that we should drill further and look to the specifics of the IRS budgeting and expenditures, I fully agree with you. I would almost guarantee there is a good deal of inefficiency. It would be a tremendous help to tax administration (and the tax community), however, if instead of just alluding to “the specifics” you actually provided them. I would truly welcome any contribution that detailed, specifically, where the IRS is inefficiently spending money and how it could be better spent. But just saying that the IRS (and “most government agencies”) should “be more efficient” is (to use some jargon) “magical thinking” when it isn’t accompanied by actual proposals for how that increased efficiency is to be attained.

      Just my thoughts. I apologize if they come off as combative, but I do think the funding of the IRS (be it too much or too little) is an important topic that deserves serious consideration rather than just talking points. I’d be interested to hear more of the specifics that you allude to.

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