IRS Digital Communication Pilot: Digital Divide and Tax Administration

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Last week Bloomberg reported that IRS officials are expanding the Taxpayer Digital Communications pilot, which was launched in late 2016. The pilot program allows taxpayers to respond to correspondence audits electronically through a secure portal rather than by regular mail or fax. According to Bloomberg[$paywall], IRS has tested the program with audit correspondence from the Philadelphia Service Center and will add the Brookhaven Service Center to the pilot program next year.

The IRS has noted that there was over an 80% satisfaction rate among taxpayers who used the digital communications tool. The take up rate was relatively low, however, with 3,000 taxpayers opting in out of 28,000 invited. On the other hand, the default rate is quite high for correspondence examinations; it is not clear how many taxpayers who chose not to opt in continued participating in the audit process.

The brief Bloomberg article notes that the pilot actually added about an hour of IRS employee time to resolve a case; to me that is an interesting metric but key questions left unaddressed include whether the program will facilitate IRS and the taxpayer getting to the correct outcome, and the amount of time saved in closing the case from start to end.

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The same week that the Bloomberg story came out the New York Times reported that Microsoft has released a study showing the digital divide is much worse than the government has previously reported.  Access to broadband, according to Microsoft, is unavailable to over 168 million Americans, while the FCC claims that broadband is unavailable to only 24.7 million. The Microsoft study relied on actual speeds of people using its products.

To be sure, Microsoft has a vested interest in this discussion, as greater access to broadband makes its products and services more likely to be purchased. Yet, independent researchers have documented the difference in access to broadband and also detailed differing preferences and abilities for use of differing technologies (a good place to look at this research is the Pew Research Center on Internet & Technology). Access varies greatly by region; for example as of about a year ago Cleveland.com reported that about 1/3 of city residents had no access at all to internet in any form. New census data shows a stark digital divide within the city of Philadelphia, where neighborhood broadband access rates range from a shocking 37% to a high of 89%.

When it comes to use of technology, the IRS is playing catch up compared to many other tax administrators and the private sector. My sense is that the agency’s reflexive starting point with the adoption of technology is the possibility of efficiency gains. This is especially important to an agency that has faced serious funding shortfalls. To that end see this week’s  terrific piece in Pro Publica by Paul Kiel and Jesse Eisinger that highlights some of the recent IRS budget history and steep decline in many enforcement metrics. A companion Pro Publica piece quotes clinicians and guest posters Michelle Drumbl and Mandi Matlock discussing the burdens that EITC recipients face in light of the continued drumbeat for EITC audits while audit rates for all but the very rich continue to plummet. No doubt that for the IRS the allure of doing more with less is hard to resist.

Technology access and the skills to use new technology, like other resources, are unevenly distributed in America.  While the new technology holds great promise for the IRS and taxpayers, some of the greatest challenges the IRS face in the next decade include evaluating how the adoption of new technology relates to fundamental taxpayer rights as well as traditional tax procedure principles that have their origin in a paper-based tax system.

The National Taxpayer Advocate has been focusing on this for years, including her series of public hearings gathering information to inform IRS as it plans its Future (soon to be present) State and on more technical issues like the need to think about how the mailbox rule of Section 7502 intersects with digital communication. We are just scratching the surface on these issues.

I hope that the IRS and Congress consider all taxpayers’ perspectives, including the many low and moderate income taxpayers who increasingly rely on the safety net now increasingly found within the tax code, when evaluating and developing any IRS technology roll out. That will require a holistic view of taxpayers, and one that focuses on more than IRS employee hours per case resolution as compared to whether the technology facilitates reaching the correct outcome. In considering taxpayer service the IRS should understand the key role that taxpayer rights play in ensuring sound tax administration.  Relying on the supposed efficiency gains of technology can lead to a two track system of tax administration, and one that will exacerbate inequalities and unfairness associated with being poor.

Leslie Book About Leslie Book

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

Comments

  1. Kenneth H. Ryesky says

    Expatriate Americans such as myself have a special interest in consistent and fair rules for timeliness of electronic transactions with the IRS.

    • Norman Diamond says

      “Expatriate Americans such as myself have a special interest in consistent and fair rules for timeliness of electronic transactions with the IRS.”

      Some of us have a special interest in consistent and fair rules for timeliness of ordinary transactions with the IRS, for example:
      – a mailbox rule that will apply to mailing where the person lives;
      – deadlines that don’t expire before the reasonably calculated delivery of IRS notices (Notices of Deficiency are the only ones that have such extensions);
      – changing the IRS’s contract with ATT so the IRS will accept taxpayers’ obedience of instructions in IRS letters to make toll free calls;
      – providing addresses of the Director, Foreign Operations District and the Washington, D.C. Appeals Office of the Mid-Atlantic Region which are named in CFR’s;
      – acting on Form 8822 change of address notices instead of ignoring them;
      etc.

      And for that matter, getting an audit when we need it, instead of getting unhelpful notices that don’t explain why the IRS is attacking us.

    • Norman Diamond says

      Speaking of electronic transactions: The Electronic Tax Law Assistance program used to let expats submit questions through a web page and the IRS used e-mail to state their refusals to answer questions (for example when I gave my address in Ome City, Tokyo and asked for the address of my Local Appeals Office). The IRS ended the program.

      https://www.irs.gov/newsroom/national-taxpayer-advocate-reviews-filing-season-and-identifies-priority-areas-and-challenges-in-mid-year-report-to-congress-2016

      “Taxpayers located overseas generally cannot call U.S. toll-free telephone lines. Almost two years ago, the IRS closed the last four tax attaché posts abroad, eliminating face-to-face service as an option. For the 2016 filing season, the IRS eliminated its Electronic Tax Law Assistance program through which taxpayers could submit tax-law questions to the IRS and receive a response via email.”

  2. Rochelle Hodes says

    This topic is very timely. While the some of the comments here focus on moderate and low income taxpayers, practitioners have had to adjust to new technologies when communicating with LBI Exam and Appeals as well. At the ABA Tax Section Mid-Year Meeting in New Orleans, I will be moderating a panel on this topic at the Administrative Practice Committee meeting at 10:30 am on Friday January 18, 2019. We’ve got a great panel of government speakers and private practitioners. Please join us.

  3. Norman Diamond says

    “Access to broadband, according to Microsoft, is unavailable to over 168 million Americans, while the FCC claims that broadband is unavailable to only 24.7 million. The Microsoft study relied on actual speeds of people using its products.”

    The way this is described, Microsoft overcounted but the FCC’s more accurate count is meaningless. For example an ADSL connection might be “maximum 8Mbps download and 0.5Mbps upload” but “at this moment actually 0.1Mbps download and 0.01Mbps upload”.

    I have a sneaking suspicion that they both neglected to count Americans who are subjected to Cook v. Tait. Some live in countries with excellent connectivity but some don’t.

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