Technology and Tax Administration: The Appeals Virtual Service Delivery Program

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It is no wonder that many taxpayers facing IRS correspondence examinations fail to respond, even those whose returns may be  correct as filed. The mix of correspondence examinations, lower-income taxpayers with challenging personal circumstances like literacy and language barriers and inflexible work schedules makes audit participation a dicey proposition. It is also no wonder that even in the National Research Program EITC audits I wrote about last week where there is a concerted effort to reach taxpayers for an in person audit about 15% of taxpayers fail to respond.

The use of Campus Appeals in cases coming out of correspondence examinations compounds the problems that many taxpayers face, especially lower income taxpayers. Many taxpayers who have tried to participate in examinations but who have failed to resolve the matter may find the same frustration in dealing with Appeals. Rather than offering face to face conferences with taxpayers, the norm is remote Appeals Campus proceedings, done with phone calls and more correspondence. For many taxpayers, especially the working poor, the process often leads to frustration in the form of delayed refunds or, even if the return as filed was incorrect and no refund is due (or has to be repaid), a lack of understanding as to why the return is wrong. To be sure, low income taxpayer clinics and the Taxpayer Advocate Service can help, but those safety valves also come with their own barriers, including, for example with clinics, availability and location of the office relative to the taxpayer.

Is help via technology on the way? Well, the IRS does not have a great track record when it comes to using technology and its ability to maximize customer service. For example, last year’s annual TIGTA review of IRS information technology while noting improvements still classified the IRS’s modernization program a “major risk.” When I think about how technology has radically altered so much of my world, I wonder when the technology revolution will revolutionize tax administration and compliance beyond e-fling. With that in mind, I am curious about the Appeals Virtual Service Delivery (VSD) program and how distance technology may help overcome some of the barriers that so often prevent people from participating in the compliance process.

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Just this past July, IRS issued guidance about VSD in the form of a memo called “Implementation of Virtual Service Delivery” to all employees discussing the program (hat tip to the September Deloitte Insights Newsletter which described the memo). The memo details some of the rules Appeals employees must follow in setting up the virtual conferences and discusses how the virtual conferences are to be conducted.

What is VSD? Here is what Appeals says:

VSD uses teleconferencing technology that permits parties to conduct face-to-face meetings from remote locations. VSD technology is installed in a number of IRS locations known as VSD “support” sites, including all six Appeals campus locations, which Campus ATEs can use to conduct VSD teleconferences. VSD technology is also installed in a number of “customer-facing” sites, where taxpayers and representatives can conduct VSD teleconferences. The customer-facing VSD sites include some IRS posts of duty, partner sites, and two Low Income Taxpayer Clinics (LITCs).

According to the memo, in cases not involving frivolous matters the Appeals campus “will offer a taxpayer or representative who requests a face-to-face conference the option of a VSD teleconference, when the taxpayer is located within 100 miles of a customer-facing VSD site.” Two of the “customer facing sites” are tax clinics; other locations include posts of duty and what Appeals calls partner sites.

The day may come when technology has advanced and all people may interact with IRS compliance functions right from their laptops but until that day VSD offers opportunities for people who are eligible for the service and who can find their way to VSD sites the experience of talking to a person, even if just on a monitor. The memo makes clear that IRS is prohibited from referring people to specific clinics (an issue Keith discussed and criticized earlier this year in his post Does Treasury’s Policy Restraining Referrals to Low Income Tax Clinics Harm Individuals and the Tax System?) though I guess Appeals could let someone know that a VSD location at a clinic is available if it is near the taxpayer. Use of VSD technology at clinics is dependent on the clinic representing the taxpayer using the service, which as I mentioned above is subject to issues such as clinic availability. I am not sure about some of the other VSD partner sites, but I know IRS has been heavily criticized for cutbacks in some of its old fashioned Taxpayer Assistance Centers. Those have been subject to major budget cuts and a retrenchment in services that the IRS offers. (TIGTA did a nice summary of TAC struggles in a report this past June).

I have not seen stats or even anecdotal evidence about the VSD platform. It occurs to me though that the technology can be very helpful as a way to exchange information that would otherwise not be available and also allow an Appeals employee to perhaps gauge credibility in a way that documents alone may not get across. For example, in some cases, taxpayers may not be able to get documentary evidence that Appeals and the correspondence examination have requested to corroborate a position, or correspondence and documentation may not be complete or is inconsistent in some way. The ability for a taxpayer or representative to explain documents in person might be best, but VSD technology allows potentially for a more robust means of exchange as compared to telephone conversations or letters alone. Moreover, allowing Appeals to view either the taxpayer (or potentially a witness) may help with issues where otherwise Appeals may choose to defer credibility determinations to a court.

In addition, in CDP cases a few circuits have parted with the Tax Court in Robinette v Commissioner  and have held that the Tax Court should not routinely allow supplementing the record in CDP cases that do not involve liability. I am not sure that Appeals will record the VSD meetings as a matter of right or even on request. However, as there are many disputes about what the record is in these cases and at least some circuits not agreeing with the Tax Court’s view in Robinette that the court can allow a taxpayer to introduce evidence outside the administrative record, this technology may facilitate a cleaner court review of those cases.

I reached out to Professor Scott Schumacher, Director of the University of Washington Graduate Tax program (and guest blogger here on PT), whose LITC is one of the two LITC facing sites. Scott’s comments are generally positive, though he thinks that “the IRS could do a better job of coordinating cases and getting more use out of the VSD system.  To be fair, since we are in Seattle and our local appeals office is just a few miles away, we often have real face-to-face hearings instead of remote hearings.”

On the positive side, Scott thinks “VSD has amazing potential.” According to Scott,

The technology they use is of very high quality.  Images are in high definition, the camera is adjustable so that documents can be viewed, and the IRS even added a document reader to aid in viewing receipts and other records.  It really does replicate a face-to-face hearing quite well.

And that’s the key.  The VSD changes the dynamic of a remote hearing.  Seeing the person, reading their body language, and being on the same page with record review (literally!) does make a difference.  Even in our preliminary discussions with IRS campus personnel where we set up the protocols for the appeals, our interactions were much more cordial over the VSD system than on the telephone.

The tax system and Appeals in particular has changed dramatically over the past thirty years in terms of the types of issues and cases in its dockets. Technology is available to allow people to interact with compliance functions beyond what is the norm. Remote video access has the potential to transform tax administration and bring taxpayers and the IRS together in a time of tight budgets and many challenges that permeate the system as is.  I suspect we are just starting to see the transformative possibilities that technology will play in tax compliance.

About Leslie Book

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

Comments

  1. I remember about seven years ago, when the IRS started sending S cases to Appeals at Campus Service Centers, how useless those Appeals conferences became. Two of my S cases did not settle at Appeals, but they got kicked back to Counsel, which settled the cases after in person meetings among the lawyers and the taxpayers. When I mentioned this to a senior person at Counsel (whose name I will not mention), that person said that Appeals’ cost-saving by sending S cases to campuses was really just pushing the cases to higher-paid counsel to deal with — leading to a net increase in IRS expenditures to resolve S cases. I fear the use of videoconferencing at Appeals will lead to more expense for the IRS (with terminals at the campus and elsewhere for room rental) than would be saved by merely assigning more Appeals Officers back to the local offices.

    I never had a teleconference with the IRS. But, last week, I had my first teleconference deposition. It was in a dependency exemption refund lawsuit where the taxpayer repeatedly told the IRS that she could not get third-party documentation of her young dependents’ addresses (e.g., school or doctor letters), but no one else claimed the dependents, and several people were willing to testify as to where the children lived. The IRS would not grant the refund claim, and no Appeals conference was offered, so we sued in the EDNY. Because of the small dollars involved in the case, the DOJ attorney stayed in Washington and set up a videoconference deposition, with the taxpayer’s now-adult son and the taxpayer’s lawyers (us) sitting in a conference room in the US Attorney’s office in Brooklyn, together with a government-paid stenographer. While the deposition went well, and I agree that there was better interaction over the video than there would have been over the phone, I fear that this involved a huge waste of technology and expense by the IRS. If Appeals would just have had the taxpayer and her son in for a chat at a local office, this case (and attorney involvement) could likely have been avoided.

    I know that Congress is right to insist on some substantiation for dependency exemptions and related credits, but the use of local Appeals people to resolve cases in person should be enough. The IRS is being penny-wise and pound-foolish in its use of this technology and insistence that Service Centers provide Appeals conferences.

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