IRS: Amid 'hectic' Presidential transition, 'a steady hand' moves taxes online

John Dalrymple, deputy director for the Internal Revenue Service's Enforcement office, was in Wilmington ("America's Corporate Capital") Tuesday to preach at and field questions from a crowd of tax lawyers at the University and Whist Club, in a talk for the Widener Institute of Delaware Corporate and Business Law.

 "It's been an incredibly hectic time in Washington as the government transitions to the next administration," said Dalrymple, who has been a senior IRS executive since returning to the agency in 2006 after a three-year stint at Deloitte.

"During Presidential transition periods, the IRS remains focused on serving the American taxpayer. Our day to day operations are run by career professionals. Our only political appointee is the Commissioner.

"That's very unique in government. (In other agencies) many layers of management officials leave the government every four years on Jan. 20th. Our commissioner (John Koskinen) has an appointment til next November. He is the only leader who will change at that point...

"The bottom line for the IRS and the administration has been an incredibly steady hand.

"We've had some difficulties in the budget. Our budget has been cut by over $1 billion since 2010," even as the agency has been implementing "taxpayer service telephones, ID theft protection and an increase in cybersecurity...

"Theft protection and cybersecurity are huge concerns. Last year we had less than half as many affected as in prior years. It's clear these investments yield pretty big dividends.

"We've brought in folks from the software industry to focus attention on ID theft. We expect to continue that partnership and have a very big impact this coming year

"We're still not sure what our funding is going to be for 2017. Our Continuing Resolution runs through Dec. 9.  It appears as though we'll be under a Continuing Resolution at least until March. They'll probably not pass a (full U.S.) budget in a lame-duck session. It's not impossible...

"Three years ago we started thinking more about, 'What should taxpayers expect in terms of IRS services and interacting on a regular basis?' We set up teams within the IRS. The Services group. And the Compliance Activities group.

"We learned there was an awful lot of overlap between the two... So we went to find some basic opportunities for taxpayers to interact with us, which had not been available online. We authorized taxpayers (to access IRS systems) online. The first iteration we lanuched this week. In a soft launching.

"Compliance (systems are beind developed) to identify anomalies in tax returns in the future, for corporations and individuals. In Return Review, we've been using (software) for fraud detection and ID theft. This will broaden into a much larger Anomaly Detection (program). 

"Over time, through filters, this will enable us to see more clearly anomalous returns. We'll communicate with taxpayers as close to the point of origin as possible and ask them to take a close look and make sure we don't have an error. They'll be able to get into online account and let us know they are comfortable. 

"If they find the problem they'd be able to get into the account and offer up an amendment online. If we accepted (the taxpayer's online solution recommendation) we'd be able to be done with that account."

No more letters, no more weeks-long delays. "This is how we view the future of tax administration...

"That's not to say we have this all figured out. We need to get this right as we go forward. 

"We have a spot on the website that talks about how we view the future. We ask for feedback from practicioners and taxpayers.

"International tax is an incredibly active area for us. I've been amazed in the rapid change of global tax administration in the last several years.

"We participate in the [Organization for Economic Cooperation and Development] forum on tax administration. It's given us a chance to see how tax administrators all over the world have been driving much of the change in (the way taxes are collected)... 

"One of the most interesting developments is the growing level of cooperation...  to make sure that international companies comply with tax regulations in jurisdictions where they operate.  The key is the ability to exchange information. 

"There was a lot of international angst about what (the U.S. Foreign Account Tax Compliance Act) meant. It's incredible how fast the other countries have jumped on board with the concept and have added their own requirements in reporting and are now our full partners.

"If we had the cooperation we have now we wouldn't have needed FATCA in the first place... If you think about the global economy, very few companies operate just within the borders of one country.

"If you're a company and you are faced with double taxation, there are places now where you and your government can go to appeal. There are processes that allow us to negotiate with other countries about where those taxes should be paid.

"Those processes are going to have to get a lot more sophisticated. We have to make sure the way other countries treat U.S. companies are fair. 

"The U.S. is one of the first countries doing peer review of our math processes. And they will be peer-reviewing ours. We'll (make sure) all the countries engaged will have a fair amount of comfort that all the companies are paying by the same rules. Which is going to be absolutely critical."

A lawyer asked: When are online returns coming?

"I dont see any reason why we couldn't get there. We rely on the software companies. We (at IRS) don't develop or prepare any tax software. That is not something we have envisioned at this point. Some brilliant person will develop software that will be very simple to do. 

"For now we rely on the Intuits and the H&R. Blocks of the world. We work in partnership with them. At this point in time we do not want to be in the software development business. We want to be in the tax administration business.

"But who can say, in five or six years, (that IRS might) be the place where people can file directly their tax return (online) like they can on paper?"

Asked about the India-based fraud ring, in which dozens of people were arrested earlier this fall and charged with conning gullible Americans into sending tax payments in the form of charged iTunes cards: "We would never take an iTunes card to collect taxes. A lot of this caught us by surprise. Nobody thought someone would impersonate the IRS to get refunds.

"We're been reacting. We have to get out in front as we develop these other applications. We've thought very hard how to get this right."
 
In sum: "There are many, many ways to put false information on tax returns. That's why our anomaly detection is so important."