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Shulman Reviews His Five Years With The IRS

by Mike Godfrey,, Washington

12 November 2012

Shortly before his tenure ends on November 11, Doug Shulman was able to review his five years as United States Internal Revenue Service (IRS) Commissioner during remarks to a meeting of the American Institute of Certified Public Accountants in Washington.

He emphasized that, during his tenure, he had concentrated on a handful of strategic priorities, including the creation of “breakthrough strategies” to combat international tax evasion; transform the IRS’s relationship with corporate taxpayers; rethink its relationship with paid tax return preparers; leverage data analytics for continuous improvement; and drive efficiency and taxpayer service improvements.

On the international front, Shulman said that the IRS has faced significant compliance challenges, with both corporations and individuals operating globally, as corporations seek out new markets and individuals have global exposure through their investments, including retirement accounts.

With regard to individuals, the IRS has made “putting a big dent in offshore tax evasion” a major priority. Over the past five years, the IRS has focused on such tax evasion, with significant results – including its work on Swiss financial institutions, providing thousands of names and account numbers, and its voluntary disclosure programmes, under which, so far, some 38,000 individuals have come forward and USD5.5bn has been paid in back taxes and penalties.

He confirmed that the IRS is “mining the information we have received" and has launched its next wave of investigations on banks, bankers, intermediaries and taxpayers.

Above all, he believed that the IRS has now “fundamentally changed the risk calculus of taxpayers who are thinking about hiding their money overseas, and we are well on our way to deterring the next generation of taxpayers from using hidden bank accounts to cheat on their taxes”.

With regard to the IRS’s relationship with corporate taxpayers, he admitted that, previously, it had been “frequently unconstructive,” being based on the “so called adversarial relationship” between the IRS and the taxpayer. He hoped that the past “unproductive” relationship had now changed significantly.

Shulman noted that the tools used by the IRS were now different – including the CAP programme, where the IRS works with corporate taxpayers to resolve all issues before a tax return is filed, including the fast track appeals process, where the IRS moves its administrative appeals process into an audit to try to resolve issues when they arise; and the industry issue resolution programme, where the IRS produces guidance to taxpayers, mostly in the form of safe harbours, so they need not worry about later controversy.

The IRS has also asked corporate taxpayers to be more transparent by disclosing their uncertain tax positions, which they book as reserves on their financial statements.

“The end game is a more productive relationship,” he said, “which allows us to focus on corporate taxpayers and issues that pose the greatest compliance risk - and not spend time on taxpayers who pose a lesser risk of non-compliance.”

The IRS has also had to change how it interacts with paid tax return preparers, with more than nine out of 10 taxpayers using a paid tax preparer or tax software. Given the importance of paid return preparers to the integrity of the US tax system, the IRS is “now well into the process of ensuring a basic competency level for tax return preparers and focusing our enforcement efforts on rooting out unscrupulous preparers. We have registered over 850,000 return preparers.”

In a similar fashion, the IRS has had to restructure its analysis of the information it receives – “it can show us the areas of greatest non-compliance ... and thereby, contribute to more efficient and effective compliance programs”.

For example, Shulman disclosed, through the better data on tax return preparers gained by its return preparer initiatives and the faster processing cycles achieved through its technology modernization, the IRS ran a relatively small pilot applying advanced data analytics to link tax returns that showed potentially serious compliance issues, and thereby generated almost USD200m of savings on improperly claimed Earned Income Tax Credit and Child Tax Credit/Advanced Child Tax Credit.

He commented that “this is one part of a greater trend of success the IRS is having in implementing new filters to detect fraudulent returns and new processes for handling returns”. He confirmed that, overall, the IRS has already stopped approximately USD19bn in fraudulent tax refunds this year as compared with USD12.5bn over the same period last year, and only USD2.4bn for all of 2009.

Finally, he pointed to “quality customer service” as one of his key priorities. In 1998, the IRS “hit rock bottom,” he said, with only 32% of respondents to the American Customer Satisfaction Index survey voicing satisfaction with the agency. However, for 2011, the Index survey of individual taxpayers showed satisfaction with the tax filing experience reaching 73%.

TAGS: individuals | compliance | tax | business | tax compliance | corporation tax | tax credits | Internal Revenue Service (IRS) | enforcement | tax authority | offshore | United States | penalties | individual income tax

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