Speaking on a panel this morning at the New England IRS Representation Conference, several Washington IRS executives discussed the Service’s current initiatives. We heard from Mary Beth Murphy, Deputy Commissioner, Small Business/Self-Employed Division; Rajive Mathur, Director of Online Services; Carole Madison, Acting Director of Examination, North Atlantic Region; and Darren Guillot, IRS Director of Field Collections. Below are some of the highlights from their discussion.
Employment Tax Compliance
As we have discussed before, one of the IRS’s stated enforcement priorities is employment tax compliance. According to Mr. Guillot, employer withholding of income and payroll taxes accounts for approximately 70 percent of the nation’s tax revenue. Given the importance of employer withholdings to the public fisc, the IRS is focusing its “dwindling resources” on combating employment tax noncompliance. Mr. Guillot also stressed that the IRS also is focusing on employment tax compliance to ensure an even playing field for businesses, preventing noncompliant businesses from obtaining an unfair advantage over those paying withheld taxes to the IRS, rather than using it to fund business expenses or artificially increase profitability.
Mr. Guillot detailed the IRS’s initiatives designed to more effectively address employment tax compliance issues in what Mr. Guillot termed a “low resource environment.” As discussed below, the IRS is becoming increasingly proactive in this area, attempting to identify problems while they still can be corrected, and leveraging technology to respond to enforcement challenges with reduced personnel and budgetary constraints.
- Federal Tax Deposit Alert (FTD Alerts) Early Intervention Initiative: The Service has been further developing its predictive algorithm that attempts to identify employers that fail to deposit withheld funds. The algorithm not only detects discrepancies between current deposits and the employer’s past deposits, but also employs other variables to increase the accuracy of its predictions regarding potentially-noncompliant employers. The algorithm is still being tweaked and Mr. Guillot reports that the Service expects its predictions to become increasingly accurate and therefore increasingly useful to the Service.The IRS uses the algorithm’s results to quickly resolve potential employment tax problems by reminding the identified employers of their obligation to withhold and pay over funds to the Service, in a bid to avoid lengthy and formal resolution down the road. According to Mr. Guillot, the IRS is using multiple methods to spur compliance, including in-person visits, automated telephone calls, and so-called “soft notices,” i.e., letters. The IRS has found soft notices to be a useful tool and has increased use of soft notice FTD Alerts 40 percent over the past year.
- Electronic Federal Tax Payment Services (EFTPS) Early Alerts: The IRS is working to improve its notification system regarding deposits and anticipates that by early 2017 the system will be able to determine within 48 hours whether a business failed to make a required deposit. This will allow the IRS to engage with the taxpayer more quickly, either through an in-person visit, pre-recorded phone call, or soft notice, and remind employers who missed the deadline due to procrastination, inadvertence, or other reason to come into compliance quickly. Mr. Guillot stressed that this early alert system enables the IRS to “get ahead of problems,” which is critical given the Service’s diminished manpower.
- Mitigating Risk of Using Third-Party Payroll Services: Mr. Guillot identified several IRS initiatives aimed at preventing noncompliance and fraud by third-party payroll services. Recognizing the practical value to employers of outsourcing payroll services, Mr. Guillot stressed that the IRS is developing tools to protect employers utilizing these services. Specifically mentioned were the Service’s Dual Notice Initiative, which provides notice of requested address changes to both the taxpayer’s old and new address, which enables the taxpayer to make sure that address changes were authorized, and the development of e-mail notifications regarding payments made to the IRS, which enables employers to determine that the payroll service providers actually are making required payments.
Digital Communications Between IRS and Taxpayers
As many who have dealt with the Service know, the IRS cannot engage in substantive communication with taxpayers or their representatives via e-mail given concerns regarding data security and taxpayer privacy. Recognizing that taxpayers and their representatives are used to doing many things online securely, Ms. Madison and Mr. Mathur discussed an important development – the planned creation of a secure, two-way messaging platform to facilitate communication between the IRS and taxpayers or their representatives. Although still in the early stages of development, Mr. Mathur stated that the Service hopes to launch a pilot test program of the platform in 2016 that will involve a limited number of taxpayers.