Introduction/Executive Summary The IRSAC Wage & Investment Subgroup (hereafter “subgroup”) is composed of a diverse group of tax professionals including, attorneys, enrolled agents, educators, general tax practitioners, and persons with financial backgrounds. The members of this group have a wide range of experience in taxation, including both preparation of tax returns and representation of taxpayers. We are honored to serve on the IRS Advisory Council and appreciate the opportunity to submit this report. The Subgroup would like to thank W&I Commissioner Debra Holland for her recognition of the value of the Subgroup as an integral part of her leadership team. The Subgroup has had the privilege of working with the professionals within the W&I operating divisions of the IRS and found them to be helpful in providing the information, resources, guidance, and IRS personnel necessary to develop our report. We also appreciate the support provided by our designated liaisons who did a masterful job at navigating the IRS and ensuring that we generally had access to the necessary information to develop our analysis and issue our report. The Subgroup has researched and is reporting on the following three issues: 1. Changing Behavior of Taxpayers who electronically Prepare Their Tax Returns but Paper File The Subgroup was requested to provide input on how to reduce the number of individuals who file paper returns which they have prepared electronically. Recommendations include developing a 5-year media campaign that continues to increase electronic filing; encouraging employers to offer tax preparation software to employees which will aid in promoting e-file; encouraging software providers to include e-file as a Federal/State package so that users can e-file Federal & State Returns together; expanding the number of self-preparation kiosks in the Taxpayer Assistance Centers throughout tax season, including the extension period (the availability is pivotal for those taxpayers who have a limited or no computer access); producing and mailing postcards to paper filers only to emphasize the benefits of Free File and e-file; highlighting the expanded amount of allowable Adjusted Gross Income for no-cost federal filing in advance of the upcoming tax filing season; and alerting those outside the allowable income amounts of the option of Free File Fillable Forms that may be sent directly to the IRS for faster processing. Additional recommendations are listed in the body of this report. Furthermore, it is recommended that funding and support be increased for the VITA (Volunteer Income Tax Assistance) Program to increase the number of sites, which will also increase electronic filing. The Subgroup would like to recognize the progress and accomplishments the IRS has made in the individual identity theft prevention program. The Service has initiated additional filters and other analyses to prevent erroneous refunds, while simultaneously protecting legitimate taxpayers. 2. Improving Compliance Services Collections Operations (CSCO) Customer Satisfaction The Subgroup was asked to look at ways the IRS could improve the CSCO customer satisfaction. The most recent survey results indicate a statistically significant drop in customer satisfaction this past tax season. Major recommendations include developing an online status web tool on the IRS website. This would relieve some anticipation taxpayers face waiting for an IRS response and possibly reduce the amount of phone calls as well. The online status web tool could be integrated with “Where’s My Refund” and other online status web tools to enable taxpayers to review their entire status at one time. The IRS should improve notices within and outside CSCO by simplifying the language and adding an amortization table or similar information (see report for an example). IRS should explain to taxpayers that the $43 (Low Income), $52 (Direct Debit Installment Agreement), and $120 (All others) Installment Agreement Origination User Fees charged to them for setting up an installment agreement cover a portion of the roughly $300 in costs that at the IRS incurs to process their Installment Agreement. An informed Taxpayer will appreciate the manner in which installment agreements are managed. 3. Improving Automated Underreporter (AUR) Customer Satisfaction The Subgroup was asked to identify ways the IRS can improve the AUR customer satisfaction rate. Although the AUR program has no control over the document matching timeline, the taxpayer’s goal is to resolve the case as timely as possible. It is recommended that the AUR program apply process analysis management principles by flowcharting the entire AUR workflow to identify relevant measurement points that would lead to revealing areas of improvement to implement. The Service should also consider developing an online status web tool for taxpayers, similar to “Where’s My Refund”. Other recommendations support additional funding, correspondence review for clarity, and practitioner and employee group focus interviews. Issue one: Changing behavior of taxpayers who electronically prepare their tax returns but paper file Executive Summary The Subgroup was asked to provide assistance by developing guidance for changing the behavior of taxpayers who electronically prepare their tax returns but paper file. Although there has been a slight increase in electronic submissions through e-filing, there remains diminished access to computers or smartphone devices preventing a greater number of taxpayers to prepare and file their returns electronically. Other factors that impede the growth in e-filed returns include cost factors, personal tax data safety concerns, and security. The use of tax preparation software while efficient to those of us who are practitioners, can often impede electronic preparation where a lay person is concerned. Background Taxpayer concern has revolved around data security as the primary issue because it does not avoid electronic submissions via an intermediary rather than directly to the IRS. For this reason, at minimum, it is essential to this entire process to present and require a consistent message indicative of the stringent standards and safeguards placed on external stakeholders covering federal tax data. E-filing offers taxpayers a cost effective, faster, and more direct mechanism by which to transmit their return to the IRS and receive refunds promptly. E-file is more secure than mailing a tax return, as a paper return is cumbersome and susceptible to intrusion, lost pages, and technician misinterpretation. Electronically filed returns submitted through highly secured and encrypted transmission systems that prevent data breaches are inputted directly into processing systems without any human intervention. The IRS system employs multiple firewalls, state-of-the-art virus, and worm detection, and its system is constantly monitored for weaknesses by penetration testing, which bolsters taxpayers’ confidence. Although a paper option remains available, customer conversion to e-file is possible. In order to begin the process of accomplishing the IRS objectives, we suggest the incorporation of the following recommendations. Recommendations Develop a 5-year media campaign that continues to increase electronic filing. This campaign should include using multiple media outlets that showcase the benefits of e-filing in all aspects by engaging taxpayers in using the IRS website. That means, marketing the website so that taxpayers get accustomed to using it as a resource for information that will serve their needs. Promote and expand the explanation of the safety of personal data transmission and accuracy of e-file, via on-air Public Service Announcements with Public Access Television, Print, Radio, and social media outlets. Encourage Tax Preparers to offer free electronic filing in their individual offices. Encourage employers to offer tax preparation software to employees which will aid in promoting e-file and/or Free File. Additionally, employers could be encouraged to put a Free File link on employee pay stubs. Encourage software providers to include e-filing as a Federal/State package so that users can electronically file Federal & State returns together for one cost. Expand the number of self-preparation kiosks in the Taxpayer Assistance Centers throughout tax season including the extension period. The availability is pivotal for those taxpayers who have limited or no computer access. Produce and mail postcards to paper filers only, which will emphasize the benefits of Free File and e-file, highlighting the expanded amount of allowable Adjusted Gross Income for no-cost federal filing in place for the upcoming tax filing season. For those outside the allowable income amounts, indicate the option of Free File Fillable Forms which may be sent directly to the IRS for faster processing. Reiterate through on-line resources that balance due returns submitted through electronic means do not require immediate payment, but allow a grace period until the last day of the tax season. Increase funding and support for the VITA (Volunteer Income Tax Assistance) Program to increase the number of sites and returns that are filed. Issue two: Improving Compliance Services Collections Operations (CSCO) customer satisfaction Executive Summary The W&I Subgroup was requested to provide input on ways the Service can improve the CSCO customer satisfaction. The issues that appeared to frustrate the taxpayers most were: (1) Difficulty understanding notices; (2) The amount of time it takes CSCO to initially contact taxpayers about delinquent accounts; (3) The amount of time it takes CSCO to respond to communications and installment agreement requests from taxpayers; and (4) The wait time it takes to reach the IRS by phone after receiving a notice. Background To operate successfully and build customer satisfaction, it is imperative that CSCO coordinate directionally and work with other divisions of the IRS. Many of these issues are outside of the CSCO’s direct control and automated processes. While phone contact with taxpayers is generally not within the control of CSCO, taxpayers’ phone relationship can significantly impact their impression of CSCO. While working with the IRS on these issues, delays cause taxpayers concern about their status and can be exacerbated if the taxpayer receives notices from other divisions of the IRS. Taxpayers noted they had difficulty understanding CSCO’s notices, but it is unclear if the taxpayers are basing their responses on CSCO’s notices or other notices sent by the IRS. For example, a CP 2000 notice, not issued by CSCO, may alert a taxpayer of a deficiency in their return. Based on that letter, the same taxpayer may request an installment agreement with CSCO. The taxpayer’s impression of the IRS and CSCO will be partially determined by the CP 2000 letter that was not sent by CSCO. Delays in responding to Taxpayers are also another area with low customer satisfaction. Much of this is out of CSCO’s control as it does not have much control over flow of its casework. The Installment Agreement Account Listing (IAAL) refers cases to CSCO, so it does not have control over the timing of the receipt of most cases and suffers from a backlog of cases during certain times of the year. Increasing the number of staff during those periods (generally May through July) would help with the backlog, increase customer satisfaction with more timely responses, and increase the revenue generated. CSCO’s CP 14, 501, 503 and 504 are some of the more easily understood notices, but improvements could be made that include information that explains the process to taxpayers. Notices that originate outside CSCO but may then lead the taxpayer to CSCO could also be improved. The CP 2000 used to inform taxpayers of changes made to their return is an example and is discussed further in Issue Three. The W&I Subgroup also looked at ways to help taxpayers better manage an Installment Agreement by educating them on methods for early payoff. CSCO’s installment agreements and other notices do not include language explaining the number of months or years it will take to pay off the debt at the agreed monthly payment. To be more effective, all Installment Agreement statements sent monthly to the taxpayer should also include the amount of principal, interest and penalty paid with each payment along with a plausible offer for early payoff, i.e., a discount for early payoff. In addition, a complete Installment Agreement statement should also provide the taxpayer with a sample amortization of actual savings if payment is made in less than the agreed upon payment period. How can the IRS help ensure taxpayers understand how their payment arrangements with the IRS can work to the taxpayer’s benefit? CSCO’s installment agreements and other notices do not include language explaining the number of months or years it will take to pay off the debt at the agreed monthly payment. The W&I subgroup recommends that they should state the amount of principal paid with each payment, not just penalty and interest. That information may encourage taxpayers to pay off their delinquencies earlier. The following is an example: TP Owes Monthly Payment Years to Pay TP Grand Total TP Saves 5,000 416 1 5,168.80 1,055.52 5,000 208 3 5,339.68 884.64 5,000 139 3 5,525.37 698.95 5,000 104 4 5,733.06 491.26 5,000 83 5 5,963.93 260.39 5,000 69 6 6,224.32 ($1,224.39) The W&I subgroup also looked at the cost for engaging in an Installment Agreement which is approximately $300. The Taxpayer is assessed a portion of this cost. Taxpayers who are already frustrated with penalties and interest are often frustrated with this fee. It may help taxpayer satisfaction if the taxpayer knew that the user fee covers only a portion of the cost of processing the installment agreement request. Customer satisfaction surveys of taxpayers show a low level of satisfaction with the length of time it takes the IRS to handle their return. This includes the amount of time it takes the IRS to notify the taxpayer of a change to their return, as well as the amount of time it may take CSCO to process a taxpayer communication such as an installment agreement request. Recommendations Develop an online status web tool on the IRS website. This would relieve some frustration or anxiety taxpayers experience waiting for an IRS response and possibly also reduce the amount of phone calls. The online status web tool could be integrated with other “Where’s My Refund” and other online status web tool so a taxpayer can review their entire status at one time. Improve notices within and outside CSCO: Make CSCO’s CP 14, 501, 503, and 504 include information that explains the process to taxpayers. Simplify the language and instructions in CP 2000 notices. Ensure notices regarding the Affordable Care Act, such as 14H and 15H, are easily understandable. Add an amortization table or similar information that explains installment agreements payments and payoffs to taxpayers. IRS/CSCO should explain to taxpayers that the $43 (Low Income), $52 (Direct Debit Installment Agreement), and $120 (All others) Installment Agreement Origination User Fees charged to them for setting up an installment agreement only cover a portion of the roughly $300 in costs at the IRS to process their installment agreement. Add staff to handle existing cases and anticipated increase in Affordable Care Act Advanced Premium Tax Credit cases. Ensure taxpayers receive notices required by Internal Revenue Manual section 22.214.171.124.2 explaining length of time it takes to process correspondence and further notices if delay in response is expected. Issue three: Improving Automated Underreporter (AUR) Customer Satisfaction Executive Summary The Subgroup was asked to identify ways the IRS can improve the AUR customer satisfaction rate. Although the AUR program has no control over the document matching timeline, the taxpayer’s goal is to resolve the case as timely as possible. Recommendations include analyzing the relationship of overage data to customer satisfaction because length of processing time is the major issue contributing to customer dissatisfaction, and applying process analysis management tools to help identify areas of improvement. The Service should also consider developing an online status web tool for taxpayers, similar to “where’s my refund”. Other recommendations support additional funding, correspondence review for clarity, and practitioner group focus interviews. Background An analysis of the last several years of survey data shows no statistically significant variation in customer satisfaction levels. The most recent data, 2012, reflects a 70% level of overall satisfaction for the way IRS handled an AUR case; however, customer satisfaction did drop to 67% in September of 2013, with 17% being dissatisfied. The recent drop was attributed to changes in survey methodology and questionnaire revisions. The primary reason for dissatisfaction appears to be length of time it takes to hear from the IRS regarding proposed adjustments. Currently the IRS is in the process of developing publications and notices to help manage taxpayer expectations and to provide clearer information on the AUR process. This group performed a Kincaid test to determine the comprehension reading level required to understand the introductory paragraph in the CP 2000 Notice. That test placed that paragraph at the 15th grade reading level which is commensurate to a junior in college. The average reading level of US citizens is at the 8th grade level, making it difficult for most AmericansPDF to understand. The AUR program is one of IRS most efficient and productive enforcement tools, yet further improvements could be made by analyzing the workload selection process to improve on the historical averages of 15% no change rate and the 15% screen out rate. Clearly much of the effort is nonproductive; in addition there is a 33% default rate where the taxpayer does not respond. Some of the defaults are late responses by taxpayers and need to be reworked later. It should be noted that the no change rate has shown moderate improvement in recent years; however, additional analysis of workload selection filters, application of process analysis management principles, and more detailed overage monitoring could make a good system even better. There is a question of whether or not there is a relationship to overage inventory and length of time to process a case and correspondingly to customer dissatisfaction. The subgroup was not able to visit the AUR, Atlanta Campus, site as planned to observe inventory levels and processes. Uncontrolled inventory may also be contributing to the default rate because taxpayer responses may not be associated with a case in a timely manner. Recommendations Reduce uncontrolled correspondence to a minimum and adjust the default timeline periodically to consider the uncontrolled mail receipt delay. Apply process analysis management principles by flowcharting the entire AUR workflow to help identify areas of improvement. Develop an online status web tool for taxpayers, similar to “Where’s my Refund,” as proposed in the 2012 survey results. Conduct focus group interviews with practitioner groups and employee groups to receive their input for improvements. Revise taxpayer correspondence, such as the CP 2000, to provide clarity regarding processing times and “truth-in-lending” information.