November 15, 2016
Thank you, Annette, for that kind introduction.
Good morning, everyone. I’m delighted to join you again at your National Tax Conference. You’ve already heard some great speakers this morning. Bill Wilkins and Nina Olson are hard acts to follow, but I’ll do my best to keep up this morning.
You’re here in Washington during a very interesting and hectic time for our government, as it transitions from one administration to the next. I want to emphasize that during this presidential transition period, the IRS remains focused on serving the American taxpayer. As you know, our day-to-day operations are run by career, non-partisan civil servants, who I might add do an amazing job for our tax system. So the IRS will continue its work as it has always done during previous presidential transitions.
I’m here to talk about the future of tax administration, but first I’d like to take a minute and look back over this year. And what I see is an agency that continues to fulfill its mission and maintain the tax system, even with all the challenges we face…everything from scarce resources to cybersecurity threats to stolen identity refund fraud, and more.
While much credit goes to our dedicated and talented workforce, I remain convinced that the IRS would not be able to fulfill its mission if we couldn’t rely on our partners in the tax professional community. That includes everyone in this room. One of the most important things I learned early on after becoming IRS Commissioner was the vital role you play, year in and year out, in helping your clients meet their tax obligations. Over the past three years, my appreciation for all you do for tax administration has only deepened, and I want to thank you once again.
If anyone asked me how I know the system is working, I would point out we had yet another successful tax filing season during 2016. Once again, the processing of tax returns went very smoothly for the vast majority of taxpayers. And, thanks to extra funding provided by Congress last year, we were able improve our ability to help taxpayers and practitioners when they called us with questions.
As you know, for the first time in six years, we received additional funding for Fiscal Year 2016, to the tune of $290 million, for improving taxpayer service, strengthening cybersecurity and expanding our efforts against identity theft. We still don’t know about 2017. At the moment, we’re operating under a continuing resolution set to run out on December 9. We’re waiting to see how this issue gets resolved, now that the election is over and Congress is set to come back for a short session next month.
As the significant improvement in our level of phone service the last filing season demonstrated, there’s a simple algorithm at work here: If you give the IRS more money, we’ll hire more people to answer the phones and enforce the tax code. If you give us less, the reverse is true.
Once we know what our full-year funding is for 2017, we will have a better idea as to whether we can repeat the improved level of phone service we achieved in the last filing season. This includes service on the Practitioner Priority Line. We hope you noticed we were able to improve wait times on this line in 2016, and we know practitioners remain concerned about how it will perform in the future. Our hope is to keep the level of service above 80 percent during the next filing season. But again, our ability to do so will depend on our level of resources.
Speaking of the filing season, we are well into planning for 2017. I don’t yet have a definite answer for the question on everyone’s minds, which is when the filing season will begin. There are many variables to consider, including the complicated testing of our IT systems to make sure they’re ready. But I can tell you that we expect it to start on time, before the end of January. We’ll have the exact date for you in the near future.
Staying with the near-term for the moment, I’d like to mention a few changes that will be in effect for the 2017 filing season that I’m sure you and your clients will want to be aware of.
The first major change is a new, earlier deadline for filing W-2s and other information returns. Beginning with the upcoming filing season, W-2s must be filed with the Social Security Administration January 31. Social Security is working with us to provide those W-2s to us with a minimal delay.
Having W-2s earlier will make it easier for us to verify the legitimacy of tax returns at the point of filing and to spot fraudulent returns. We also expect this to assist in the quicker release of refunds for those returns we are able to verify, which will be very helpful to taxpayers. For you, this means you’ll have clients who are less likely to face unnecessary delays in their refunds due to “false positive” fraud indicators.
We will also be expanding a pilot program we ran this past filing season to test the idea of adding a verification code to W-2 forms. The code was designed to help confirm the accuracy of about 2 million information returns filed electronically, and the results were overwhelmingly positive. For 2017, we’re expanding the pilot to include as many as 50 million W-2s.
We have an important request for practitioners: When you see this code on a client’s W-2, we’re asking you to please fill the number in on their return. It will help protect your client, it helps us protect you, it helps the IRS prevent fraud, and it keeps honest taxpayers from facing refund delays.
Another change applies to tax returns claiming the Earned Income Tax Credit or the Additional Child Tax Credit. Beginning next filing season, the IRS will be required to hold tax returns claiming either the EITC or the ACTC until February 15. This change is designed to give us time to verify the income claimed on these returns, and prevent fraud related to fabricated wages and withholdings.
I want to emphasize a very important point for you and your clients: taxpayers should file as they normally do, and return preparers should also submit returns as normal. You won’t need to wait to file an EITC or ACTC return until February 15. So people who usually file in January should do that again next year. Delaying filing till after February 15 will just put a taxpayer farther back in the queue and mean a longer delay for their refund.
Practitioners and their clients also need to be aware of important changes Congress made to the Individual Taxpayer Identification Number program. These changes will cause some ITINs to expire in just a few weeks, at the end of the year.
The changes apply to two groups of ITIN holders. The first group encompasses people who haven’t used their ITINs on a federal tax return at all in the last three years. The second involves people who have an ITIN issued before 2013. ITIN numbers for this second group are being renewed on a rolling basis.
If you have clients in one of the two groups I just mentioned, they need to renew their ITIN if they expect to file a tax return next year. And it’s important for them not to delay. Taxpayers with an expired ITIN who don’t renew before filing their taxes could face a delay in their refund. They may also be ineligible for certain credits, such as the Child Tax Credit and the American Opportunity Tax Credit, until the ITIN is renewed.
While we’re on the subject of ITINs, I’d like to suggest that tax professionals may want to consider becoming Certifying Acceptance Agents. CAAs play an important role in the ITIN application process by reviewing the identity documents of the ITIN applicant. And we need more of them. You can get more information about becoming a CAA on IRS.gov.
Now I’d like to look a little farther into the future and talk about our plans for improving how the IRS can fulfill its mission in the years to come. We want to enhance and expand services for all taxpayers, no matter what their circumstances.
Back in 2014, in my first speech to the AICPA, I said we were beginning to ask ourselves what the tax filing experience ought to look like three to five years down the road, and how to make that vision a reality. Our initial view was taxpayers needed secure innovative services, tools and support, especially in relation to online tax filing. We envisioned an online account at the IRS where they, or their preparers, could log in securely, get all the information about their account, and interact with the IRS as needed.
That’s still true, but as we studied the issue, we came to realize that we had to take a broader view. Improving the online tax filing experience is just one of several aspects of our Future State initiative. The others include:
- Understanding non-compliant taxpayer behavior and finding new ways to deter and change it;
- Leveraging and collaborating with external stakeholders about tax administration issues, to give us insights into risks that exist to a safe and secure tax system;
- Cultivating a well-equipped, diverse, skilled and flexible workforce;
- Taking advantage of the latest technologies to identify emerging issues and do a better job of detecting tax noncompliance; and
- Finding ways to make IRS operations more efficient and effective across the board.
As you can see, this is a broad-based effort that spans the entire scope of IRS operations. And I would also point out that this is no “secret plan” for the future of tax administration that will surprise anyone. Our efforts are a natural progression of improvements we have already made to our business systems over many years. Along those lines, we’ve been working to improve our interactions with taxpayers in a number of different ways.
In the compliance area, a great example is the work we’ve been doing to develop an Enterprise Case Management system, which will modernize, upgrade, and consolidate over 100 aging IRS case management systems. While invisible to taxpayers, this kind of innovation helps them by allowing us to be much more efficient in resolving taxpayer cases as they work their way through our systems.
Another good example involves our Large Business and International division. LB&I recently restructured its operations to center them around issues, rather than organizations, to better meet the needs of taxpayers in a global environment.
We’ve also made system improvements in the tax-exempt area. Early in my tenure we had a backlog of more than 60,000 applications from groups seeking tax-exempt status.
But after streamlining the process and adding a simpler application form for small organizations, our inventory of applications is now current. That was a major accomplishment, and it helps all applicants, including larger organizations that must use the longer, more complicated forms.
While making these improvements, the IRS enthusiastically accepts the responsibility to deal with all 150 million taxpayers in whatever way they want to interact with us. We recognize there will always be taxpayers who do not have access to the digital economy, or who simply prefer not to interact with the IRS online. We remain committed to providing the services these taxpayers need. In fact, getting more people to use our online offerings will help us provide better and faster service to those who still want or need to call us or visit us in person.
For anyone who would like to know more about our plans for the future, I encourage you to visit the “IRS Future Digital Services” booth in the exhibit hall. We have great people there who are ready and willing to talk to you and answer your questions. While you’re there, you can also get a sneak peek at our first iteration of online accounts, which will allow people to check their balance due. We expect to be able to offer this to the public soon. Over time, we’ll be adding more features to online accounts. We’re also working on making it possible for tax practitioners to have access to their clients’ online accounts, once we address the authentication issues involved.
So that’s a look into the future. I also want to come back to the present for a moment and talk about one of the most serious challenges we face today – and by “we” I mean not just the IRS but the entire tax community. And that is stolen identity refund fraud.
I’m delighted to report that we’ve been making critical progress against this threat, thanks to the work of the Security Summit Group. Over the past year and a half, this strong, unique partnership between the public and private sectors has allowed us to coordinate our efforts on many different levels. As a result, we put in place many new safeguards for the 2016 filing season that produced real results.
To show you what I mean, let me give you a remarkable statistic. The number of people who have filed affidavits with the IRS to tell us they were victims of identity theft has fallen – and fallen dramatically. Through the first nine months of this year, that number is down by more than 50 percent. There were about 512,000 affidavits a year ago, and that’s dropped to about 237,000.
Even with this progress, the fraud filters in our processing systems are still catching a lot of bad returns, which shows that identity theft is still a major threat to tax administration. For the first nine months of this year, our systems stopped more than $4 billion in fraudulent refunds claimed by identity thieves on 787,000 tax returns. That’s why we’re putting more protections in place for the 2017 filing season.
One of the most important Security Summit efforts heading into next year is a stronger collaboration with the tax practitioner community. We’re very concerned that identity thieves, in their never-ending hunt for taxpayer data, are turning their attention to return preparers. So the Summit Group is hard at work identifying what can be done to help protect practitioners and their clients. We also recently started a campaign called “Protect Your Clients, Protect Yourselves,” to get the word out to preparers about steps they can take to avoid becoming victims of identity theft and safeguard taxpayer data.
I would also ask you to encourage your clients to make sure they’re protecting themselves from the many scams that are out there. There has been no let-up in the schemes that criminals come up with, either by phone or online. I’m sure many of you may even have personal experience with this. In fact, by a show of hands, how many of you have gotten a call from someone claiming to be from the IRS, who clearly wasn’t?
It’s amazing because everywhere I go, I get the same response. IRS impersonation scams have plagued taxpayers nationwide. I want to assure you that we will continue doing everything we can to warn people about these scams. We have an aggressive education campaign, and again this year, we’re urging taxpayers to watch out for scams — old and new.
I’ve said it before, but it bears repeating: Taxpayers need to know how to tell the scammers from the IRS. It’s pretty easy: The IRS will not make angry calls to demand immediate payment, and we won’t call you about taxes you owe without first mailing you a bill. We won’t ask for credit or debit card numbers over the phone, and we’ll never threaten to bring in the police to have someone arrested for not paying.
We also continue working with law enforcement in what’s become a full court press against the criminals. You may recall last month that law enforcement authorities in India shut down a major call center with 700 people making thousands of calls impersonating the IRS. We were also delighted with the announcement last month by the Department of Justice and the Treasury Inspector General for Tax Administration that they have indicted 56 people here and in India for their participation in these scams.
These two events send a clear, law-enforcement message to the criminals behind these scams: that the risks and costs of attempting them are going up. Criminals need to know that the IRS, the states and the entire tax community are committed to continuing our joint efforts to stop these scammers and thwart stolen identity refund fraud.
I hope I’ve given you an idea of where we are today and where we want to go in the future. It’s now time for me to listen to what you have to say. Thank you for allowing me to spend this time with you, and I’ll be happy to take your questions in the time we have left.