Hello, and welcome to the IRS Nationwide Tax Forum. It’s great to be in Las Vegas, and I’m delighted to see everyone here. Today I’m here to talk about the IRS of today and the future.
This is the fourth year I’ve had the honor of speaking to the Tax Forums. It’s also the last year, since my term ends in November. So I’m glad to have one more chance to express my appreciation to you and other tax professionals for everything you do to help maintain our tax system.
I learned early on in my tenure that the IRS can’t go it alone when it comes to running the tax system. In fact, I’ve spent my term as Commissioner trying to help people understand that things like the filing season don’t happen automatically or by accident. They happen because of the work done by our dedicated and talented workforce, and the efforts of our partners in the tax community, including everyone in this room. Year in and year out, you play a vital role by helping your clients file their taxes accurately and on time, and I want to thank you for that.
The critical support provided by tax practitioners was never more evident than during this year’s filing season, which went very smoothly for taxpayers. In fact, this has been the smoothest filing season since I became Commissioner. As of August 4, the IRS received more than 144 million individual returns, on the way to a total of about 152 million. We have issued nearly 108 million refunds for more than $299 billion, with the average refund totaling approximately $2,800.
The 2017 filing season wasn’t without its challenges, but again, thanks to the support of the tax professional community and others, we were able to meet those challenges. They included the need for us to implement several important tax changes that Congress passed in 2015 as part of the law known as the PATH Act. Those tax changes took effect this year.
One was the requirement to hold tax returns until February 15 if they claimed the Earned Income Tax Credit or the Additional Child Tax Credit. This change slowed the overall pace of refunds early in the filing season. But that pace accelerated with the release of more than $50 billion in EITC and ACTC refunds after February 15.
Let me explain why this provision is important for fraud detection. It gives us more time to match EITC and ACTC returns with W-2s, which we’re getting earlier in the filing season, thanks to another PATH Act provision. So we can do a better job of spotting incorrect or fraudulent returns. Receiving W-2s earlier has also helped us move faster to release refunds for those returns that appear suspicious, but where we can verify the taxpayer’s identity. This reduces unnecessary refund delays for compliant taxpayers.
Another important PATH Act change requires Individual Taxpayer Identification Numbers, or ITINs, to expire if they were issued before 2013 or if they were not used on a federal return for three years in a row.
By setting the effective date a year in advance, Congress gave us plenty of lead time to implement these changes, which was very helpful. We used the time to work with tax practitioner groups, and other organizations, to get the word out. For example, if you attended one of the Tax Forums last year, you know the PATH Act changes were a major topic of discussion. We wanted to make sure tax return preparers would understand what the changes would mean for their clients. The smooth operation of the filing season that just ended is proof that this preparation paid off. We also embarked on a sweeping communications and outreach effort to get the word out to affected taxpayers.
While we’re on the subject of the PATH Act changes, I want to give everyone a heads up about next year’s tax filing season. It’s important for your clients to be aware that the PATH Act changes are a permanent part of the tax law. That means the IRS will again be required to hold tax returns claiming the EITC or ACTC until February 15.
Our message about refund delays next February will be the same as it was for this year: taxpayers should file as they normally do, and return preparers should also submit returns as normal. In other words, people who usually file in January should do that again next year. Delaying filing until after February 15 will just put a taxpayer farther back in the processing queue and mean a longer delay for their refund. We will again be widely sharing this information through our communications outreach channels, and we ask you to do the same in the months ahead.
It’s also important for your clients to know the changes to the ITIN renewal program are still in effect. ITINs that have not been used on a tax return in the last three years will expire on December 31, 2017. Also, anyone with an ITIN issued before 2013 needs to be aware that we’re continuing to renew those numbers on a rolling basis. ITINs now up for renewal are those with middle digits of 70, 71, 72 or 80. These numbers almost sound like something you would play in the Powerball lottery. But they actually reflect the next-oldest set of ITINs issued, and there are more than 1 million of them to be renewed this year.
My advice to taxpayers with expiring ITINs is: Don’t wait. They should renew as soon as possible , because they will need their ITIN to file their tax return next year. Taxpayers with an expired ITIN who don’t renew before filing next year’s return could face a delay in their tax refund. They may also be ineligible for certain tax credits, such as the Child Tax Credit and the American Opportunity Tax Credit, until the ITIN is renewed.
I would note that, during the renewal process last year for the first group of ITINs, we saw a number of common errors on the applications for renewal. The mistakes included missing information and insufficient supporting documentation. So I would ask you to urge your clients to check over their form carefully before sending it to the IRS, to avoid processing delays.
While we’re on the subject of ITINs, I have a suggestion for tax preparers: I want to ask you to consider becoming a Certified Acceptance Agent. 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 as part of our efforts to reach out to the ITIN community. You can get more information about becoming a CAA at our ITIN table outside.
We are also keeping a close eye on any developments in Congress related to tax reform legislation, which could potentially affect the next filing season. I want to be clear: I’m not advocating any specific tax policy changes. Tax policy decisions are the domain of the Administration and Congress. The IRS’s focus is on administering the tax law. Therefore, we do have a great interest in trying to work with the tax writers on Capitol Hill to make sure any changes in tax policy are clear and as easy as possible for taxpayers and tax professionals to understand and to comply with.
We’re also watching tax reform closely because of the opportunity it may present to simplify the tax code. I’ve had people ask me whether the IRS might resist tax simplification. Actually, the opposite is true. No one would be more delighted with a simplified tax code than IRS employees. Their jobs would be made much easier if the tax code was less complicated.
I’ve also been encouraging Congress to give us as much lead time as possible on any tax changes that might be enacted. The smooth implementation of the PATH Act provisions shows how helpful it is to have plenty of advance warning on legislative changes rather than just a few weeks. It not only helps the IRS get its own systems ready, but also gives taxpayers and tax professionals time to understand and prepare for the changes.
Another concern we have relates to a group of expired tax provisions and whether Congress could act to renew them later this year. It’s a long list, and includes everything from tax deductions for tuition and mortgage insurance premiums to certain business depreciation provisions. As you may have heard previously, I have been urging lawmakers to make a decision about extenders as soon as possible. Ideally, that’s no later than the end of November. Why is that important? Making this decision as early as possible will provide certainty for millions of taxpayers and tax professionals who are affected by the various tax provisions.
The uncertain fate of the extenders legislation raises a variety of challenges that touches everyone in the tax community. For the software industry, they need time to update their products to be ready by early 2018. For the IRS, we need time, too. We need to review the tax law. We need to make the right programming changes and have adequate testing to ensure our processing systems are ready for the opening of tax season in January. We need time to program and test so our processing systems run smoothly for taxpayers and tax professionals like yourselves.
As you’ve seen in the past, if the uncertainty over the extenders provisions remains too long – say into December – that creates questions about whether we need to postpone the opening of the filing season. As you saw in years past, this could delay the start of processing of tax refunds for millions of taxpayers – and create additional burden on the tax community and tax preparers. So I will continue to urge members of Congress not to let this uncertainty continue.
On another challenge facing the tax system, none is more serious than the battle against stolen identity refund fraud. We’ve made significant progress in our efforts to stop identity thieves, with important support from tax professionals and others in the tax community.
We’re now into the third year of the Security Summit group, an unprecedented partnership that began in March 2015. This partnership includes the IRS, tax industry leaders and state tax commissioners. Thanks to the Summit, we’ve increased our ability to protect taxpayer data. This progress would not have been possible without everyone pulling together, including our partners in the tax professional community.
This unique collaboration allowed us to put many new safeguards in place over the last two tax filing seasons, producing real results. Since 2015 we’ve had fewer fraudulent returns entering our systems, fewer bad refunds going out the door, and fewer tax-related identity theft victims than in previous years.
To that last point, let me share with you what I think is a stunning statistic that many have overlooked: the number of people who reported to the IRS that they were victims of identity theft declined from 698,700 in Calendar Year 2015 to 376,500 in 2016 – a drop of nearly half. This illustrates how we were able to improve our ability to stop criminals from filing false returns using someone else’s personal information.
Today I’m delighted to report we have new numbers showing the sharp decline continued during the 2017 tax filing season. In the first five months of 2017, about 107,400 taxpayers reported they were victims of identity theft, compared to the same period in 2016 when 204,000 filed victim reports. That’s about 96,000 fewer victims – representing a drop of 47 percent. For comparison, we had nearly 297,000 identity theft victims during the first five months of 2015.
So when you look at the last two years, the number of taxpayers reporting they are victims of tax-related identity theft has dropped by about two-thirds. That’s an amazing statistic.
This stunning decline over two years is the direct result of continued good work by IRS employees and the ongoing efforts of our partners in the private sector and state tax administrators.
But there is still more work to be done, because identity theft remains a threat. Fortunately, the Security Summit isn’t going away. In fact, we made it a permanent partnership, under the auspices of the Electronic Tax Administration Advisory Committee. Our Summit partners are already hard at work developing more safeguards we will build into the system in time for the next tax filing season.
An important outgrowth of the Security Summit has been the Identity Theft Tax Refund Fraud Information Sharing and Analysis Center, or ISAC. We launched the initial stages of the ISAC this year. It will help us identify emerging identity theft schemes and allow that information to be quickly shared among Summit partners. As we saw during this past filing season, sharing information and doing it in real time is critical to our ability to respond rapidly to evolving threats and to stop identity theft schemes. That means the ISAC will be an important tool for all of us going forward.
We can’t let up in the fight against identity theft because identity thieves aren’t letting up. We are finding that, as the IRS improves monitoring capabilities and shuts off certain avenues of entry, identity thieves look for new ways of getting in. As we enhance return processing filters and catch more fraudulent returns at the time of filing, criminals work to get better at faking taxpayers’ identities and their tax information so they can evade those filters and obtain fraudulent refunds.
For that reason, we continue to be concerned that identity thieves, in their never-ending hunt for taxpayer data, are increasingly targeting tax return preparers. I mentioned this concern at last year’s Tax Forums. Since then, we haven’t seen any let-up in the scams. Let me give you just a few examples of what identity thieves are doing:
- Tax professionals have had their computers taken over remotely by thieves, allowing them to gain access to taxpayer returns that were in progress. The criminals actually completed those returns, e-filed them and tried to redirect the refunds into their own accounts.
- In another type of scam, the criminals pose as potential clients, trying to trick tax professionals into downloading attachments or opening links that would then infect their machines with malware to steal data. The criminal may start off with a friendly tone suggesting a prior conversation with you and direct you to an attachment that they claim contains the tax information you need to complete their return.
- We’ve also seen scammers pose as a tax pro software provider and try to steal the return preparer’s passwords. They tell you the account has been locked and you must unlock it by opening a link and entering your credentials. A similar scam uses IRS e-Services as the bait.
- Another very effective scam is one where the criminal has actually hacked the taxpayer’s email address. They then send an email to the return preparer saying the instructions for direct deposit of the refund need to be changed and it should go to a different bank account.
These are all good examples why the Security Summit is continuing the program it launched in 2016 to help preparers under the heading “Protect Your Clients – Protect Yourselves.” As part of that program, we’re telling preparers what they can do to avoid becoming victims of identity theft.
To raise awareness still further, we began a special 10-week public awareness campaign in July. We call it “Don’t Take the Bait.” In other words, don’t be fooled by the scams out there. Each week of the campaign, we’re highlighting a different subject to help return preparers learn more about these scams and understand what steps they should be taking to protect their systems and their clients’ data.
Many of these steps are very straightforward. For example, be on your guard when opening email. Don’t click on links or open attachments in email. Also, use strong passwords and change them often. Update your security software. Store taxpayer data on secure systems. Encrypt your emails. Simple steps, but very important ones that many people ignore or simply forget.
We urge you to join us in our campaign. Please talk to your colleagues, and encourage them to make data protection the priority it deserves to be. I would also ask you to encourage your clients to make sure they’re protecting themselves from the many scams going on, both online and over the phone.
You may have heard me say it before, but I can’t say it enough: Everyone needs 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 won’t ask you to pay your taxes on an I-Tunes card. Finally we’ll never threaten to bring in the police to have you arrested for not paying immediately.
You can also learn more about safeguarding yourself right here at the Tax Forum. We have sessions talking about out how tax preparers can protect their data and their systems. Do yourself and your clients a favor and attend this session. Also, our Return Preparer Office desk here has information you can pick up. This includes important information developed by tax professionals who are members of our Security Summit team. And while you’re there you can pick up one of these handy cards. (Holds up card.) It has tips on what to do if you discover that your data or your client information system was breached. You can also find out more about all of this on IRS.gov.
Along with return preparers, another major target of identity thieves these days is information returns, especially the W-2. We continue to be concerned about efforts to create counterfeit W-2s that are filed along with false returns to make the returns appear legitimate.
That concern led us to launch a pilot program in 2016, testing the idea of adding a verification code to the W-2. This code helps by confirming the accuracy and integrity of a tax return that is electronically filed. We expanded the pilot in 2017 to include up to 50 million W-2s. We will test its use again during the 2018 filing season.
I have a request for return preparers: When you see this number on a client’s W-2, please fill the number in on their return. It will help protect your clients and keep them from facing refund delays, and it will help the IRS stop fraud in its tracks.
But that’s not all. Identity thieves aren’t just counterfeiting W-2s. They’ve managed to come up with brazen schemes that allow them to steal legitimate ones. We started seeing this scam last year, and it’s still going on, in all different businesses and areas of the country. The criminal poses as a company executive and sends a legitimate-looking email to the payroll department, asking for a list of all employees and their W-2s.
In 2016, we had 50 reports of companies falling victim to this scam. This year, the number is over 200. That still may not sound like much, but 200 companies translates into several hundred thousand individuals whose W-2s were stolen. We are so concerned about this scam that we have established a special reporting process for organizations that experience it.
So that’s where we are on identity theft. Another major challenge for the IRS involves the work we are doing to implement our Future State initiative. Our goal is to have a more proactive and interactive relationship with taxpayers and tax professionals by enhancing and expanding communications, providing new tools and services, and making use of technology and data to better understand taxpayer compliance.
A big part of this effort is offering taxpayers and tax professionals the services, tools and support they want, in ways that are both innovative and secure,. We are effectively trying to catch up with the kinds of online and virtual interactions people already use in their daily lives to communicate with banks, retailers, medical providers and many others. While I will be focusing on some of our online service advances today, there are numerous other Future State initiatives underway to improve the taxpayer’s experience to achieve a more proactive, interactive relationship with taxpayers and those who serve them – you. More information on them is available to you on the IRS.gov Future State page.
As we have gotten deeper into this effort, it has become clear that the Future State spans the entire scope of IRS operations, and poses considerable opportunities for us and for taxpayers. Throughout the agency, we’re asking, what can we do to improve tax administration and the overall taxpayer experience? So our goals in the Future State effort are to:
- Facilitate voluntary compliance by empowering taxpayers and their representatives with secure and innovative services, tools and support;
- Understand non-compliant taxpayer behavior and find new ways to deter and change it;
- Leverage and collaborate with external stakeholders about tax administration issues, to give us insights into risks that exist to a safe and secure tax system;
- Cultivate a well-equipped, diverse, skilled and flexible workforce;
- Take advantage of the latest analytical technologies to identify emerging issues and do a better job of detecting tax noncompliance; and
- Find ways to make IRS operations more efficient and effective across the board.
A major part of the Future State journey is developing an online account where taxpayers, or their representatives, could log in securely, get all the information about their account, and interact with the IRS as needed, including self-correcting some issues. If you’ve attended the Tax Forums the last couple of years, you’ve heard me talk about what we hoped to do. This year, I’m delighted to report we’ve taken the first concrete steps toward a fully functional IRS online account. We have miles yet to go, but we are determined to get there.
Last November, we launched an online application on IRS.gov that provides account information to taxpayers who have straightforward balance inquiries. This new feature allows taxpayers to view their IRS account balance, including the amount they owe for tax, penalties and interest, in a secure, easy and convenient way. So far, taxpayers have used this tool more than a million times, along with the link to payment options that many have used to pay their balance or make other payment arrangements.
Since then, we’ve added another feature that lets taxpayers see recent payments posted to their account. These balance-due and recent-payment features, when paired with existing online payment options, will increase the availability of self-service interactions with the IRS to help taxpayers manage their balances.
You may wonder why we started with these features, instead of diving in and launching a full-blown online account right away. It’s because these pieces must be in place before we can start building other, more complicated capabilities. Most critically for this audience, that will eventually include the ability to manage third-party authorizations to allow tax professionals to view and manage client records.
Over time, we will be adding other features to this platform as they are developed and tested with taxpayers and tax professionals. A very exciting service improvement we’re testing now is one we’re calling Taxpayer Digital Communications. The idea is to provide a secure online messaging capability so taxpayers and their representatives can communicate electronically with IRS employees. Imagine how much faster you could resolve an issue with the IRS if you could just use online messaging instead of sending a letter and waiting for a reply through the mail.
At the moment, we’re running several pilots on this feature to make sure we get it right. Eventually, we hope to add text chat capabilities, which will make it easier for our employees to quickly assist taxpayers if they run into roadblocks accessing their accounts or making payments.
But, as always, it’s important to remember that, even with our focus on improving our ability to interact with you and your clients on line, we recognize that there will always be taxpayers who want, or need, to talk with us on the phone or to visit us in person. Even as we move toward having 90 percent of taxpayers file online, that still leaves over 15 million returns filed on paper. This year we have also answered more than 15.3 million phone calls and talked with over 1.9 million taxpayers in person. In short, we want to communicate with you and your clients in whatever way you find more convenient and comfortable.
For anyone who wants to know more about our plans for improving taxpayer service, I encourage you to attend one of the Future State sessions at the Tax Forum this week. I also want to make a plug for our “IRS Future Digital Services” booth in the exhibit hall. You can see our initial designs for third-party account access and provide feedback on the design prototypes. And we have great people there who are ready and willing to talk to you about the Future State and answer any questions.
And if you’re wondering whether we really put your feedback to good use, the answer is “definitely.” To cite just one example, at last year’s Tax Forums, we asked for feedback on how to improve IRS.gov. We got hundreds of ideas, and our Online Services group incorporated many of them into the new design of the website. We also took someone’s suggestion to make IRS.gov mobile-friendly, so it’s easier to see and navigate on your smartphone.
Since we’re talking about the future, I want to take a minute to mention the next iteration of the IRS strategic plan for the future direction of the agency, which we will be publishing next June. This is something all federal agencies are required by law to do every five years. So this new plan will take the agency through 2022.
We’re working to make sure this latest plan is a reflection of the work we’re doing now and in the years ahead to fulfill our mission. You’ll be hearing more about this in the months to come, because part of this effort will involve getting feedback from our external partners. So stay tuned.
Before I wrap up, I want to return to something I mentioned when I began today, and that is the vital role that the tax professional community plays in our tax system. First, I want to acknowledge the efforts all of you make to ensure you’re keeping up with the latest in tax law and administration, such as attending the Tax Forums.
Because the role tax professionals play is so critical, we’re continuing to urge Congress to grant IRS the authority to require minimum standards for preparers. Taxpayers need to be confident that the preparer they hire understands enough about taxes to help them with their federal income tax returns.
In the meantime, we’re continuing to offer our Annual Filing Season Program. The program is aimed at preparers who have a valid Preparer Tax Identification Number, or PTIN, but who are not Enrolled Agents, CPAs, or attorneys. This program generally involves voluntarily taking 18 hours of continuing education courses. Those who complete the course work receive a Record of Completion that’s good for the filing season.
While we’re on the subject, I wanted to update everyone on the status of the PTIN program, in light of a recent court case you may have heard about. The court decision, back on June 1, upheld the IRS’s authority to require the use of a PTIN, but it also enjoined the IRS from charging a fee for the issuance and renewal of PTINs. As a result of this order, we suspended PTIN registration and renewal the next day, but reopened it on June 21. PTINs are currently being issued at no cost. Meanwhile, we’re still considering what our next steps will be. When we have updates, we will post them on the Tax Pros page on IRS.gov.
That wraps up what I wanted to tell you today. I hope you’ve gotten some good information that will help you in your business and also help your clients comply with the tax law. I also want to take one more opportunity to express my appreciation for everything you do to help maintain our tax system. We look forward to continuing to work with the entire tax professional community, to ensure we maintain a strong tax system and one that works for taxpayers as well as the entire tax community.
Thank you again for being here today, and thank you for your service to taxpayers and the nation. Please take some time to go to the exhibit hall and meet with the vendors and IRS staff. I hope you enjoy the rest of your Tax Forum.