Introduction and Executive Summary
The Digital Services Subgroup appreciates the cooperation of the IRS representatives who took a keen interest in providing updates and presentations relating to the current state of the IRS’s digital initiatives. We commend the Office of Online Services’ (OLS’) transparency and progress toward an enterprise-wide modernization that is essential for the IRS to provide 21st century customer service.
Even though the IRS faces significant resource challenges, the OLS team remains passionate about and committed to providing taxpayers with quality customer service through a full suite of options.
Enterprise-wide modernization is an ambitious task requiring the IRS to invest in innovative technology, new infrastructure, and additional human resources. The additional investment will provide a significant return in the ability of the IRS to provide both highly responsive customer service and the tools required by the IRS employees who support the various customer service options.
The objective is to expand the customer service channels, not curtail or entirely eliminate traditional, higher cost channels, in order to provide all taxpayers with the service channel of their choice. Savings achieved by use of digital channels can be redeployed to better support taxpayers through phone and in-person contact. Also, as more taxpayers opt-in to receive correspondance digitally versus paper, the IRS will realize immediate and substantial cost savings.
In this report, the Digital Services Subgroup makes recommendations on three different topics.
1. The subgroup makes several recommendations regarding the digital Tax Professional Account (TPA).
These recommendations include improving communication, committing to a deliver timeline and coordinating with industry and state agencies to identify and implement the best solutions.
The subgroup also makes recommendations on empowering taxpayers to authorize tax professionals to assist with compliance, similar to the abilities present today through paper authorization.
2. The subgroup makes recommendations for leveraging Application Programming Interfaces (APIs) to implement a framework to support real-time authorization.
This will provide taxpayers the ability to unlock their taxpayer information and import tax information into tax software. Specifically, the subgroup recommends the IRS build upon the success of the Third-Party Refund Status API Pilot Project.
3. The subgroup recommends that OLS implement a digital method to process Form 2848 immediately, thereby improving the timely assistance by representatives and reducing costs for both the IRS and taxpayers.
Issue One: Tax Professional Account
The IRS seeks to develop an online account for tax professionals to obtain access to their clients’ tax-related information as well as to tools and services to assist their clients in meeting their tax obligations. The Tax Professional Account is a component of the IRS Future State/Third-Party Strategy in order to provide better, faster service and to improve the user experience for a tax professional community.
The IRS has achieved commendable success with the launch of the taxpayer online account. The IRSAC applauds the IRS’s efforts to date, but strongly encourages the IRS to expand the online features and, in particular, to implement a digital Tax Professional Account sooner rather than later.
Tax professionals require a similar level of functionality so they can assist taxpayers in meeting their compliance obligations efficiently, securely, and effectively. Maintaining momentum will move the IRS in the direction of providing taxpayers and tax professionals with the means to engage with the IRS virtually, the method of which many taxpayers now expect and demand. Delaying the availability of a Tax Professional Account would impair the IRS’s ability to leverage tax professionals for customer service.
Tax professionals routinely filter client questions, troubleshoot, and resolve tax issues, and intervene on behalf of taxpayers—all without requiring IRS contact. With a majority of taxpayers using a professional to prepare a return, leveraging the tax professional only makes sense. Tax professionals can also encourage the use of online account; the result will be increased adoption of online services by taxpayers.
1.Commit to and communicate a timeline for the release development of the Tax Professional Account.
The IRSAC understands that the IRS is facing challenges in the development of the Tax Professional Account. This initiative is resource dependent, and currently lacks committed funding and competes for available resources. For the IRS’s strategic plan to be a feasible, however, it must honestly reflect the objectives of the IRS and the needs of all taxpayers.
The IRS conducted interviews with tax professionals to better understand today’s workflow in resolving issues with the IRS and identify opportunities for improving the system. Tax professionals overwhelmingly stated that having online access and client authorization to information would be extremely beneficial, and more important, allow them to provide the level of customer service that taxpayers expect.
The 2017 IRS Nationwide Tax Forums provided tax professionals with a vision of the Future State, including demonstrations of the prototype digital Tax Professional Account. Tax professionals provided feedback through individual interviews and unambiguously expressed interest in helping the IRS get to the Future State. For this to happen, the IRS must commit to a strategy and actionable timeline to keep key external stakeholders engaged.
Regrettably, the digital Tax Professional Account prototype offers no promise of functionality, has no backend data structure or a release date, and provides little detail on its features or release dates. At this point, the IRS describes the account as “notional,” meaning that it is still an idea rather than a critical customer service strategy. Thus, it could leave the tax professional community questioning the IRS’s commitment to the delivery of this invaluable tool.
The 2016 report of the Electronic Tax Administration Advisory Committee (ETAAC) recommended the IRS develop tangible goals and timelines for effectively delivering on its plans and staying committed to its digital taxpayer service plans in coordination with important stakeholders.
The IRSAC echoes the ETAAC’s recommendations. Secure account access would allow tax professionals to meet their clients’ expectations, increase voluntary taxpayer compliance, streamline and reduce expensive service channels, and leverage the trusted client relationships to facilitate a digital-first approach to interacting with the IRS.
2. Implement techniques proven successful by industry and state agencies.
The IRSAC recommends that the IRS work with industry and government partners to solve tax administration challenges, such as improving taxpayer service through an online account. Industry partners can provide insight and best practices to help the IRS design a 21st century taxpayer service experience and achieve taxpayer adoption of the IRS digital service strategies. The IRS should also engage and collaborate with state departments of revenue to find and implement the best solutions.
States such as California, Illinois, Massachusetts, and Hawaii have implemented online accounts for tax professionals to serve their clients. These states face the same taxpayer service (and budget) challenges as the IRS but have prioritized allocation of resources to streamline processes, improve efficiencies, and improve taxpayers’ experience.
They have strategically focused on digitally enabling tax professionals as a key strategy in reducing its customer service burdens, increasing adoption of taxpayer digital channels, and improving overall customer service by providing round-the-clock account information and functions to its taxpayers. As these states have done, the IRS should prioritize and implement digital accounts for tax professionals to achieve similar outcomes.
3. Empower taxpayers to authorize their tax professionals to assist with compliance.
Taxpayers should be able to authorize third parties, such as tax professionals, Volunteer Income Tax Assistance (VITA) volunteers, and tax software providers to electronically receive tax account information as part of the tax preparation process.
Security is at the forefront of concerns, and the IRS will need to expand monitoring and responsiveness to ensure a high level of security. This includes use of security best practices such as behavior analytics to understand the user’s online experience and identify suspicious behavior.
Taxpayers will likely take a more active role in controlling their own accounts, but the online options should include capabilities for taxpayers to control information and actions that can be conducted by the third party. The 2015 Taxpayer Advocate Annual Report recommends against boilerplate broad access to third parties with minimal restrictions.
Tax professionals should only have privileges granted by the taxpayer by means of a third-party authorization, such as a POA (enabled by IRS Form 2848). Taxpayers should also have the ability to immediately revoke any third-party authorization. All of the capabilities should be enabled digitally.
4. Provide capabilities for tax professionals to act on behalf of their clients.
Tax professionals will be instrumental in educating taxpayers and the key to increasing the taxpayer's adoption of the IRS’s online services. They should be treated as valued partners in tax administration and should be able to conduct via the online account the same activities they currently perform on paper.
Tax professionals with authorization should be able to receive access to the same information the taxpayer receives. Secure messaging, document exchange capabilities, and video communication channels could enable tax professionals to interact with the IRS on behalf of their clients in a secure, efficient, and effective manner.
5. Architecture and infrastructure sufficient to support current and future development technology.
The IRS’s infrastructure needs to support a continually evolving tax ecosystem and future technologies such as Chat Bots and Artificial Intelligence (AI). It is vital to plan for today’s development projects but also to continue planning for future projects that will improve taxpayer service.
Leveraging successful customer service models currently used in private industry (such as Chat Bots and AI) will keep the IRS moving forward to delivering 24/7 taxpayer service.
Issue Two: Third-Party Application Program Interfaces(APIs)
APIs present several unique challenges that the IRS will have to resolve to achieve success. The APIs need to be agile and react fast to the constantly changing environment. Evaluating the input from a variety of stakeholders (service providers, software developers, tax professionals, and other relevant third parties) has provided the IRS with a list of the most important APIs as well as guidelines for assessing APIs.
APIs provide the IRS the capability to focus on the customer’s needs rather than managing data presentation. APIs also enable third parties to better participate in digital solutions. The IRS needs to move more in this direction to also enable authorized third-party software companies to use the data effectively in serving their customers. Development of APIs signal to the tax industry that they are a valued partner and that the IRS wants to work in partnership with industry to solve issues.
The IRSAC recommends that the IRS take a strategic approach on how the IRS can remove obstacles for API use. Well-defined parameters are vital to simplify the design of these capabilities. For example, the current framework does not support real-time authorization. A modernized approach will provide taxpayers with the ability to unlock their taxpayer information and to import tax information into tax software.
In order for APIs to enable third-party providers, the IRS must address and solve how third parties will be authorized via APIs. This issue is not as simple as enabling an individual tax pro or individual third party to receive information. It involves providing authorization to the person(s) through an application and likely outside of the current authorization framework.
To be effective, the application will have to have the capability for the user to be authorized by the taxpayer outside of the current authorization process (i.e., filing of Forms 2848 or 8821 or through a third-party designee when a return is filed).
The IRS will need to create a taxpayer centered authorization solution, empowering taxpayers to choose third-party designees. Specifically, a click-through authorization process should be developed that streamlines, simplifies, and automates the process for taxpayers to authorize the IRS to share refund data with a third-party designee.
The IRS needs to develop a holistic API strategy that emphasizes consistency, robustness, improved user experience, and efficiency. The IRS also needs to develop a long-term API strategy including funding for the delivery of these services. The IRS will also need to look at what kind of IT systems changes are needed to support the rollout of an API strategy that prioritizes data as well as the back-end services. After the API long-term and short-term strategies are developed, they need to be clearly communicated to both internal and external stakeholders.
1. Identify types of beneficial API for incoming information received early.
As part of a long-term strategic approach to customer service, the IRSAC recommends the IRS develop APIs for information statements and transactions. A logical beginning point could start with an API that imports W-2s and 1099s from the IRS and then allow the transfer of W-2 and 1099 information for import to tax software.
The IRSAC recommends the IRS move forward in building the capabilities for utilizing APIs. The following are some examples of API’s that the IRS may want to develop:
- Verify Income - Provides the Adjusted Gross Income (AGI) of a taxpayer for a given year. Could be utilized for a variety of purposes including financial and educational institutions.
- Refund Status - Returns the current status of a taxpayer’s refund. May be used by the taxpayer via IRS.gov, the mobile application IRS2Go, or via a third-party tax preparation firm on behalf of a taxpayer.
- ACH Payment - A suite of services to allow a taxpayer to make a payment, schedule payments, edit/delete payments, view pending payments, or view past/processed payments. Recommended to be included via IRS.gov website.
- Online Payment Agreement - Functionality will validate a taxpayer’s eligibility for establishing an online payment agreement, as well as creating a new agreement and maintaining existing agreements. Could be utilized by multi-channels.
- Calculators as a service: (Earned Income Tax Credit), OIC (Offer in Compromise), Energy Star rebate calculator. Could be utilized by multi-channels (i.e., IRS.gov and software providers).
- Assigning a payment from one tax period to another - API would enable taxpayer or tax professional to move a payment to the correct period. Would be very beneficial for the taxpayer and tax professional to assist in resolving payments applied to the wrong period.
- Prior year(s) tax information to tax preparer - API would enable tax preparer to look up prior year tax information for their client. Would be extremely helpful to the tax professional.
- PTIN (Preparer Tax Identification Number) lookups by the taxpayer - Would assist taxpayer.
2. Enable real-time and robust authorization methods for tax software.
The current framework does not support the real-time authorization of software to access taxpayer data. The IRS is developing an enterprise-wide authentication strategy for all IRS interactions and collaborating with the Security Summit on this strategy.
As reported in the ETAAC’s 2016 report to Congress, the current limits on third-party authorizations are a significant obstacle to enabling transfer of account and compliance information to software providers. Software providers need the ability to receive a broader scope of a taxpayers’ account information including, but not limited to, current year information, prior-year return and account information, compliance activity and status.
Expanding the current process taxpayers grant access to tax information through Form 8821 and Form 2848 increases the complexity with a digital platform. The IRS needs to create an authorization process for software providers to receive tax account information and transfer it to taxpayers and their authorized tax professionals that support a good user experience.
3. Build upon the success of the Third-Party Refund Status API Pilot Project
The IRSAC recommends that the IRS build upon the success of the Third-Party Refund Status API Pilot Project. The pilot was designed to inform individual taxpayers of their Form 1040 individual income tax refund status via their self-preparation tax software company, i.e., taxpayers could learn the status of their income tax refund through their software provider instead of having to call the IRS or visit the IRS website.
Three iterations of the pilot project were successfully implemented during the 2015, 2016, and 2017 filing seasons. In each year, the IRS refined and improved the pilot program for the taxpayer and the participating software companies. Several key objectives have been met through this pilot:
- The IRS delivered an externally-facing API, developing a better understanding of challenges associated with sharing business functionality with external partners (in this case software developers).
- The IRS learned about third-party taxpayer authorization requirements and processes.
- The IRS validated a security model that supported external partners.
In addition, during the pilot, the IRS captured detailed metrics to encourage accurate sizing of information system changes that would be required for full implementation and rollout of this program.
The pilot was limited in scope to a small number of software companies that participated and the daily volume had a cap. The IRSAC recommends that the IRS continue the pilot as it develops full-scale implementation plans for this API. Because discontinuing the pilot project while working on full-scale implementation may give an incorrect impression that the IRS is not committed to moving forward on the expansion of the program or future development of APIs, we believe this would be a step backward.
In our view, this is a great example of what taxpayers need, want, and expect from the IRS. It also is an excellent example of how the agency can partner with industry to deliver improved service to the taxpayer via digital tools. Hence, the IRSAC recommends the IRS commit to a time frame for the expansion and rollout of this pilot and build upon the success of this pilot for future API expansion and growth.
Issue Three: Form 2848 Power of Attorney and Declaration of Representative
Form 2848 is used to authorize an individual to represent a taxpayer before the IRS and is an essential component of tax professionals providing services to taxpayers. The representative must be eligible to practice before the IRS pursuant to Treasury Circular 230 (such as attorneys, certified public accountants, appraisers, and enrolled agents). Certain other individuals (such as immediate family members, officers, partners, employees, and fiduciaries) may also represent a specific taxpayer before the IRS because of their special relationship with a taxpayer as long as they present satisfactory identification and proof of authority to represent the taxpayer.
Currently, Form 2848 is only allowed to be mailed or faxed to the IRS. The IRSAC recommends that the IRS implement a digital method to process Form 2848 and to provide notification when a Power of Attorney (POA) is received, accepted, and withdrawn. In addition, the IRSAC recommends that the IRS review the digital mechanisms offered by various state agencies to authorize tax professionals to act on behalf of taxpayers.
1. Implement a Digital Authorization Method to Process Form 2848
A power of attorney needs to be processed before an individual may assist a taxpayer who has been contacted by the IRS in a variety of situations, and often the requested responses are time sensitive. For most taxpayers, contact by the IRS causes stress and anxiety. The lengthy processing times associated with the current manual processing of Form 2848 prolong this stress and anxiety and increase the possibility that taxpayers will not receive the benefit of representation in critical matters, such as levy actions.
According to the Internal Revenue Manual, third-party authorizations on Form 2848 are processed onto the Centralized Authorization File (CAF) at two Wage & Investment (W&I) sites—the Memphis and Ogden Accounts Management Campuses. International third-party authorization requests are processed only at the Philadelphia Accounts Management Campus. Items received in the CAF Functions are processed first in first out (FIFO), regardless of the method used to submit the authorizations.
Generally, receipts are processed within five business days, and all receipts (except international bulk receipts) are date stamped. Processed authorization forms are sent to the Customer Account Services (C-Site) in Kansas City after all actions are taken, and the authorization is processed to the CAF. There are approximately 170 CAF Tax Examiners for all three CAF sites. A summary of the 2016 CAF receipts provided by Wage & Investment follows:
|(Int'l) FAX BULK||NA||NA||103,777||103,777|
This recommendation is not new. The IRSAC has provided recommendations related to digital authorizations in its 2013, 2015, and 2016 annual reports. Since at least 2014, the ETAAC has addressed the desirability of digital authorizations in its annual reports.
The IRS Future State addresses online third-party authorizations. The National Taxpayer Advocate has addressed issues related to Form 2848 in multiple reports.
For example, in her Objectives Report to Congress for the Fiscal Year 2017, the National Taxpayer Advocate states, “The IRS should bring IRS Form 2848, Power of Attorney and Declaration of Representative, into the 21st century by building the online account system to provide specific checkboxes addressing authorizations for each type of action a preparer could take on behalf of the taxpayer on the online account system.”
Finally, on April 3, 2017, multiple associations (American Institute of CPAs, alliantgroup, LP, Crowe Horwath, LLP, National Association of Enrolled Agents, National Association of Tax Professionals, National Conference of CPA Practitioners, National Society of Accountants, National Society of Tax Professionals and Padgett Business Services) submitted the “Ensuring a Modern-Functioning IRS for the 21st Century” framework to the Chairmen and Ranking Members of Congress of the House Ways and Means Committee and the Senate Finance Committee.
This framework includes recommendations regarding a digital mechanism for POAs and disclosure authorizations and replacing the CAF with a consolidated online solution utilizing electronic signatures and an algorithmic-driven approval process that is as close to real time as possible.
The IRS previously allowed the electronic filing of Form 2848 through e-Services. In 2013, however, the IRS retired the Disclosure Authorization and Electronic Account Resolution e-Services products. In MSP#18 of her 2013 Annual Report to Congress, the National Taxpayer Advocate addressed concerns of the IRS’s “Sudden Discontinuance of the Disclosure Authorization and Electronic Account Resolution Applications.”
In 2013, the National Taxpayer Advocate stated that the IRS did not modify its marketing plan once low usage became a concern, and noted that nearly 4,000 practitioners signed a petition urging the IRS to reverse its decision.
In previous Annual Reports, the National Taxpayer Advocate had written about the problems experienced with processing authorization requests through the CAF unit. “Specifically, the ineffective and outdated high-speed fax machines used by the CAF have failed to transmit all pages, break down frequently, and sometimes do not even receive authorizations.” The processing times were addressed in the National Taxpayer Advocate’s 2012 Annual Report to Congress—Most Serious Problem: IRS Processing Flaws and Service Delays Continue to Undermine Fundamental Taxpayer Rights to Representation.
Often, the taxpayer and individual representative have no way of knowing if a Form 2848 has been received or processed until either the individual representative gains access information via e-Services or the taxpayer receives a letter from the IRS. When a representative has to contact the IRS several times to confirm the processing of a Form 2848, more IRS resources are consumed, and the taxpayer may incur additional fees for the representative’s time.
It appears the IRS is starting to offer email notifications for IRS DirectPay and EFTPS. Email notifications to taxpayers and individual representatives to confirm a POA has been received, processed, or withdrawn should be included with any digital method of processing Form 2848.
In addition, several states offered confirmation of receipt which helps relieve taxpayer and tax professional stress regarding if the information has been received. New York, Colorado, California, and Illinois are a few of the states that the IRS may want to review.
3. State Tax Agencies and Uniformity
Many states have implemented digital authorization, as well as hybrid solutions which include accepting PDFs of the POA via email. The State of Illinois recently researched and surveyed the 50 states. Of the 50 states that were recently surveyed:
- 100% accept mail submissions.
- 48% accept email submissions.
- 72% accept fax submissions.
- 16% accept online submissions.
Many states accept a combination of the various methods and have much shorter turn-around time frames for processing the POAs that are submitted online or via email. In addition, several states confirm receipt, which helps relieve taxpayer and tax professional stress. The IRSAC recommends that the IRS reviews the systems in New York, Colorado, California, and Illinois if it has not already done so.
In addition, many of the states are looking at uniformity as they develop and implement more electronic offerings related to online accounts and POAs. Based on experience by the states regarding development and implementation of electronic filing and payment programs, there could be substantial benefits if there were a uniform and standard platform for the IRS and the states for processing a POA.
Digital technology is available with other IRS services, and the attendant security, authentication, and authorization issues are being addressed. Online accounts for individual taxpayers has been developed and is available through IRS.gov.
In addition, Direct Pay provides for secure payment of taxpayer liabilities, the e-Services platform provides secure access to selected taxpayer information by an authorized individual, and EFTPS is used to process sensitive payroll data. Finally, according to Online Services, digital communication is currently being tested on a limited basis (including the use of secure messaging with selected SBSE correspondence exams).
Thus, the IRSAC recommends that the IRS implement a digital method for processing Form 2848 as soon as possible. The current methods are inefficient, outdated, not cost effective, and do not provide any type of verification or authentication.
Providing a method to quickly, efficiently, and securely process Form 2848 through a digital method will not only provide peace of mind to taxpayers and allow timely assistance by representatives, but will permit better use of IRS resources. In addition, in our opinion, the instructions and information currently requested on Form 2848 need to be revised. More specific and detailed authorizations should be provided, and the instructions should be revised to conform with the filing requirements.
Finally, any digital processing method should make it easier for taxpayers to authorize multiple individuals and to replace or revoke a prior authorization.