The Internal Revenue Service is urged to test virtual visits with paid tax preparers using videoconferencing technology to reduce errors in claiming refundable tax credits in a new government report.
The report, released Thursday by the Government Accountability Office, noted that the pandemic and staffing shortages reduced the IRS’ ability to visit tax preparers in person last year to brief them on improving compliance. tax. The GAO recommended that the IRS test use videoconferencing for such visits and expand its use if the benefits are found to outweigh the costs, and the IRS agreed.
Many of these visits come after the IRS uncovered problems with refundable tax credits like the Earned Income Tax Credit, Additional Child Tax Credit and the U.S. Opportunity Tax Credit. . The IRS estimates that 23% of the payments it issued to taxpayers in fiscal year 2021 for refundable tax credits were made in error, costing about $26 billion. The IRS has traditionally visited tax preparers in person to brief them on compliance or request evidence of compliance, but due to COVID-19 and staffing shortages, the IRS has suspended educational visits and reduced its number of compliance reviews in fiscal years 2021 to 2022. .
The report comes as the IRS faced many challenges last year due to the pandemic and staffing shortages, with the IRS facing a backlog of millions of tax returns from last year.
“Recent declines in the number of knock-and-talk and due diligence visits conducted as part of the IRS’ refundable credit return preparation strategy have limited the amount of revenue the IRS can protect against abusive claims for refundable credits and other tax benefits,” the report said.
IRS officials told GAO that in-person visits give the agency an opportunity to interact with preparers, identify issues and help improve compliance with due diligence requirements. These requirements are set by law and help ensure accurate tax return preparation when tax clients claim certain refundable credits and tax benefits.
“While due diligence visits and knock-and-talk visits can be the most expensive compliance effort, they help [the] The IRS processes millions of dollars in potentially inappropriate claims at relatively low cost,” the report states.
From fiscal years 2017 through 2020, the IRS estimated that these visits protected about $118 million in tax revenue per year on average at an average cost of $3.3 million per year.
The IRS refundable credits preparation strategy includes pilot testing of new compliance measures in most years, and the annual planning process takes place during the summer months. So the GAO took the opportunity Thursday to release a report recommending that the IRS consider including a videoconferencing pilot as part of its strategy for preparing for refundable credit returns for the coming fiscal year. . While the IRS agreed with the GAO’s recommendations, IRS officials said they hadn’t actually tested a video conferencing option for preparer visits and they raised questions about its benefits. and potential challenges.
The GAO argues that videoconference visits could help the IRS ease in-person restrictions in the short term and provide additional long-term benefits, such as increased flexibility, modernization of IRS compliance activities, and operational cost savings.
“Without plans to test videoconference visits with preparers, the IRS will remain limited in its efforts to address preparer noncompliance,” the report said. “It may also miss opportunities to innovate in its compliance actions and align with agency-wide efforts to expand digital services to taxpayers and professionals.”
The GAO recommended that the IRS test and assess the costs, benefits, and challenges of using videoconferencing technology for its education and compliance visits with preparers, and whether the benefits outweigh the costs, it should pursue the implementation of the use of videoconferencing. The IRS agreed with the report’s recommendations, but argued that its in-person due diligence and “knock and talk” visits were already working to protect tax revenue. Visits are made in person, as well as by telephone and correspondence. Knock-and-talk visits are estimated to protect an average of $14 million per year in tax revenue for fiscal years 2017 through 2020, while due diligence visits protected an average of $104 million per year. “For correspondence [due diligence visit] examinations, the requested documents are mailed or faxed to the employee performing the examination,” IRS Deputy Commissioner for Services and Enforcement Douglas O’Donnell wrote in response to the report. “The same process would be followed if videoconferencing technology was used for future treatments.”
However, he acknowledged that each year changes to the program are implemented to reflect lessons learned in previous years and test new methods to improve tax preparer compliance. “We will explore the feasibility of the recommendations made in the report,” he added.
The IRS has used videoconferencing technology in the past to provide service to taxpayers at its Taxpayer Assistance Centers, but a 2018 report of the General Treasury Inspectorate for Tax Administration found that relatively few taxpayers took advantage of it and that use had been declining for several years (see the story). However, last year, the IRS’ Large Business and International Division began using video conferencing to meet with large businesses virtually to resolve their tax issues (see the story).