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Annette Nellen
Annette Nellen
IRS Strategy and the Corporate Taxpayer

In April 2009, the IRS released its new five-year strategic plan. What might it mean for corporate taxpayers and their tax advisers?

May 28, 2009
by Annette Nellen, CPA/Esq.

The goals of the 2009-2013 IRS strategic plan are similar to those of the prior plan with some changes in wording and specificity. The Internal Revenue Service (IRS) observes that achievement of its goals for improved taxpayer service and enforcement will require investment in both employees and technology.

This article notes the goals and objectives of the plan and compares them to those of the prior plan. Areas of importance to corporations and their tax advisers are explained along with key implementation challenges the IRS will face.

IRS Mission

Provide America’s taxpayers top-quality services by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.

Plan Basics

The new five-year strategic plan begins with a discussion of six trends to consider because they affect IRS operations. These trends, as explained by the IRS (Plan (PDF)), are:

  1. Growing complexity of tax administration — the IRS faces legislative mandates that can require substantial resources and a short timeframe for implementation. The IRS must be structured to handle these obligations.
  2. An aging workforce — over 50 percent of IRS employees are age 50 or older. Today, 39 percent of IRS executives and 20 percent of its managers are eligible for retirement.
  3. Technology demands — both employees and taxpayers expect the IRS to have technology comparable to what public companies have. Yet, given the value of tax return data, the IRS likely faces greater security threats than other organizations.
  4. Greater globalization — foreign operations and earnings of both businesses and individuals have increased in the past 15 years. Twice as many individuals had foreign-source income in 2006 compared to 2001.
  5. More taxpayers rely on practitioners or software for compliance — in 2007 only 13 percent of taxpayers did not use a paid preparer or software, compared to 41 percent in 1993.
  6. Increasing change in business models — 64 percent of large and mid-size businesses are pass-through entities and by 2015 it is expected that about 43 million individual returns will include business income compared to just 38 million in 2007.

The 2009–2013 strategic plan specifies two key goals, which were also part of the 2005–2009 plan. The earlier plan included a third goal to modernize the workforce, processes and technology. That goal now appears as a “strategic foundation.” The table below lists the goals and objectives for the current and prior five-year plans. For each objective, the plan lists two to five strategies for achieving the objectives.

The IRS Oversight Board commended the IRS on its new strategic plan. The Board encouraged the IRS to employ quantifiable measures to track achievement of the goals and objectives. The measures advocated by the Board included reaching a voluntary compliance rate of 86 percent and an e-file rate of 80 percent by 2012.

Comparison of Strategic Plans
The text below is taken verbatim from the IRS strategic plans for 2009–2013 (PDF) and 2005–2009 (PDF).

2009-2013

2005-2009

Goal 1 — Service Improvement
Objectives

  • Incorporate taxpayer perspectives to improve all service interactions.
  • Expedite and improve issue resolution across all interactions with taxpayers, making it easier to navigate the IRS.
  • Provide taxpayers with targeted, timely guidance and outreach.
  • Strengthen partnerships with tax practitioners, tax preparers and other third parties in order to ensure effectives tax administration.
  • Improve service options for the tax paying public.
  • Facilitate participation in the tax system by all sectors of the public.
  • Simplify the tax process.

Goal 2 — Enforcement
Objectives

  • Proactively enforce the law in a timely manner while respecting taxpayer rights and minimizing taxpayer burden.
  • Expand enforcement approaches and tools.
  • Meet the challenges of international tax administration.
  • Allocate compliance resources using a data-driven approach to target existing and emerging high-risk areas.
  • Continue focused oversight of the tax-exempt sector.
  • Ensure that all tax practitioners, tax preparers and other third parties in the tax system adhere to professional standards and follow the law.
  • Discourage and deter non-compliance with emphasis on corrosive activity by corporations, high-income individual taxpayers and other contributors to the tax gap.
  • Ensure that attorneys, accountants and other tax practitioners adhere to professional standards and follow the law.
  • Detect and deter domestic and off-shore based tax and financial criminal activity.
  • Deter abuse within tax-exempt and governmental entities and misuse of such entities by third parties for tax avoidance or other unintended purposes.

Strategic Foundations

Goal 3 — Modernization

Objectives

  • Make the IRS the best place to work in government.
  • Build and deploy advanced information technology systems, processes and tools to improve IRS efficiency and productivity.
  • Use data and research across the organization to make informed decisions and allocate resources.
  • Ensure the privacy and security of data and safety and security of employees.
  • Increase organizational capacity to enable full engagement and maximum productivity of employees.
  • Modernize information systems to improve service and enforcement.
  • Ensure the safety and security of people, facilities and information systems.
  • Modernize business processes and align the infrastructure support to maximize resources devoted to front-line operations.

Relevance to Corporations and Their Tax Advisers

Key areas where the strategic plan affects corporations and their tax advisers are listed below.

To improve service, the IRS will seek to:

  • Obtain taxpayer input before implementing “large-scale changes.”
  • “Create explicit opportunities for taxpayers to proactively resolve issues at the earliest possible moment.”
  • Improve service and education to practitioners so they can better help their clients.

To improve enforcement, the IRS will seek to:

  • Act promptly and decisively to address tax avoidance schemes.
  • Find ways to work “across government” to obtain and share information.
  • Support information reporting proposals “while mitigating burden to the public.”
  • “Provide and expand incentives for taxpayers to conduct independent external audits.”
  • Work with other countries to coordinate enforcement efforts, such as through the Joint International Tax Shelter Information Centre.

The strategic plan stresses the theme of streamlining services to be more efficient. For example, issue resolution techniques will be expanded and “processes that unnecessarily burden taxpayer or IRS resources” will be eliminated or simplified. The plan also stresses improving relations with tax practitioners and other third parties (such as software companies) to help them be better informed. The plan also highlights the need for the IRS to address practitioner misconduct and actions that increase the tax gap and “erode public confidence in the tax system.” Finally, the plan highlights the need to improve technological efficiency and ensure data security.

Challenges

The IRS faces challenges in meeting its strategic plan. Most notably is the increasing complexity of the federal tax law, particularly via frequent law changes. Changes that put additional burdens on the IRS, such as the processing of over 100 million stimulus payments, distract from guidance and enforcement activities. President Obama’s international tax reform proposal acknowledges that new or expanded enforcement efforts warrant additional resources. His plan includes hiring 800 new IRS employees to address offshore tax avoidance. The Administration’s FY2010 revenue proposals require e-filing for taxpayers using Form M-3 (“Green Book” (PDF), May 2009). Expanded enforcement, technology and law changes and the need to replace retiring employees will strain IRS resources.

The Service’s new strategic plan will help the IRS deal with upcoming challenges. The plan also helps taxpayers and practitioners to better understand what to expect from the IRS in terms of outreach and enforcement initiatives and activities.

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Annette Nellen, CPA, Esq., is a tax professor and Director of the MST Program at San Jos State University. Nellen is an active member of the tax sections of the ABA and AICPA. She serves on the AICPA's Individual Income Taxation Technical Resource Panel. She has several reports on tax reform and a blog.