The IRS should use some of the $80 billion allocated from the Inflation Reduction Act to help small and medium-sized businesses learn about their rights as taxpayers and about available business credits and incentives in the tax code, alliantgroup’s Eric Hylton says.
This month, IRS Commissioner Charles P. Rettig’s term will come to a close, opening the door for a successor to lead an agency that continues to work itself out of backlog brought on by the Covid-19 pandemic.
First, hats off to Rettig for having a dynamic tenure as commissioner and leading the agency through some historic perfect storms—Covid-19, the longest government shutdown, and continual underfunding. Douglas O’Donnell will be serving as acting IRS commissioner once Rettig’s term expires on Nov. 12.
As Kelly Phillips Erb pointed out in a recent Taxgirl column, the commissioner’s successor has an immense challenge ahead. With nearly 80,000 employees, whoever takes the reigns from Rettig will have a slew of responsibilities and a barrage of objectives that will need to be tackled. As Erb astutely pointed out, the IRS has had hit a few stumbling blocks, so the $80 billion allocated from Inflation Reduction Act will be a welcome reprieve.
So what can the next agency lead do to propel the IRS forward in a meaningful way?
Backbone of the Economy
The roadmap is laid out in its Strategic Plan for Fiscal Years 2022 to 2026. It was released earlier this year and lists service, enforcement, people, and transformation as its four strategic goals to put taxpayers’ interests first and enhance the taxpayer experience. Increasing staffing with a well-equipped workforce will certainly help. And while transforming IRS operations and increasing enforcement are needed for efficient and effective tax administration, the one pillar that should likely be focused on mightily is the “service” objective.
In particular, the new commissioner should have an eye toward how the agency might serve American small-to-medium-sized businesses (SMBs), the backbone of the US economy. I acknowledge my perspective on supporting and servicing SMBs may be a little biased since I was the former commissioner for the IRS’ Small Business and Self-Employed Division.
In a recent speech delivered to IRS employees, Treasury Secretary Janet Yellen said that “during the most recent filing season, the IRS averaged a 10-15% level of service, meaning that it answered less than 2 of every 10 calls. In this coming filing season, we are committing the IRS to an 85% level of service.” Although these statistics focus mainly on individual levels of service, SMBs also have struggled for access to IRS officials when tax questions arise.
As part of its laudable efforts to increase customer service, the IRS has an objective to provide “proactive outreach and education to improve taxpayer understanding of their rights, responsibilities and obligations.” US SMBs would benefit greatly from the agency having an eye toward their needs in this area.
Specifically, the IRS should continue directing attention toward education, work to better to inform SMBs of their rights as taxpayers, and increase guidance to enable taxpayers to use tax benefits established by Congress while enhancing their ability for voluntary compliance.
A perfect example of how the agency can make progress with this goal would be to more robustly highlight the business credits and incentives that the tax code offers SMBs.
Although many of our country’s larger businesses take full advantage of these incentives, SMBs likely don’t have the resources to become adequately informed about the benefits of these credits and incentives, or even if their business qualifies. Due to the complex nature of these incentives, it is helpful when the agency provides educational materials to ensure the overall congressional intent is met and SMBs can be fully informed of tax savings eligibility.
With this educational premise in mind, one of the pillars of the IRS’ Taxpayer Bill of Rights is the “right to be informed.” Helping SMBs know what they need to do to comply with tax laws and ensuring agency interactions are prompt, courteous, and professional falls right in line with the strategic goals. Further, a continual theme echoed by SMBs and their accountants is that the IRS should improve the ability for SMBs to access their tax status, ask relevant tax questions, and work through tax disputes in an efficient manner.
Certainly, a lack of resources, bandwidth, and funding have contributed to the agency’s inability to provide the efficient and supportive service that it likely wants to, but nevertheless the problem persists.
Here again, pillars of the Taxpayer Bill of Rights also include the rights to “challenge the IRS’s position and be heard,” “quality service,” and a “fair and just tax system.” An SMB’s ability to access IRS representatives in a reasonable timeframe and have a clear understanding of their rights to challenge agency positions is crucial, and more likely will continue to boost SMBs’ confidence in the world’s best tax administration.
The next head of the IRS will, as their predecessors, face challenges with how to allocate funds and internal resources to make these objectives a reality. The additional funding being provided to the IRS can be a launching pad for the new commissioner to push forward with these types of goals.
The agency has made clear that enforcement efforts will increase with the new funding; however, continuing to put equal weight on taxpayer’s rights can show the public that the IRS is there to assist and serve them. The next commissioner should heighten the agency’s focus on a specific type of taxpayer in the next several years: American SMBs.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
About the Author
Hylton held several prominent positions at the IRS, including serving as Deputy of the Criminal Investigation Division and as CI’s head of International Operations. As National Director of Compliance, Eric employs his years of experience at the IRS to assist alliantgroup’s clients as an ambassador for U.S. small and medium sized businesses (SMBs) and in helping others become tax compliant.