IRS Strategic Plan and Technology - Let's Hope for 21st Century Technological Approaches to Tax Compliance

In April 2009, the IRS released its 2009-2013 strategic plan. In the first part of the introductory message from IRS Commissioner Shulman, he summarizes well some of the opportunities and challenges facing the IRS:

"The IRS strives to maintain the fairest and most effective system of voluntary tax compliance in the world. The environment in which we operate is complex and constantly changing, and the IRS must change with it.

For example, accelerating globalization and development of new business models challenge IRS efforts to ensure that all businesses pay the taxes they owe. The tax laws are increasingly complex, and the role of tax practitioners and other third parties in the system is expanding. The explosion in technology has raised taxpayer expectations for new ways to interact with the IRS - and has significantly increased security risks, requiring more vigilance."

It is good that he highlights the complexity of the system - much of that complexity comes from Congress rather than Treasury/IRS. In fact, Treasury and IRS have often found ways to simplify something that Congress had made complex. One example that comes to mind is that the IRS wrote the IRC Section 263A (unicap) regulations to exempt small producers from the rules even though Congress had only exempted small resellers.

I hope that IRS will take seriously the comment about technology raising taxpayer expectations about how they should interact with the IRS. One of the objectives in their strategic plan is to "build and deploy advanced information technology systems, processes and tools to improve IRS efficiency and productivity." I hope this goes far enough. I think that to move tax administration into the 21st century (where you'd think we'd be for a 2009-2013 plan!), IRS needs to think about deploying technology in the same way that a business would think about how it can be used to better reach and serve customers.

Here is an example that came up in my graduate tax accounting class the other day. The guidance on how to change your accounting method with automatic approval from the IRS (Revenue Procedure 2008-52) is 100 pages long. It is difficult to get through the very long list of covered changes to see if your desired change is listed. Technology could have been used to solve this problem. A program could have been written that poses questions. The answers would lead to an answer of either, you can use the automatic change procedures or you cannot. The taxpayer could then print that one-page answer sheet and attached it to their Form 3115 (the accounting method change form) and proceed with greater confidence and time saved that they were following the proper IRS procedure.

There are many other examples. I think taxpayers and practitioners will have to continually push for such technological solutions. The IRS will have to think more like a business that sees how technology can be used in ways that just don't duplicate a paper process, but offers something that can only be done with technology. For example, the 3115 example above could also result in the completed 3115 and a computer message to either attach it to your return (or e-file it) or hit the button that sends it directly to the IRS person who needs to personally review it (and that should be rare).

I have a short article on more details of the IRS Strategic Plan - here.

How do you think the IRS could better use technology for simplified tax compliance?