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Technology and Taxpayer Rights


This post includes information about the IRS’s plans to use AI to assist taxpayers. For more insight on the legal risks tax administrations face from using AI-enabled systems, including risks to taxpayer rights, there is a Zoom lecture hosted by Antwerp and VIA Universities, HMRC, the Prosperity Collaborative, and the Center for Taxpayer Rights today, June 10, 2021 at 9 am ET, the link to attend is here.

The IRS’s outdated technological capabilities are well known, and the pandemic further stretched the already struggling system. Prior to the pandemic, the IRS had been tasked with examining ways to improve its technological capabilities pursuant to a provision in the Taxpayer First Act (“TFA”),  which required the IRS to implement a multi-year strategic plan for information technology by July 1, 2020 and to submit written plans for comprehensive customer-service, employee training, and organizational redesign to Congress by September 1, 2020. The pandemic delayed this submission, but the IRS submitted a combined report on all three topics to Congress in January of 2021, aptly titled the Taxpayer First Act, Report to Congress (“TFA Report”).

Tax scholars and academics have long been considering ways in which the IRS should prioritize updating its technological capabilities. In an article titled, Moving Tax Disputes Online Without Leaving Taxpayer Rights Behind, (available here), Professor W. Edward Afield asserts that if the IRS prioritizes its technological development efforts on tax controversy resolution, it could advance its customer service and enforcement goals while protecting and enhancing taxpayer rights.

The TFA Report contains some of Prof. Afield’s ideas and potentially lays the groundwork for his other ideas to be possible in the future.

Prof. Afield argues that the IRS could “increase its use of technology-based interactions with taxpayers in the controversy-resolution process” by: 1) providing more information about notices online, 2) allowing taxpayers to satisfy their tax obligations online, and 3) developing partnerships with the nonprofit and academic sectors to produce technological platforms and provide access to information and dispute-resolution tools.

1. Improved Online Information About Notices

The IRS could utilize technology to serve its goal of improving taxpayer compliance, while ensuring that taxpayer rights are protected by providing more comprehensive information about notices online. The IRS’s design choices for certain notices have been criticized as confusing to taxpayers, but that confusion is especially dangerous when a notice informs a taxpayer of proposed actions that implicate his or her due process rights. Although the IRS website contains some additional information, the most critical information about how, why and when to respond to due process related notices is not prominently displayed. As a result, taxpayers don’t exercise their rights. According to an NTA report, less than 1% to 10% of taxpayers respond to collection due process notices.

Prof. Afield references research from Prof. Morse who states, “The Service’s tendency to ‘bury the lead’ concerning critical information not only hurts taxpayers but can also negatively impact the Service, a lack of salience in a variety of Service communications limits the ability of the Service to shift taxpayer norms toward compliance and thus may increase the size of the tax gap.”

Prof. Afield argues that there are ways the IRS could explicitly encourage taxpayers to exercise their rights, such as by sharing taxpayer success stories or statistics about how many other taxpayers request collection due process hearings.

Prof. Afield argues that providing “easy-to-understand explanations to taxpayers on its website is relatively ‘low hanging fruit’ for which the service can use technology in a way that conserves resources while enhancing taxpayer rights.”

The IRS appears to agree with this in the TFA Report. The IRS plans to redesign notices by simplifying the format and providing information in a manner that is easy to read without unnecessary legal language. It also wants to provide clear information and plain instructions to the taxpayers about why they are receiving communications and what actions they need to take, including instructions for using online accounts for more detailed account information. In line with this, the IRS wants to further enhance notices with unique confirmation numbers linked to a specific taxpayer’s case and QR codes linked to additional information resources.

The IRS plans to utilize digital notifications to allow for customized notices available through online accounts and allow taxpayers opt-in to received notifications about changes, payment reminders and status updates. It’s not difficult to imagine that reminders could be created for CDP hearing request deadlines, Tax Court petition deadlines, and more.

Another way IRS is using technology to enhance taxpayer rights is by improving the access that tax professionals have to their clients’ information. The IRS wants to provide “secure access to clients account information and notices and perform other account services and representational duties through their online account.”  

A large of focus in the TFA Report is on developing multi-linguistic notices and communication capabilities.  They intend to identify necessary language translations and use data to improve communication effectiveness among different populations.

2. Enhancing Ability to Satisfy Tax Obligation Online

Prof. Afield discussed that other academic commentators and government advisory committees have recommended the development of a single online platform that integrates online services already available to taxpayers (such as checking on refunds and obtaining transcripts) and adds additional capabilities to do things such as view communications, view the status of issues, address underpayments and penalties, and respond to IRS inquiries.

The TFA Report reflects these recommendations. It proposes a more interactive and personalized online experience and expanded digital services where taxpayers can view the history of payments, refunds, amounts owe, and returns filed; update contact information and other details; utilize digital signatures; and exchange documents and communicate by chat with the IRS securely.

Prof. Afield argues that the IRS should also expand its online services to include online dispute resolution options and algorithmic decision making for collection alternatives that “rely on mathematical determinations of collectability.” Building upon the already existing technology the IRS uses for streamlined installment agreement determinations and the offer in compromise pre-qualifier tool, the IRS could develop a system that would allow taxpayers to enter information and upload documents for cases where an inability to pay is easily demonstrated. These types of cases exist, LITCs encounter them regularly.

Prof. Afield understands that algorithmic decision making is not appropriate for all cases, but a modified form of ODR could be utilized where one IRS employee is assigned to the case and the taxpayer can communicate with the assigned employee via an online portal to resolve the case more efficiently.

The IRS’s plans could lay the groundwork for more ODR options to exist in the future. The TFA Report discusses plans to use an artificial intelligence powered informational web chat to answer questions or direct taxpayers to helpful information and connect taxpayer to assistors and live support, if needed. If a chat bot cannot resolve issue, taxpayers will also have option to schedule an appointment with employees in exam and collection in-person, by telephone, or by secure video chat. One could imagine ODR possibilities arising from this, especially after the ability to upload documents and exchange information securely is developed.  IRS is open to learning and adapting based on data and information as they collect it, and has created new positions within the organization that focus on these areas.

Prof. Afield also references the work of Prof. Blank and Prof. Osofsky, who have performed extensive research in this area, were recently chosen to assist with these efforts by studying the use of automated legal guidance by federal agencies by the Administrative Conference of the U.S.

3. Nonprofit and Academic Partnerships

Using partnerships with nonprofit organization and academic institutions to fill gaps and assist vulnerable groups, is the third area Prof. Afield believes the IRS should prioritize. These partners could be tasked with developing technology that can further assist taxpayers and essentially serve as technological translators between taxpayers and the IRS. One such idea is technology that utilizes easy-to-understand questionnaires to complete a Tax Court petition or collection form; or informs taxpayers about the range of procedural options available to them based on their specific circumstances. This could reduce the demand for personal assistance, but such assistance would still be available when needed.

Relying on non-profit motivated institutions to develop and implement these types of technology could also help taxpayers more quickly while the IRS to goes through the slow and deliberate process of experimenting with different improvements.

The TFA Report states that the IRS is interested in building on existing partnerships and creating news one in order to “address issues of communication, education, transparency, trust and access to quality products and services like customized education and outreach in various languages.”

Offline, the IRS wants to expand upon this with further community outreach to community centers, cultural and faith communities and organizations, chambers of commerce, and engagements with schools. It also believes that co-locating IRS services with other government services (such as post offices, U.S. embassies) can assist the IRS in helping taxpayers to access services and resolve issues.

Online, the IRS wants to create partnerships that allow for virtual seminars, and secure and authorized data sharing opportunities amongfederal and state agencies, Security Summit25 participants, and other third parties to drive enforcement decisions, combat identify theft and improve the taxpayer experience.

Risks and Benefits

Prof. Afield also discuss the risk of overreliance on technology, such as a reduction in in-person assistance (which budget constraints have already caused), the intentional and unintentional biases in algorithmic decision making, and the risk that for-profit companies could develop ways to exploit vulnerable taxpayers, in addition to the more common concerns about data breaches and government overreach.

The TFA Report surmises that taxpayers could be more protected from identity theft if the IRS is able to request and verify taxpayer information more quickly and easily. Prof. Afield postulates that if the IRS is intentional and smart about its development and implementations, the benefits will outweigh the risk. If technological solutions are implemented carefully, they could allow IRS to better serve taxpayers, protect taxpayer rights, and meet cost and efficiency goals. The TFA Report aims for the first phase of multi-year plans be implemented between now and the end of 2022 if it receives enough funding, and even though a lot has changed, that’s still a big “if.”



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