IRS May Give Some a Break

IRS chief promises agency will take empathetic approach

By Michelle Singletary,, 2/19/09

With a budget deficit projected to top a trillion dollars this year, IRS Commissioner Douglas Shulman may start feeling some pressure.

After all, it's the job of the IRS to collect the money that finances most government operations and public services. Quite naturally, one would think there will be increased demand to collect every penny that taxpayers owe.

But Shulman, who is just one year into a five-year term, says he's committed to creating a balance between taxpayer service and strong tax enforcement.

"We need to be a world-class service organization," Shulman said during an hourlong interview. "We need to walk a mile in the taxpayer's shoes. My theory is people don't expect flawless service. But they do want to be told what to expect and then get it."

Although the IRS isn't making major headline news like the Treasury Department, it is still the most dreaded or loathed federal agency. Of course, in part that may have something to do with the fact the IRS collects money many people would rather keep for themselves.

I remember the congressional hearings in the late 1990s when taxpayers testified about the rough Sopranos-like treatment they were getting from IRS agents.

Talking behind big screens, longtime IRS employees accused management of fostering an environment where workers were preoccupied with achieving high collection statistics, even if their collection tactics were illegal.

Although subsequent investigations didn't turn up widespread abuses, the hearings were instrumental in achieving passage of legislation restructuring the IRS and expanding taxpayer rights.

"We want to systematically find where people get lost in the system," Shulman said. "We want to understand the taxpayer experience."

Right now, for many taxpayers, what they are experiencing is being broke.

Recognizing the problem, Shulman said he has given IRS front-line employees the authority to be easier on people who are having trouble paying their taxes because of current economic conditions.

"We are going to suspend action and take people out of the collection queue," he said.

The leniency efforts will be aimed at taxpayers who are unemployed or are relying solely on Social Security or public assistance.

But Shulman quickly added that they won't get a "free ride," just a break. Additionally, such grace is directed toward people who have been tax-compliant in the past.

"We want to help people who have always been upstanding," he said.

There's not just an altruistic goal here. This is still the IRS. Shulman said his goal is to keep "compliant taxpayers in the system."

Shulman came to the IRS from the Financial Industry Regulatory Authority, the private-sector regulator of all securities firms doing business in the United States. He was the agency's vice chairman responsible for strategy, services and operations.

Shulman said he's going to ratchet up enforcement among three groups of taxpayers: high net-worth individuals, U.S. businesses with international operations, and large corporations.

He says the way to drive up compliance among these groups is to increase third-party reporting.

For example, beginning in 2011 financial firms will be required to report to the IRS what people paid for their stock to capture what is known as the cost basis. In a phase-in schedule, other investments will also come under the new reporting rule. This means the IRS will have a paper trail to catch people trying to avoid paying all the capital gains taxes on their profits.

Also beginning in 2011, financial institutions will be required to report to the IRS the annual gross credit and debit card payments made to businesses.

Based on the Joint Committee on Taxation's estimates, the projected revenue generated from those two provisions alone could bring in $6.7 billion over 10 years for the cost basis reporting and $9.5 billion over 10 years for the credit and debit card reporting.

"We are going to be matching up revenue with what's being reported to the IRS," Shulman said. "Honest taxpayers have nothing to fear."

If Shulman can get that right balance of helping taxpayers and tax enforcement, it will go a long way in chipping away at our gargantuan federal deficit and maybe eliminate the shivers you get at the mere mention of three letters — IRS.

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