IRS playbook for 2009-2013

The IRS recently published its Strategic Game Plan for 2009-2013. The mission of the IRS is to: "Provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all."

The plan spells out 2 overarching goals for the next 5 years:

Goal 1: Improve service to make voluntary compliance easier.

Goal 2: Enforce the law to ensure everyone meets their obligations to pay taxes.

A few specified objectives for meeting these goals are to:

• Consider the taxpayer's perspective
  
• Improve issue resolution
• Make it easier to navigate the IRS
  
• Provide targeted, timely guidance and outreach
  
• Strengthen partnerships with tax practitioners
• Proactively enforce the law
  
• Respect taxpayer rights and minimize taxpayer burden
  
• Expand enforcement approaches and tools
  
• Target emerging high-risk areas
  

So what does this mean?

Obviously, I don't know for sure. My psychic powers are nonexistent. And I've never worked at the IRS, I've only dealt with the IRS.

Based on what I know (which, admittedly, may not be a lot), these are my suggestions to my fellow taxpayers:

• Try to get it right the first time. The best way to avoid trouble with the IRS is to file accurate, on-time returns.
  


• Don't expect leniency. One of the many rules I live by is to hope for the best, but plan for the worst. For several years, we've been told we'll be seeing a "kinder, gentler" IRS. However, many (perhaps even most) tax practitioners and taxpayers have not found this to be the case. In January this year, the National Taxpayer Advocate reported to Congress that the IRS is too harsh. The hard-line enforcement was identified as the second biggest problem facing taxpayers (with tax complexity being the first). This leads to my next suggestion for those facing tax trouble...
  


• Consider your options. In general, you can't completely avoid paying a tax debt, but you can work to minimize interest and penalties, and can work out agreements to pay over time. Tax attorney Peter Pappas provides a great summary of the forms of tax relief. We've all seen the commercials where people claim: "I owed $60,000, but this company made it so I didn't pay anything!" In reference to these types of claims, I recently heard an IRS representative respond simply that you'll only have that kind of debt forgiveness if you really have absolutely no assets available to pay. Now, I have no expertise in bankruptcy law, so I can't comment on when taxes can be discharged in bankruptcy. I can refer you to another post by Peter Pappas.
  


• Be proactive. If you have not paid your taxes, your situation will not improve if you just wait. Those problems do not just go away. The IRS can take a long, long time to move forward with an issue (so painfully long) -- but if you owe money, they will get to it sooner or later. And they will add penalties and interest. You'll be much better off if you hire a tax professional to take proactive steps to resolve the problem.

I would be very happy to see the IRS be successful in meeting the goals outlined in its Strategic Plan, as that would help the average, honest taxpayer and tax professional. It would not help the average tax cheat, which sounds good to me, since tax cheaters make my tax bill higher.

We'll see how the next 5 years go. For now, I'll just keep working to help my clients navigate the existing system, painful as it is.

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Band-aid solutions to tax complexity problem

On April 15, President Obama addressed the nation on the issue of tax simplification.

The Wall Street Journal article indicated one proposal under consideration would exempt up to 40% of Americans from having to file a tax return. After contacting the article's authors, I learned that the plan was written by Austan Goolsbee and adopted by the Obama campaign.

Titled "The Simple Return" plan, the proposal would not actually exempt up to 40% of Americans from filing a return. Rather, it would make it so the only action required by the average taxpayer would be "checking the numbers, signing the return, and then either sending a check or getting a refund."

A few of the key points in the plan:

• The proposal assumes the tax law remains as is, with the same mass of deductions, credits, exemptions, and so forth.
• The program would be voluntary. Anyone who preferred to fill out his own tax form, or to pay a tax preparer to do it, would just throw the Simple Return away and file his taxes the way he does now.
• The IRS would prepare a "Simple Return" with the data it receives from employers and banks (including froms W-2, 1099, and 1098), which the taxpayer could then just review and sign.
• California has already implemented a pilot program of the "Simple Return" plan, which it calls "Ready Return."

I have just read this over in the last couple of days, so I'm far from qualified to render an expert opinion. Still, I'll go ahead an render my inexpert one:

This seems to be a valiant effort to make the existing system more manageable for the average taxpayer. But it treats the symptoms rather than the disease. The real problem is the complicated, convoluted, mind-numbing tax law.

Rather than trying to lessen the headache of working within a broken system, let's try to fix the system itself.

Unfortunately, that's where my "wisdom" (or foolishness, depending on who you ask) runs out. I hope to read more about others' ideas for real tax reform over the summer. Stay tuned.

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