The IRS has agreed with a Government Accountability Office (GAO) recommendation that it pilot test the use of videoconferencing technology as part of its ongoing efforts to meet with third-party tax preparers to educate them on compliance obligations and tax rules. Based on results from the pilot, IRS may expand on-line meetings with preparers.
The IRS already works to meet with tax preparers, but in-person meetings with are resource-intensive, and were hobbled by the impact of the coronavirus pandemic.
The impact of IRS’ output – particularly in the area of refundable tax credits – is substantial. According to a new report by GAO, IRS estimates that 23 percent of payments issued to taxpayers in fiscal year (FY) 2021 for refundable tax credits were made in error, which cost about $26 billion.
COVID-19 led to staff shortages for IRS, and the tax agency suspended educational visits and reduced the number of compliance reviews it conducts in fiscal years 2021-2022. This trend has limited IRS’ ability to improve compliance and reduce improper payments, GAO said. Declines in these visits – conducted through IRS’ Refundable Credits Return Preparer Strategy – have limited how much revenue the IRS can protect from “improper claims of refundable credits and other tax benefits.”
“While due diligence visits and knock and talk visits can be the most expensive compliance effort, they help IRS address millions of dollars in potentially improper claims at a relatively low cost,” wrote GAO. “From fiscal years 2017 to 2020, IRS estimated that these visits on average protected about $118 million of tax revenue per year at an average cost of $3.3 million per year.”
GAO recommended that IRS begin a videoconferencing pilot as part of the strategy for the upcoming fiscal year. IRS officials say they haven’t tested a videoconferencing option for preparer visits, and are concerned about how the potential benefits stack up against the potential challenges.
GAO maintains that videoconferencing could help IRS mitigate in-person restrictions in the near term, while providing additional benefits over the long term, such as increased flexibility, modernization of compliance activities, and operational cost savings. IRS will remain limited in its abilities, according to GAO, should it not test videoconferencing visits with preparers and could miss opportunities to innovate compliance actions.