Tax Controversy During COVID-19 Didn’t Have to Be This Difficult

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If there ever was a time to pity our friends at the Internal Revenue Service, that time is now.

Even before the COVID-19 pandemic hit, budget cuts and staff attrition had hampered the IRS’ ability to keep up with its mounting workload, and the agency’s legendarily anachronistic information technology systems were not built to handle thousands of agents working remotely from home. (The aspirational technology “modernization plan” that the IRS announced last year—a six-year $2.5 billion effort highly dependent on annual funding procurements—is barely out of the gate.) And when IRS Commissioner Charles Rettig sent almost all of the agency’s 74,000 employees home in mid-March, fewer than half were both eligible for and capable of working from home—many because they lacked a laptop computer or even basic internet access.

Throw in tax-season woes and the sudden responsibility for having to send out millions of CARES Act economic relief checks to stressed Americans in a matter of weeks, and, well, you get the idea—the IRS has its hands full.

For tax practitioners, working with the IRS’ skeleton crew during an unprecedented public health crisis presents a variety of challenges, not the least of which is how to proceed when controversies and disputes need to be addressed. After all, no one is picking up the phone at the IRS these days—even the Practitioner Priority Service line1 was suspended—and paper filings and correspondence will not be processed in anything close to a timely fashion until IRS employees can safely return to their offices.

Good News: The IRS Is Relaxing

The good news is that the IRS is relaxing some of its rules and procedures in order to keep cases moving.

For example, on March 27 the Treasury announced that it would start accepting e-signatures and scanned or photographed signatures on documents related to the determination or collection of a tax liability, including power of attorney. The notice also indicated that the IRS would temporarily accept taxpayer documents via email or eFax, even though doing so with agents working from home raises myriad security issues.

Along with regular tax filings, the IRS has also suspended a number of compliance programs until July 15. Taxpayers with existing installment agreements and offers in compromise (OIC) can suspend payments until July 15, although interest will continue to accrue on unpaid balances. No new liens or levies will be issued during the suspension period, either—nor will the IRS be seizing personal residences or sending new delinquent accounts to private collection agencies.

Many IRS activities that previously required an in-person meeting have been suspended as well.

In general, for instance, the IRS will not initiate new audits during the suspension period except in extreme, high-value cases. Wherever possible, however, agents will still process existing field, office, and correspondence audits remotely via teleconference.

Teleconference and telephone workarounds are also helping agents in the Independent Office of Appeals (IOA) to continue working their cases, which are considered “mission critical” because statutes of limitations are involved. Likewise, the government is doing all it can to protect statutes of limitations set to expire during the extension period, even going so far as to ask taxpayers to accept an extension of the expiring statutes.

Bad News: The IRS Can’t Relax

So the IRS is still functioning. But to do so, the agency has had to hand itself a number of reprieves until July 15, after which it is presumed that “business as usual” will be restored.

Unfortunately, no one knows for sure if anything in America will return to a semblance of normalcy by July 15. Second, third, and fourth waves of the virus may be coming, and though there’s nothing wrong with hoping for the best, it’s also quite possible that IRS employees may be working from home throughout the filing season and beyond.

This eventuality would not be quite so concerning if it weren’t for the fact that the federal government is woefully unprepared to run its operations remotely. As in so many other areas of everyday life, the coronavirus has exposed glaring weaknesses in the systems our government relies upon, and nowhere are these deficiencies more apparent than in the IRS’ technological capabilities, or lack thereof.

Consider: most of the IRS’ infrastructure still runs on aging desktop computers running the Microsoft Windows 7 operating system, which was released in 2009. Microsoft discontinued technical support, software updates, and security updates for most Windows 7 users in January 2020. The government has “custom support” contracts that allow it to continue receiving security updates during the upgrade process, but by the time the IRS upgrades to Windows 10, everyone else in the world may already be using Windows 12 or 13.

This is not a new dilemma. Back in 2011, for instance, the IRS began the herculean task of upgrading 110,000 workstations and 6,000 servers from Windows XP to Windows 7. The upgrades took five years to complete, and by that time Windows 7 had already been out for seven years. Around that time, in its September 28, 2015, report, the U.S. Treasury Inspector General for Tax Administration (TIGTA) issued a stern warning about the consequences of failing to upgrade the IRS’ technological infrastructure on a timely basis:

For the IRS, the use of outdated operating systems may expose taxpayer information to unauthorized disclosure, which can lead to identity theft. Further, network disruptions and security breaches may prevent the IRS from performing vital taxpayer services, such as processing tax returns, issuing refunds, and answering taxpayer inquiries.2

Most Americans have more computing power on their phone than IRS employees have on their desktops. And the Treasury’s master taxpayer data files for both individuals and businesses are written in what’s called “assembly language code,” which was all the rage back in the Nixon administration. (Though to be fair, there are security advantages to having data stored in programming languages so old that hardly anyone alive knows how to code for them.)

More Difficult Times Ahead?

As July 15 approaches, it is everyone’s hope that America will be recovering from the COVID-19 crisis. But if the crisis persists, and the IRS isn’t fully operational by then, tax professionals trying to resolve controversies will have a difficult few months. The workload will be crushing, assistance will be scarce, and security issues will inevitably arise. In addition to everything else, many tax professionals now have clients whose government assistance payments under the CARES Act were either misdirected or intercepted and stolen.

Such problems may have been inevitable under the circumstances, but they would be much less of a problem if the IRS’ technology wasn’t borderline obsolete. Like so many other workers in this country, IRS employees don’t have the equipment they need to do their jobs to the best of their ability. Instead, they are doing the best they can with the tools they have—tools that everyone else in America discarded a long time ago.


Tad Simons is a technology journalist who writes about enterprise management and workflow for the Thomson Reuters Thought Leadership team.


Endnotes

  1. Internal Revenue Service, Practitioner Priority Service, accessed April 30, 2020, www.irs.gov/tax-professionals.
  2. U.S. Treasury Inspector General for Tax Administration, Inadequate Early Oversight Led to Windows Upgrade Project Delays, September 28, 2015, www.treasury.gov/tigta/auditreports/2015reports/201520073fr.html.

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