CERCA Meeting Highlights Potential 2016 Filing Problems by Curtis Tatum, Esq. with the APA
The Council for Electronic Revenue Communication Advancement (CERCA) Spring Meeting participants reviewed the 2015 filing season and looked ahead at efforts to implement the Affordable Care Act and new measures to prevent stolen identity refund fraud (SIRF). CERCA held its Spring Meeting on May 15 in Crystal City, Virginia.
2015 Filing Season a Success
During CERCA’s 2014 Fall Meeting, IRS Commissioner John Koskinen warned that the 2015 filing season might be delayed because of the effect of budget cuts and new demands placed on the Service by the Affordable Care Act (ACA) and Foreign Account Tax Compliance Act (FATCA). The mood at CERCA’s Spring Meeting was decidedly more upbeat. Several presenters commended the Service for its efforts that resulted in a successful filing season.
The 2015 filing season began on January 20, which Debra Holland, Commissioner of the IRS’s Wage and Investment Division, said was a “major accomplishment.” She praised the IRS’s information technology for working well. Holland reported that the IRS had received more than 136 million individual tax returns and issued more than 99 million refunds. Of those refunds, more than 81 million were issued via direct deposit.
“I like the spring conference because I can talk about a successful filing season as opposed to other meetings where the discussion turns to potential problems,” she said.
Representatives from the tax preparation industry also applauded the Service for a successful filing season. Kathy Pickering, Executive Director of the Tax Institute and Vice President for Regulatory Affairs at H&R Block, congratulated the IRS for a successful filing season that “worked really well” despite a “perfect storm” of potential problems such as ACA implementation, late legislative action, and budget cuts. The only negative issue that she could point to was the reduced number of phone calls that the IRS was able to handle, which “wasn’t so good,” she said.
While the 2015 filing season was largely viewed as a success, several panelists warned of potential problems in 2016. Pointing to one possible warning sign, Pickering noted that taxpayers who had claimed the advanced premium tax credit averaged a refund that was 33% lower because they underestimated their income and had to pay back an average of $729 of the credit. It will be important to continue to remind individuals that life changes or even simple changes in income can affect eligibility for the advanced premium tax credit. The Centers for Medicare and Medicaid Services is already changing their messaging so that taxpayers can avoid surprises when they reconcile the tax credit on their return, noted Kate Sullivan Hare, Senior Policy Manager for Healthcare and Corporate Affairs at Intuit.
Next year will bring additional challenges for employers, taxpayers, and the Internal Revenue Service. Because 2015 is the first year for which employers will be required to report ACA-related health care information, there may be confusion at both the employer and employee level. A major source of confusion may involve employers with 50-99 full-time employees. Because the transition relief granted to these employers assures them that they won’t be penalized under the ACA, they may be shocked to learn that they are still required to file the ACA reporting forms, said Pete Isberg, Vice President of Government Affairs for ADP.
As ACA implementation continues, the IRS likely won’t have additional resources to devote to the project.
“I think that the IRS budget cuts will continue,” said James Moran, a Senior Legislative Advisor at McDermott Will & Emery and former congressman (D-VA). He implored CERCA members to advocate for the IRS. “It’s not a bad idea to speak up for the IRS because no one else does,” he said.
Measures to Prevent SIRF
The IRS worked to prevent refund fraud during the 2015 filing season and is already looking at future efforts to prevent SIRF crimes. Holland explained that for the 2015 filing season, the IRS implemented new filters to identify potentially fraudulent returns. These filters identified 2.7 million suspicious returns, an increase of 700,000 returns from the previous year. In addition, the IRS sent 1.6 million identity protection personal identification numbers (IP PIN) to taxpayers whose accounts were marked as potential identity theft targets. The IRS is also implementing a new return review program (RRP) that will use new technology to detect potential fraud, she said.
Several speakers cited accelerating the Form W-2 filing deadline as a method to reduce SIRF crimes. Holland explained that the IRS needs the data earlier so that it can match the wage information to the individual tax return. Providing a state perspective on an earlier W-2 filing deadline, Patrick Carter, Director of the Delaware Division of Revenue, stated that moving up the deadline “may be a little onerous on employers or payroll service providers, but would be tremendously helpful to states.” While several states already have or are considering moving up the W-2 deadline to January 31, Pete Isberg, President of the National Payroll Reporting Consortium, warned that moving the deadline any earlier could create serious problems and result in a significant increase in the numbers of corrected Forms W-2.
Beyond accelerating the deadline for Form W-2, panelists suggested other ways that the IRS could authenticate information and prevent issuing fraudulent refunds. One proposal involves the creation of a “gold star return program” in which the IRS authenticates the information provided on a tax return with the data from the W-2 filer, explained CeCe Morken, Senior Vice President and General Manager of Intuit’s ProTax Group. Another way to provide wage information to the IRS earlier in the process, suggested by Isberg, would be to give the IRS access to the new-hire database so that it can verify the data included on the tax return with the quarterly employer reports.
Throughout the conference, panelists repeatedly warned of the growing crisis that identity SIRF crimes are creating. Bernie McKay, Chief Policy Officer and Vice President of Corporate Affairs at Intuit, described the identity theft crisis as an “existential threat to the voluntary compliance system.” Similarly, Gene Salo, Senior Director at Thomson Reuters, remarked that tax fraud “threatens the infrastructure that we worked so hard to build.”
Understanding of the depth of the problems, IRS Commissioner Koskinen convened a “Security Summit” in March with the IRS, state tax officials, tax return software developers, and tax preparation companies. During the meeting three working groups were formed to focus on aspects of preventing SIRF crimes. Industry leaders now refer to that meeting as the “Koskinen Summit,” McKay said. In a June 11 news release, the IRS announced that members of the working group and the IRS had agreed a “sweeping new collaborative effort to combat identity theft refund fraud and protection the nation’s taxpayers.” These efforts will include increased data sharing between tax preparers, the IRS and state tax agencies; adherence to the National Institute of Standards and Technology (NIST) cybersecurity framework; and additional outreach efforts to individual taxpayers to raise awareness of the importance of data protection. Additional information may be found in the Summit report.