Improving Taxpayer Experience and Reducing Federal Deficit: Insights from Wendy Walker, Solution Principal at Sovos – Part 1 | TaxOps

[00:00:00] Meredith Smith: Welcome to Saltovation. The Saltovation show is a podcast series featuring the leading voices in SALT, where we talk about the issues and strategies to help you make sense of state and local tax. Hi, Wendy. Thank you so much for joining us today on this Saltation podcast. It's great

[00:00:19] Wendy Walker: to have you here. Thanks so much for having me.

[00:00:21] I really appreciate.

[00:00:23] Meredith Smith: So let's start with, um, the 80 billion that the i r s received when President Joe Biden signed the Inflation Reduction Act. One of those items that the i r s earmarked money for. Was to improve the taxpayer experience. What issues would you say are at the forefront for the i R S to fix and then, you know, what does improving that taxpayer experience mean for those

[00:00:52] Wendy Walker: taxpayers?

[00:00:53] Well, I would say, you know, improving the taxpayer experience at this point, it really is a dire issue, right? Um, in 2020, the taxpayer. Report to Congress indicated that the most serious, the third most serious problem that the i r S faced is that they are signi significantly underfunded to service taxpayers and collect tax, and that report cited that they're unable to answer millions of taxpayer phone calls.

[00:01:22] You know, they're unable to process timely correspondence. That the tax gap and our federal deficit [00:01:30] continues to grow as a result of that under funding. Right? Right. So I think that for those of us that work with the I R S every day to make withholding tax payments to file monthly or quarterly or annual returns to work through penalty notices, It's awful.

[00:01:47] Working with the IRS is terrible. We, we dread the thought of having to call them. We wait for hours on hold, you know, only to be hung up on it inadvertently, you know, or not have our issue resolved. So I think. Automating and improving taxpayer services is just a, it's a dire issue for the i r s to fix.

[00:02:08] Meredith Smith: Yeah. And it's certainly not a slight against the people who are working there and working really hard and, uh, certainly have to be overworked. Um, I mean, every I r s agent that I've spoken with is, is generally, you know, very pleasant and like, wants to help out and what's, they're just kind of so hamstrung by, you know, The resources or lack thereof that they have.

[00:02:27] And you know, so any, any IRS agents that are, are, that are listening, we do appreciate. We do appreciate you. We

[00:02:35] Wendy Walker: do. We're not mad at you. Thank you for saying that. Cause you're right, they do not, they do not get enough credit. And you're right. Like, can you imagine if you worked for a company that you went to every day where.

[00:02:46] You were so underfunded that you had to pick and choose which customers to help. I mean, you know? Mm-hmm. So the fact that they show up and go to work every day sometimes is amazing to me. I mean, they are

[00:02:57] Judy Vorndran: a not-for-profit really. I mean, they're not a business, [00:03:00] like they're not, they can only do so much and they can only pay for so much.

[00:03:02] And we don't exactly have a culture in America where we're super pro, let's give everybody our tax dollars. Right. We're that's, we have a kind of an anti-tax

[00:03:10] Wendy Walker: culture in America. Well,

[00:03:12] Meredith Smith: yeah. And that's the hard thing is like, you know, the. The IRS is often like a lot of like automated generated notices, which kind of goes back to, you know, mm-hmm.

[00:03:19] You can write a response, but these notices are gonna keep coming because it just sits in a bin somewhere. That's right. And you know, oftentimes the people who call the IRS are, are so clueless, so you know, the agents are doing their best to help the. To help the people who are just like, I got this n this, this notice.

[00:03:37] It's really scary. I don't know what to do about it. You know, we see the same in states as well, but you know, it's, it's a really scary experience to get a piece of letter, like a, to get a piece of mail from the i r s, you know, in any

[00:03:47] Wendy Walker: capacity. I spoke to a colleague if mine today, who talked with me about not just that notice piece, but the delay with service, uh, in terms of being a large company.

[00:03:58] So if you're a large business with the I R s. Find what's called a large corporate representative to help you with some of the tax issues that you deal with on a regular basis. And she is on the phone daily trying to talk to different parts of the i r s about issues she deals with. And she was telling me today that that large corporate representative, um, you know, that there's so many things in their queue that she won't hear from that person and get a response on.

[00:04:24] Before those notices start to generate. Yeah. So it's common for her to call and say, Hey, I [00:04:30] need you to move payments, or I need you to, you know, make an adjustment on the account. And it's like, before they can ever get to it, they've already issued, you know, penalty notices and we're gonna seize your assets and all that kind of stuff.

[00:04:41] So it is, um, it's frustrating. Yeah. So then what,

[00:04:45] Meredith Smith: what would, you know, other than. It needs money. Right. What were, what would be some other kind of things that would kind of improve that experience? Or I guess is it, you know, obviously the money allows for, you know, Procurement of assets, whether it's humans or technology, what would you say?

[00:05:03] You know, some of those, that improvement? Yeah, some of that. Where could that money be spent wisely? There's like you

[00:05:09] Wendy Walker: some really specific things within the bill that require the IRS to invest in things like callback technology or other technologies like that to provide like a more person. Uh, taxpayer experience or customer service type of experience?

[00:05:25] I think some of us, you know, we're accustomed to, um, and there's also funding to look for investments in phone systems in some of their IT systems. Just, just internally to administer tax. I mean, if you can just think about kind of the back office of any business, you know, if they're using antiquated.

[00:05:46] Laptops, antiquated word and, and Microsoft type programs or antiquated equipment in general. Right. It makes processing much more difficult. We were excited when the IRS stopped some of the processes from paper and gave us a fax [00:06:00] number to send to, but look how many people have faxes these days, you know?

[00:06:04] Yeah. So we need them to go to that next step, which is let us, you know, maybe email you or send some things to online. Right? Yeah. So I think those are things we're looking for for.

[00:06:14] Meredith Smith: Yeah, it, it's funny when you, when you talk to people who aren't tax people and they're like, someone talked to me about like a fax machine.

[00:06:21] I don't even know what a fax machine, like who the hell uses faxes anymore? I was like, well, I do. My coworkers do because this, like, I faxed two forms this morning, bull, like one to the city and county of Denver and one to the state of Oregon. Yep. Faxes are still a thing now. It go like it's processed through our email and it's probably, you know, transmitted via email, but like fax numbers still

[00:06:43] Wendy Walker: exist.

[00:06:43] They do, you know, that papers still exists too. And not just the I but with the states too, and they mm-hmm. Get people who don't work in this industry. When you tell, you know, what do you mean? I have to mail that private tax information to them? I can't, you know, there's nowhere to securely send it. I mean, that's, that's all of the.

[00:07:00] Places that I think, um, at least for the federal side of it that we're hoping, you know, that the IRA funding goes toward. Yeah. And it's just funny when you think

[00:07:08] Judy Vorndran: about money and people, well, they're hiring these people, right? But then who, how many people wanna do a job that feels like everybody's mad at you?

[00:07:16] Right? How do you encourage a culture that takes care of these people who are trying to care, care of the people? So we have to make it like less adversarial, but then also, Generate those people to come in. I mean, it's just such a push pull with business [00:07:30] regulation, oversight and all that to really get people on board that wanted care for the public.

[00:07:36] Fisk, you know, it's fascinating.

[00:07:40] Meredith Smith: It. It's circular, right? The IRS collects our tax money, which funds everything else that we rely upon. So it's like you can't get, you can get mad at the irs, but you can't get mad at the IRS when you want money

[00:07:52] Wendy Walker: for things. That's right. Right. 99% of the revenues that our federal government operates on get collected by the I.

[00:08:00] So you would think that we would be more concerned with ensuring they had the funds and the people right. To make sure those systems can, can do that efficiently. So,

[00:08:11] Meredith Smith: so we understand that the IRS is focused kind of on three items this year. Digital asset reporting, which we're not gonna spend a ton of time on modernization and tax literacy.

[00:08:22] Kind of going one by one. What's the IRS's goal? You know, in digital asset reporting and what will that impact beyond

[00:08:31] Wendy Walker: business? Yeah, so as part of the infrastructure bill, so that's however long now, right? It's been a little bit since we saw that. Um, as part of that bill, the tax law was amended to require 10 99 reporting of digital asset transactions.

[00:08:48] So whether it was an exchange or a bank or PayPal or whoever, um, anyone that. A third party that was transacting for, uh, US [00:09:00] taxpayers, uh, in digital assets. They were going to have to report the 10 99. You know, the i r s uses 10 99 reporting. It's their primary compliance tool. And so this was an area that it had grown to be about a 3 trillion market before kind of the big.

[00:09:16] Bottom fell out this year, um, but had grown to be about a 3 trillion market. And earlier in the year, Barclays had put out a report estimating a 50 billion tax gap. So they definitely had some, you know, kind of statistics they could report to in that area that we need information reporting so we can curtail, you know, the tax evasion that's going on in that area.

[00:09:39] So I anticipate that, you know, we're absolutely going to see regulations we have yet to see. The Treasury and i r s actually give us prescriptive regulations so that we can issue whatever, 10 99 it's going to be. We've had some conversation. We know it's going to be a new 10 99 form, for example, but you know, the Treasury and I r s haven't released those regs yet.

[00:09:59] So partially I think it's because they do need to get their own systems in order, and they do need to get their own processes updated because this is very much like the stock market in that you report. Billions of transactions. So they're, they're set to receive millions if not billions of more information returns.

[00:10:21] Are they really ready for that? Are their systems ready after what we just talked about? Mm-hmm. So I think part of the delay is, is for them to take some of that funding, hopefully, and [00:10:30] expand the information return systems to be able to, um, address that expansion for digital asset. Because we're seeing that with the

[00:10:38] Judy Vorndran: Wayfair, you know, the Wayfair law coming into place in 2018.

[00:10:40] Now you've got everybody registering for sales tax. The states don't have the bandwidth to take that in. I remember when Colorado, where I live, um, asked for 10 full-time equivalents to help process new, uh, licenses. The government wouldn't give the, the registrar wouldn't give it to 'em, so they couldn't get the funding.

[00:10:56] So they don't have the humans. I mean, you're thinking this at the irs. It's the same thing across our nation. Just, you know, we gotta have humans, IT technology doesn't solve all of it.

[00:11:04] Wendy Walker: Yeah. Interesting, interesting. Colorado is one of those states that's just recently going through a modernization change as well, and I wonder if some of that is triggered by what you just talked about, like that growth and then coupled with the antiquated systems.

[00:11:18] Right. Same. Well,

[00:11:18] Meredith Smith: and that's kind of a, a good transition to. Kind of the second kind of focus IRS focus point is that modernization. And I would say that's, it's modernization is kind of a, kind of an all-encompassing word. It can be kind of genericized in the cotton text of the irs. What is it talking about?

[00:11:38] Wendy Walker: Yeah. So this actually started, um, in, um, 2019 with the taxpayer first act. So, The IRS was given some initial funding to start making changes to their internal systems. Most of it was related to the information security aspects of the [00:12:00] technology that the I R S uses. So last year we started to see the first outputs from that funding for personal taxpayers.

[00:12:08] The i r S built the online taxpayer portal. So you and I, we. Go in and check our balances as individual taxpayers. We can see our tax returns, our W two s, our 10 99 s, our 10 40 s, and how the IRS is, you know, applying all of that information. You can interact with the i R S via chat. So there's some, you know, transparency that they've created there that we never had before as taxpayers, we also saw them.

[00:12:34] The um, ID ME system, and this is a credentialing system that non IRS use, you know, employees or users of their systems have to, um, establish an account in first in order to get access to use those other systems. And so we saw them roll out that. Process and begin to move some of their, um, systems behind it so that in order to use them, you had to go through a new credentialing, uh, process.

[00:13:02] And then this month actually it's a little bit delayed. We are expecting the i r s to release the brand new 10 99 filing system. And this is designed for small businesses to be able to create and submit their own 10 99 forms. Something they can't do with their irs. Legacy fire system today. Um, and so, you know, I think this goes back to what I said before, I think as the i r S prepares for digital asset [00:13:30] reporting and also just improving this 30 year old, 10 99 reporting system that they have, they, um, they use some of that funding to build the first iteration of this.

[00:13:38] This portal and then hopefully with more funding from the ira, we're hoping they'll be able to, um, do a phase two and a phase three for that system to be able to completely replace what SVOs and other large software filers are using today to submit, you know, hundreds of millions of information returns.

[00:13:57] So,

[00:13:58] Meredith Smith: yeah, I can only imagine the lift of that. I, I laughed when you said Id me, because I, I've had two different kind of things where I've had people really hesitant about setting up Id me, cuz it's kind of a third party and it's like, I don't want like my face or my whatever kind of out there. And it's like, well it's already out there so you got a driver's license.

[00:14:18] But anyway, I was trying to. Not take that like automatic child tax credit payment. So I tried to set it up, log in to defer my piece. Mm-hmm. And I tried to get my husband to set to get it set up, but because during the pandemic he grew out his hair and has this long, bushy beard id, me couldn't connect. Oh no.

[00:14:39] The two of like his, his pre pandemic look versus. Mid pandemic look. And so like, I just, every time you hear Id, me, I think of me like yelling at my phone and like my husband like, take your glasses off, put them back on, pull your hair back. Like go shave. Like just trying to, trying to get, take our, like child credit.

[00:14:59] It was, [00:15:00] so every time we hear that, it kind of, it, it makes me giggle, but I mean that's a, that's a big lift. It's huge and huge also, like it's, you also have to kind of educate the people as to what that is cuz realistically. Even as a taxpayer, and I'm gonna be vulnerable for a moment. I don't, I didn't lo, I don't have an i r S account.

[00:15:19] I didn't know that I could go in and see kind of my history and what that is. So, you know, there's an education component too, to know, Hey, he, here are the resources, here's what's available to you, here's the benefit to you. And I think there's also a lot of skepticism. With some people about fishing, like I even mm-hmm.

[00:15:42] You know, as a, a tax practitioner, I get something from the i r s or about like, renew my pein. That's right. I was like, well, is this real? Is this fishing? Like, you know, just that, that educational component for, you know, do you know if any of the. Of the money is being spent on kind of taxpayer education and Yeah.

[00:16:02] You know, awareness

[00:16:03] Wendy Walker: efforts. Yeah, actually, um, so a couple things there. As part of ira, about almost 4 billion of the funding was set aside specifically for pre-filing services. You know, education, taxpayer advocacy. These are all areas within the irs, um, which include like, Things on the website, publications, um, outward outreach to tax [00:16:30] certain segments of taxpayers that, you know, they are having compliance issues with.

[00:16:34] This is area they didn't have funding for. Right. They couldn't, for example, you know, um, you hear a lot these days about the gig economy platform companies, right. And the 10 99 K filers and that big threshold thing. Well, you know, I think. Being able to actually have some funding to communicate to those taxpayers in advance, give them some education in advance of receiving 10 99 they'd never received before.

[00:16:57] So they know what to do with them. The i r s doesn't have funding to do any of that education outreach without, uh, on their normal appropriations that they're given from Congress. So this funding is super important, I think, for the IRS to be able to really. Bring things out of these paper publications that are really hard to find and are buried and get them out onto the, you know, leverage the internet, um, leverage searches so that taxpayers can really, you know, advantage some education before filing.

[00:17:25] And then, like you said, something goes wrong and now they're calling or writing more letters and it just becomes this doom loop of, you know, no. It's

[00:17:33] Meredith Smith: funny when, just in the irs Yeah. It's just, it's so interconnected and it does just have like this trickle down of, of everything. This podcast is for educational purposes only and is not intended, nor should it be relied upon as legal, tax, accounting, or investment advice.

[00:17:52] You should consult with a competent professional to discuss specifics of your situation and the applicability of the information presented.[00:18:00]