The Internal Revenue Service has released its annual report for 2019, giving Commissioner Chuck Rettig a chance to explain the improvements implemented in the American tax system in the last year. We’ll take a look at the more pertinent sections of the 45-page report, digesting it in three bites.
In this edition, we’ll look at two important areas the commissioner and his agency had to address in 2019: enforcement of the tax laws, and task of complying with sweeping new tax legislation.
Commissioner Rettig says his report is more of a statement than an historical record.
“This report is about more than what happened during the past year,” Retting writes. “It’s also designed to provide insight into the people proudly serving this country on behalf of the IRS, and provide a glimpse into the future, by explaining what we’re doing to enhance the experience of everyone who interacts with us, either directly or indirectly.”
Tax Cuts and Jobs Act (TCJA)
Last year held more than a few challenges for the IRS. The year started with a federal government shutdown due to a budget impasse between Congress and the White House. The 2019 filing season began on the day the shutdown ended. Added to that were sweeping changes in the U.S. tax code that took effect during the 2019 filing season. Termed the Tax Cuts and Jobs Act, the new law stretched agency technology services and programming resources nearly to the breaking point it its effort to change course before the tax season started.
Among the IRS’ 2019 successes, the report notes:
- The IRS published numerous new forms, instructions, and publications on business and tax exempt and government entities provisions including the excise tax on large college endowments, unrelated trade or business reporting, and expanded access to retirement funds in case of disaster.
- The IRS streamlined Form 1040, S. Individual Income Tax Return, into a shorter, simpler form for the 2019 tax season. Based on feedback from the tax community, additional improvements were made to the TY 2020 Form 1040 to ensure taxpayers have an even better experience, including reducing the number of schedules.
- The IRS also developed Form 1040-SR, S. Tax Return for Seniors. The new form will be used for the first time in the 2020 filing season and is designed specifically for taxpayers age 65 and older.
The IRS also created its new Publication 5307, Tax Reform Basics for Individuals and Families, which provides an overview of TCJA provisions that affect taxpayers and highlights changes to deductions, retirement plans and dependent benefits.
Computer Systems Reprogrammed
Of 119 provision in the new tax law, 69 required programming changes on IRS computer systems. The changes affected some 128 separate computer systems within the IRS. In addition, 275 new e-file business rules had to be created; 36 existing business rules had to be updated; and another 248 e-file business rules were eliminated.
In order to prepare for the 2019 filing season, about 770 of some 1,200 total tax products had to be revised. More than 500 of those revisions were mandated by the TCJA. Computer programming requirements were issued for about 200 different forms; roughly 150 of those were modified by the new tax legislation.
The report credits IRS employees with the valiant effort to implement the changes prior to the start of the 2019 tax season. “Despite the compressed schedule, the IRS completed thousands of system updates that stemmed from form changes to comply with the TCJA and improved quality control for calculations and validation of taxpayer submissions, completing development in mid-December before the filing season officially began.”
Successes in Enforcement
The Internal Revenue Service Criminal Investigation (CI) division was kept busy in 2019, probing cases that involved refund fraud, tax-related identity theft, unscrupulous tax return preparers, employment taxes, money laundering, currency violations or terrorist financing.
Overall, CI completed nearly 3,000 criminal investigations with 1,700 convictions (a conviction rate of 91 percent) and a Department of Justice case acceptance rate of 93 percent – comparable to other federal law enforcement agencies.
CI’s Questionable Refund Program identifies schemes involving individuals who use genuine identities for the purpose of preparing and filing fictitious tax returns to generate fraudulent claims for refund. Questionable Refund Program figures include identity theft and non-identity theft-related Questionable Refund Program schemes.
FY 2019 Questionable Refund Program performance results included:
- Initiated 65 criminal investigations
- Completed 140 criminal investigations
- Achieved 167 convictions with a 91.8 percent conviction rate
The IRS Scheme Development Centers identified 46 Questionable Refund Program schemes comprised of 10,160 individual tax returns with more than $83 million in potentially fraudulent refund claims.
The IRS encourages compliance in the return preparer community through its Return Preparer Program by engaging in enforcement strategies targeting untrustworthy or incompetent return preparers. These strategies include education, outreach, and coordinated cross-functional publicity. FY 2019 Return Preparer Program performance results included:
- Initiated 163 criminal investigations
- Completed 295 criminal investigations
- Achieved 147 convictions with a 94.8 percent conviction rate
- Identified 212 schemes, comprised of 119,165 individual tax returns with more than $475 million in potentially fraudulent refund claims.
The 2019 report also cites the private debt collection process as being successful. The report claims private debt collection companies helped some 200,000 taxpayers who “either established a payment arrangement or paid their account in full.”
The report says the IRS assigned more than 2.4 million cases to private collection agencies with more than $22.5 billion in balances due. The program is credited with bringing in $301.7 million in revenue.
The IRS contends total program revenue has exceeded its costs since June of 2018.