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Our tax ecosystem needs a modern refresh, starting with the IRS

After two unprecedented tax seasons in the depths of the Covid-19 pandemic, Americans are fast approaching the end of the “normal” first season. But while this year’s tax filing season feels more like business as usual, it has also revealed the many ways in which the current state of our tax ecosystem is sadly unprepared to deal with the complicated financial situation of millions of taxpayers.

Just a few years ago, it would have been impossible to imagine that large swaths of the American public would have to declare the daily expenses of their jobs in the gig economy on their taxes or keep a close eye on their income from crypto trading. -currencies. And new programs that offer financial assistance to American families — like economic impact payments during the pandemic or the expanded child tax credit — are increasingly administered through the tax code, adding yet another another layer of complexity.

Technology has reshaped the world in recent years, and our tax ecosystem has not kept up. The IRS still relies far too heavily on paper forms that cannot be scanned digitally; the National Taxpayer Advocate recently reported that the agency’s backlog of paper returns is nearly 15 million. For tax preparation services like Jackson Hewitt, it’s often more efficient to fax a client’s forms to the IRS than to submit them digitally, an anachronism in a world where money and information flow freely. around the world in an instant. As a result, far too many taxpayers have frustrating experiences with the tax ecosystem, whether it’s a long delay in processing their refund or an unexpected bill coming due during tax season.

There are steps the IRS can take immediately to improve its partnerships with tax preparers and streamline the taxpayer experience. For example, allowing preparers to help their clients validate certain key data points before filing a return would help avoid the tedious process of resolving errors. The agency is also expected to improve transparency by providing preparers and filers with more information about the status of returns, similar to dashboards used by some states. These steps would provide crucial help to taxpayers at a time when the IRS is only able to help about one in 10 taxpayers who seek help. Smarter public-private collaboration today can help America’s strong tax preparation industry close the customer service gap faced by millions of Americans at tax time.

But while the IRS can and should do more to streamline the taxpayer experience, it’s not like the agency is simply dragging its feet and resisting the tides of technological innovation. Instead, it has been deeply underfunded for years, and as a result, it lacks the resources to keep up with changes in how consumers expect to interact with the tax ecosystem. And while the IRS recently announced plans to hire 10,000 more frontline workers in an effort to fill its backlog of unprocessed tax returns, increased funding — like the 18% increase proposed in the last President Joe Biden’s budget – is key to helping the agency update its technology. and improve customer service.

Read more: Follow our ongoing series “Fixing the IRS” here

Necessary standards

Another area where modernization is long overdue is regulatory standards for paid tax preparers. Regulatory standards for paid tax preparers have not kept pace with this evolution. Jackson Hewitt requires its Tax Pros to meet strict standards of training and education before and throughout each tax season. But not everyone follows these rules, including “ghost preparers,” who often circumvent oversight in order to engage in tax evasion and facilitate non-compliance with tax laws.

Bipartisan legislation like the Taxpayer Protection and Preparer Proficiency Act would address this issue by giving the IRS greater authority to regulate tax preparers and create national standards for tax preparers, including minimum proficiency standards. With no minimum standards for becoming a tax preparer under current law, and no quick or effective way to stop known fraudulent preparers, too many Americans are exposed to contrary tax preparers. ethics that misrepresent, misuse taxpayer identities and steal taxpayer refunds.

All of this activity contributes disproportionately to the tax gap, the difference between taxes owed and taxes paid by businesses and individuals. Each of the trends I have highlighted – the growing complexity of the tax code, the underfunding of tax administration, and the lack of minimum standards for paid tax preparers – have played a role in expanding the tax gap. But while the IRS commissioner estimates the tax gap could be as high as $1 trillion a year, we still have a limited understanding of the true scale and causes of the problem.

Increased funding for the IRS and increased attention to the issue of the tax gap can help the agency take the necessary steps to fully understand the causes of the tax gap and begin the important work of closing it.

Modernizing our tax ecosystem is a win-win. It will streamline the experience of filing taxes and receiving refunds for millions of taxpayers, reducing their frustration with the overall system. Investments in improving tax administration and closing the tax gap also provide incredible value for money for the federal government; by some estimates, every additional dollar spent on the IRS generates up to $6 in newly collected taxes, money that is already owed under the existing tax code.

For millions of Americans, filing taxes is one of the most important financial moments of the year. Anyone who works in our industry can tell you that nothing compares to the faces of taxpayers when they learn they will be getting a tax refund of hundreds or thousands of dollars, an amount that can change the lives of struggling families or of small business owners. It’s up to all of us who work in the tax ecosystem to work to remove the barriers that cause frustration in tax filing, help modernize the taxpayer experience, and improve the tax ecosystem. for everyone.

This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Gregory Macfarlane is the Managing Director of Jackson Hewitt Tax Service Inc., one of the largest tax preparation services in the United States

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