Former IRS Commissioner: The System Is Breaking Down - Tom Wheelwright, Danny Werfel

Key Concepts

• IRS Leadership Volatility: Frequent changes in IRS commissioners and leadership create instability and hinder effective problem-solving and reform.
• Customer Service at the IRS: Historically poor customer service is a significant issue, impacting taxpayer experience and the efficiency of IRS operations.
• Technology Modernization: The IRS lags in technology, and its modernization is crucial for improving efficiency, processing returns, and handling audits.
• Paper vs. Electronic Transactions: The IRS is moving away from paper checks and towards electronic payments, which has implications for unbanked individuals and overseas taxpayers.
• Government Shutdown Impact: Government shutdowns disrupt IRS operations, delay critical processes, and can lead to the postponement of filing season.
• New CEO Role at IRS: The introduction of a CEO role is an attempt to address operational challenges amidst leadership instability, but its clarity and effectiveness are questioned.
• Taxpayer Bill of Rights: Includes the right to fair and effective customer service and the right to closure on issues.
• Civic Duty and Tax Compliance: Emphasizes the importance of understanding government functions and fulfilling tax obligations as a patriotic responsibility.

IRS Leadership and Operational Challenges

The transcript highlights significant turmoil within the IRS, characterized by a high turnover of commissioners, with seven commissioners serving within the current year. This instability is identified as a critical impediment to the organization's success, especially given its complexity and the high stakes involved in tax administration. Stable leadership is deemed essential for effective problem-solving, setting priorities, and implementing reforms.

The Impact of Unstable Leadership

• Confusion and Lack of Clarity: Frequent leadership changes create confusion regarding decision-making authority, leading to delays in resolving taxpayer issues. The question of "who decides what" becomes ambiguous, impacting the flow of problems through the bureaucratic hierarchy.
• Access and Timeliness: Delays in accessing key decision-makers, such as the commissioner or deputy commissioner, prolong the resolution of issues, causing stress and extended wait times for taxpayers.
• Misunderstanding of Priorities and Reforms: Without stable leadership, the organization's strategic direction, reform plans, and resource allocation become unclear, hindering progress towards modernization and efficiency.
• Whack-a-Mole vs. Continuous Improvement: While organizations constantly deal with immediate problems ("whack-a-mole"), high-performing ones also focus on continuous improvement. Stable leadership is a prerequisite for both effective problem-solving and a successful improvement journey.

The New CEO Role

The introduction of a new CEO role at the IRS is discussed as a response to the current challenges. While the individual appointed (Frank Bisignano, Commissioner of the SSA) is recognized for his intelligence and credentials, concerns are raised about the clarity and effectiveness of this new position.

• Ambiguity of the Role: The primary concern is the lack of clear definition for the CEO's responsibilities and reporting structure. Without explicit clarity on who the CEO reports to and the types of issues they will resolve, it could lead to further confusion and delays in problem-solving.
• Dual Role Burden: The CEO also holds the position of SSA Commissioner, raising questions about their availability and capacity to effectively manage the day-to-day operations of the IRS, especially during critical periods like filing season.
• Rationale for the Move: The appointment is seen as a pragmatic, albeit not ideal, solution driven by the urgency of the situation. The administration likely opted for a known commodity with established credibility rather than undergoing the lengthy process of vetting and confirming a new IRS commissioner. This is particularly relevant given the looming filing season and the need to mitigate risks.

IRS Performance and Modernization Efforts

The transcript details the state of the IRS upon the former commissioner's arrival and the subsequent efforts to improve performance, particularly in customer service and technology.

Pre-Improvement State of the IRS

• Record Lows: Upon arrival, the IRS was struggling across all performance metrics, including record low customer service on phones, shuttered walk-in centers with long queues, and record high paper backlogs.
• Anemic Audit Rates and Stagnant Technology: Audit rates were low across all cohorts, and the technology infrastructure was described as stagnant, lagging significantly behind modern standards.

Improvement Initiatives and Their Impact

• People-Heavy Approach: The initial strategy involved hiring and training more staff to manage paper backlogs and improve phone line responsiveness. This "people-heavy" approach, combined with an incremental technology modernization journey, had a positive impact.
• Incremental Technology Adoption: Instead of a single "turnkey" solution, the focus was on incremental improvements like expanding document upload tools, integrating AI into call centers, and utilizing chatbot technologies.
• Positive Impact: These efforts led to a noticeable improvement in processing times and customer service during the former commissioner's tenure.

Current Challenges and Concerns

• Layoffs and Downsizing: Current workforce reductions, including layoffs of probationary employees and those participating in the deferred resignation program, are seen as a setback, particularly as many were hired to reverse performance trends.
• Unclear Technology Plan: There is a lack of a clear and comprehensive plan for accelerating technology adoption to compensate for lost productivity due to staff reductions. The journey towards modernization is perceived as becoming less incremental and more uncertain.
• Government Shutdown Impact: The ongoing government shutdown exacerbates these challenges, hindering readiness efforts for the upcoming filing season, including form updates, technology testing, and staff training. The shutdown during the October 15th deadline, a period with the most complex returns, is particularly concerning.

Technology's Role in IRS Modernization

Technology is identified as a key driver for reducing the size and improving the effectiveness of the IRS. Several areas are highlighted where technology can have a significant impact.

Key Technology Initiatives

1. Taxpayer 360: This internal IRS project aims to provide account managers and customer service agents with real-time, unified access to taxpayer records. Currently, agents often navigate multiple screens and databases, leading to inefficiencies. A cleaner, more automated interface would streamline interactions, improve customer service, and reduce hold times.
2. Individual and Business Tax Accounts: The goal is for all taxpayers to be able to conduct all interactions with the IRS digitally or virtually, mirroring the ease of use of online banking. This includes providing user-friendly interfaces and robust underlying infrastructure for instant access to tax information and transaction history.
3. Scam and Scheme Detection: Leveraging technology, particularly mobile tools, to help taxpayers identify and avoid scams and fraudulent schemes. This involves providing government-produced tools that act as "red flags" against deceptive communications and offers.

Challenges to Technology Adoption

• Budgetary Constraints: Funding for IRS technology initiatives is facing cuts or stagnation in proposed budgets, raising questions about the availability of resources.
• Need for Stable Leadership: Driving complex technology projects requires stable leadership to navigate bureaucratic hurdles and ensure consistent execution.
• Talent Acquisition and Retention: Creating an environment that attracts and retains technical talent is crucial for successful technology development and implementation.

Impact on Taxpayers and Recommendations

The transcript addresses the practical implications of the IRS's current situation for taxpayers and offers advice for navigating the upcoming period.

Refund Checks and the Unbanked

The IRS's decision to stop issuing refund checks and move exclusively to electronic payments has significant implications, particularly for the unbanked population.

• Complications for the Unbanked: Individuals without bank accounts may face difficulties accessing their refunds if they cannot utilize electronic payment methods.
• Mitigating Procedures: While the move to paperless transactions is seen as a way to increase efficiency, the IRS needs to implement effective mitigating procedures to accommodate those who may be negatively impacted, ensuring equitable access.
• Overseas Taxpayers: International banking complexities also present challenges for expatriates receiving payments or filing taxes from abroad, requiring specific accommodations.

Customer Service and Filing Season Readiness

The government shutdown and ongoing workforce reductions raise concerns about the IRS's ability to provide adequate customer service and ensure readiness for the filing season.

• Stated Priorities: Secretary Yellen's stated priorities of customer service, collections, and privacy are seen as a positive sign.
• Lack of Concrete Plan: However, there is a perceived lack of a detailed, actionable plan outlining specific steps, measurement metrics, and technological enhancements for improving customer service.
• Historical Precedent: The 2013 government shutdown, which lasted 16 days, led to a one-week delay in filing season opening, highlighting the disruptive impact of such events.

Recommendations for Taxpayers

• Engage Tax Professionals: For complex tax situations, it is highly recommended to consult with a trusted tax professional.
• Be Wary of Social Media Deals: Caution is advised regarding tax advice or deals promoted on social media, as they often carry significant risk for the taxpayer.
• Understand Civic Duty: Taxpayers are reminded of their civic and patriotic duty to comply with tax laws and pay what they owe. The reduced IRS presence should not be interpreted as permission to evade taxes.
• Pay What You Owe: The emphasis is on paying the correct amount of tax, avoiding both underpayment and overpayment, to maintain financial stability and compliance.

Conclusion and Future Outlook

The discussion concludes with a sense of concern regarding the IRS's immediate future, particularly concerning the upcoming filing season. While there are stated intentions to improve customer service and modernize technology, the lack of a concrete plan, ongoing workforce reductions, and leadership instability create a challenging outlook. The former commissioner expresses hope for a successful filing season but remains cautious due to the current circumstances. The importance of civics education and understanding government functions is also highlighted as a critical need.