There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.
Roger Harris: Hello everyone. It's another federal tax update podcast. It's Roger Harris and Andy Schwab back with you. Annie, how are you today?
Annie Schwab: I'm doing pretty good. Tax season is kicking off and we're here to share some news.
Roger Harris: Right as we sit here today and recording this tax season has started. And at least for 36 hours things seem to be going well. We haven't we haven't [00:00:30] had any issues that we're aware of in the first 36 hours. We're really excited today to have a guest join Annie and I and Annie, why don't you tell everybody who we're fortunate to have with us today?
Annie Schwab: Sure. I have the pleasure of having Annette Nellen here with us today. Um, she is a CPA, an attorney, and a professor of the graduate program in San Jose State University. And she is also chair of the Internal Revenue Service Advisory Council. So please welcome Annette Nellen.
Roger Harris: Annette, welcome. [00:01:00] Glad to have you. Thank you.
Annette Nellen: Well, thank you for having me. And, uh, looking forward to. Just want to note, I chaired in 2024. We've got a new chair for 2025.
Roger Harris: Yeah. You're like me now. You're. I was a and I share the ability to have served on our SAC and chaired it. So we're both has-beens now. We're both long and forgotten. But, uh, we're not going to let you completely get away from it. You know, with Annette's, a lot of you may have heard her in other settings, and we're just thrilled she's joining [00:01:30] us on this podcast. But one of the things that we thought we would do, even though she's not officially the chair of our SAC, is her SAC, as, uh, some of you may know, issues an annual report to Congress on what they see are the issues with regard to the IRS and what actions should be taken and suggestions. And even though she's not officially owner of SAC, we thought we'd look back to that report because it's got some interesting things in it. Some of the things go back as far as when I when I was chair that were in our [00:02:00] report. You know, some things never go away. And as we sit here today in a new administration, a lot of the things that were said in that report kind of are in a different light today. And so we're just going to ramble on and talk about our opinions on how it's there. So, um, Annette, again, thank you for being here. Talk a little bit about give people better than I did an explanation as to what this annual report actually is and, and, and the amount of work that takes to put it together. People don't appreciate the amount of work it takes to put [00:02:30] this report together.
Annette Nellen: Yeah. No, that's a good point. Um, one thing I've noted in my career of being on various committees, and we probably have all experienced this, some are a lot of work on on another advisory board in California, and we pretty much just sit and listen. We can suggest ideas. Um, so it's always important if you're going to volunteer for something because volunteering for or can you apply? Um, it is a three year term, but actually I'm in my third year of being on Earth. It's was kind of unusual to have shared it in my [00:03:00] second year as third year, so I'm actually still still on the earth and glad to be there. It's a great opportunity to serve for presenting ideas for improving our administrative side of our tax system. Also, just a great learning experience. Uh, there are um, today is actually, uh, 30, 37 uh, members on, on, uh, air SAC with just a variety of backgrounds, people who are pension plan experts. There are people who are experts [00:03:30] on the special tax rules for Indian tribes, people in practices with all different types of, of, uh, clients and sizes of clients, people involved in information reporting. So you learn a lot from your colleagues, as well as learning a lot and developing, uh, identifying and developing issues to get to the point of making recommendations and has been around for several decades.
Annette Nellen: And it is advisory to the, um, advisory to the IRS commissioner, and, uh, [00:04:00] it's just a good opportunity. But it is a working group. We meet in person a few times a year. We have many virtual meetings, and, um, it's it's a good learning experience. I think the report, which gets released in November at a public meeting, the report itself is, I think, quite educational. And I always learn a lot in reading, like the tech reports and National Taxpayer Advocate reports, they've got a lot of really good background information, which isn't always readily available. [00:04:30] So it's not just the issues they're raising and the recommendations, but a lot of times just the background in the report to learn about many more things. I think one of things we're going to talk about was our funding report. And, um, it was it's about the tax gap. And I have run into practitioners like, what's the tax gap that's going to be important to know what the tax gap is.
Roger Harris: You might want to know what that means.
Annette Nellen: So I think it's a good um, good read report for 2024 is fairly long. We had a good number of issues, very active members, [00:05:00] and then something we did start in 2023 with the release of the strategic operating Plan, mapping the recommendations to that plan, saying, well, obviously this is how it's focused, how the IRS is focused on the issues it's developing. How do these recommendations from the volunteer committee feed into that? So I encourage you all to take take a look reading all or part of it. It's available on the IRS website. And just do a search for IRS Irsc IRS, [00:05:30] AC. It should come right up and you can see reports of the last like 20 years.
Roger Harris: Right? Yeah, you can probably find the one that my group worked on years ago.
Annie Schwab: And it's shocking. Like you said, there are issues that are on the report nearly every year. And then some one year you'll have something very different, something new, something urgent, something that has just, you know, occurred. And so it is interesting to compare reports from year to year.
Roger Harris: Yeah. See what has had a long life and yeah, I guess I don't know if that means the problem is still there or [00:06:00] if it's always going to be there, but a lot of good people I know being on Earth SAC changed my whole perspective of a lot of things as it relates to the tax system getting to to to work with people. And you definitely work with the commissioner. In fact, it used to be called the Commissioner's Advisory Group. Before it was interesting the name was changed. And um, so therefore some extent the commissioners, you know, are different. So they take the reports differently, they participate differently. But I found for the most part, the [00:06:30] members I know work very hard. And I think the IRS takes it probably very seriously. I don't know if I can say the same for Congress, but I think the the Commissioner and the IRS pay very close attention to it. And a lot of people in Congress do. But, uh, I think the reason some of those issues are still there is that they don't always.
Annie Schwab: Get resolved.
Roger Harris: Get resolved. So let's jump into the report, because again, when we when we first asked Annette to do this and the report had just come out, I think had we recorded this podcast, [00:07:00] then it would be a little different than what we're going to comment today. But let's start by, if you don't mind, Annette talking about one of the first things that's in the report and we'll comment on it then is, is the whole idea of IRS funding, because, again, this has been something that I know has been in the report since I did it, about the need for proper and consistent funding. So talk a little bit about what Ursc said, and then we'll try to move into [00:07:30] how that may be changing in our current environment.
Annette Nellen: Sure. And I do want to just note I'm speaking on behalf of myself as I'm a member of Earthtech, but I'm not speaking for Ursc. But I.
Annie Schwab: Understand.
Annette Nellen: That because I think a lot of people just really aren't that familiar with the variety of reports that are out there. Before we get into more detail, Roger, I'm guessing you also look at a lot of reports like, you know, Tigta and Gao and CBO, all kinds of reports come out, which being [00:08:00] an academic, I can have more time to look at these things. And they tie to my research and my teaching. But and I do at times try to find ways to, you know, how can I share that via updates or blog posts or things for, you know, obviously busy practitioners, it's enough just to keep up with the tax law and get.
Roger Harris: The.
Annette Nellen: Tax law needs taken care of and all that. But there's just an enormous number of reports, you know, nrsC is just another one there where we do make recommendations or make recommendations to the IRS. If you look back, prior [00:08:30] reports of Vrsac, almost always there was a what's called a general report tied to funding. And, you know, once you start talking about funding, I think you have to keep on talking about about funding, because otherwise it could be perceived as, oh, they don't talk about funding, maybe everything's fine. And obviously, like all government agencies always have a funding concern here. Uh, the the topic focused in the report for 2024 is actually on the tax [00:09:00] gap, which has as long as there's a tax system, there's always going to be a tax gap. It exists at the federal level at the state and local levels. And basically what the definition of a tax gap is, it's if all taxes were paid properly and on time versus what actually is collected, that differential is the tax gap. Now some of that gets that's the gross tax gap. Some gets lowered by IRS. And at the state level the state agencies, their enforcement efforts. Some people, you know, maybe just need to get into payment [00:09:30] plans to get their taxes paid. Um, but it can be a large number at the federal level. It's around, you know, 600 billion plus, which is actually greater than what the corporate income tax brings in. So it's a significant number. And it's.
Annie Schwab: Yeah. Wow.
Annette Nellen: It represents dollars that are, you know, already in the law. It's not like you know. Oh, to collect it, we have to pass through, you know, raise rates or something. Right. It's taxes already on the books. And it represents that [00:10:00] we have about an 85% compliance rate. And I think if a lot of people don't know that, they might not be aware of, well, what's being done to collect that other 15%. You know, I'm fully compliant. Shouldn't other people.
Roger Harris: I gotta pay my.
Annette Nellen: Compliant as well.
Annie Schwab: Yeah. Why isn't everybody paying?
Annette Nellen: Right. So, um, the report, you know, explains some background about the tax gap because again, I think, you know, even people in the tax field might not fully know what the tax gap [00:10:30] is, but I think it's important to understand that any effort to try and collect the tax gap. And over the decades we've seen things like, you know, why is there a 1099 K in existence? Well, part of that was if we have information reporting, it's a revenue raiser because more dollars will come in. It's not new dollars, you know. That's not a new like. Oh something.
Annie Schwab: Encourages.
Annette Nellen: Yeah. It's just reporting current income. Yeah. So it's been well known. I mean, if you look at Gao reports, even back to the [00:11:00] 70s, they've had a variety of ideas, which they still talk about today of how to collect these dollars. I think it comes down to greater tax understanding or literacy information reporting has been proven to show that, yes, that helps in reporting. Withholding also helps in getting people to file. I mean, wage earners are the most compliant group. I think it's like 98% compliance rate among wage earners because they have information reporting as well as withholding. But that's not true [00:11:30] of all types of income. Plus, a tax gap can be caused by people, either intentionally or unintentionally, claiming deductions or exclusions that they're not entitled to misclassifying income. So the report explains a bit more about the tax gap and some of the data that has been reported for years and gets updated annually. The IRS has been updating the tax gap information more regularly in recent years and then making recommendations, [00:12:00] including IRS. Maybe you should better share this information. You know there's a web page about the tax gap, but we don't know how many people go and search out the website to look at the tax gap information. So that was one recommendation to see how you could better promote it, including through social media, maybe information that's included in um, I'm not sure how people read instructions to tax forms or put it on the website. Just this one. This one just came to mind on the IRS [00:12:30] website. Hey, did you know that you know, this is a a problem here? Another recommendation was that make sure it's just like one web page where you can go to get all of the information. But I was just encouraging the IRS to better share more widely, share the information about the about the tax gap because, I mean, personally, I think if more people knew about it, they would be saying, yeah, don't we need to have.
Annie Schwab: The.
Annette Nellen: Collections and do audits to find people who aren't paying their taxes because I pay mine? Should [00:13:00] everybody else pay theirs as well?
Roger Harris: Well, when you hear the stuff in the news media about people who want to abolish the IRS, you know, I think if first of all, that's kind of a silly thing to say, but, uh, I think to your point, if they appreciated the fact that 15% of the people aren't paying their tax, and the purpose of the IRS is to try to make everybody play at the same level that, you know, I don't care what tax system we have. There's always going to be some people who don't [00:13:30] comply and don't pay or don't have the knowledge. So, uh, the tax gap is kind of a judge of how our voluntary tax system is working. And 85%, you know, in a voluntary system is probably not bad unless you're unless you're one of the 85% and you want the other 15 to to step up to the plate and do the same thing that we're doing.
Annie Schwab: Like, do you want more enforcement or less enforcement? And you hear you hear both sides. You know, I don't want people knocking on my door. But on the other hand, [00:14:00] I also don't want people getting away without paying taxes. You're only hurting the system as a whole. So that's what do you think? How do you think IRS enforcement is going to go? I know there was a lot of funding, but now maybe not.
Annette Nellen: Yeah, I think it's many things. Um, and actually, I guess you never get the tax cap down to zero. I remember reading your report a long time ago where they said it's kind of a balance between how intrusive you want to be to get every single penny.
Annie Schwab: Right.
Annette Nellen: And what they were recommending. But, you know, obviously [00:14:30] having some fairness and everybody is subject to, you know, paying tax on their how their income is defined. And of course, talking about the tax cap. I mean, the report is background about the federal tax cap, which comes from an IRS Gao and other reports. But if people probably ought to check what's collected, what kind of data is collected at the state level in their state about the tax gap, because they might be surprised at the state level. It exists for every kind of of, uh, of a tax. [00:15:00] Yeah. But yeah, it's a combination tax.
Roger Harris: All of them.
Annette Nellen: And the report also is is emphasizing that it's a combination of both adequate taxpayer services. Because if somebody has a question about something and getting it answered correctly is going to help make them file correctly. That's good. Um, and also of course enforcement. And that's true at all levels of government that collect taxes. You've got to have, you know, some way that people can understand the tax [00:15:30] law. Uh, because, you know, some of the tax gap is unintentional, uh, noncompliance of some sort. I mean, it's just complicated, right?
Roger Harris: No, it is. And unintentional or intentional, it's still a dollar missing. And you mentioned third party reporting, which we also have to realize that third party reporting really is effective in reducing the tax gap. But just like enforcement doesn't want to be intrusive, there's a level of how much third party reporting. I mean, [00:16:00] we could theoretically require every transaction to be reported to the IRS, and that would probably close the tax gap. But small business and individuals would go crazy because of the burden it would put on them, and the amount of time they would have to spend just to try to theoretically close the tax gap with third party reporting. But it's clearly effective. You mentioned wage earners. The reason they pay more than everybody else is because everybody knows what they earn. I mean, there's.
Annie Schwab: It's right there. It's transparent. Yeah. You know. [00:16:30]
Roger Harris: And I'm also amazed by some people who ask the question, well, does the IRS know about this? As if that's some sort of measurement as to whether it's taxable or not, the fact that there's third party reporting or not. Third party reporting has nothing to do with whether you're supposed to report it or whether it's taxable. It's just whether the IRS has in their system the information to do some sort of matching against your return. But it's I can't believe how many times we get asked, well, does the IRS [00:17:00] know I earned it or you know, well, why are you asking? Because that's kind of irrelevant, right? But it's a big thing, you know, and we'll touch on it if we have time. And I'm going to remind everybody what you said earlier. We're all sitting here in some cases talking about things that aren't directly related. We're giving opinions on the current environment. But when the whole 1099 K change came about reporting, you know, the $600 level and, you know, grandma's yard sales, getting reported through Venmo [00:17:30] and things like that, that's a great example of where information that was always or transactions that always need to be reported, will now start being reported because there's third party information, not because how they're taxed has changed.
Annie Schwab: Right? The laws haven't changed. It's just that now there's reporting, right?
Annette Nellen: Right. And you bring up a good point. I mean, we've all seen this for for decades and continue to do so. If people thinking, well, I didn't [00:18:00] get a 1099 or a W-2, it must be tax free. I mean, I think that's a pretty wide understanding, you know, because, you know, so far as tax education, um, it's a topic I try to spend a fair amount of time on tax, tax, literacy and trying to see what can be done. Because, you know, for most like high school students, their first lesson on taxes is their first paycheck. Exactly. Where's all my money? Um, that's unfortunate that something is so important that isn't really covered. I think the only people ever take a [00:18:30] tax course are accounting majors. They take one tax.
Annie Schwab: Business school majors or. Yeah.
Annette Nellen: I mean, I think you look at any college curriculum, look at what the finance majors study. Even if they have an entrepreneurship program, it Program probably doesn't cover taxes when obviously that's a very significant item there. So that's another challenge for the tax gap, is that we just have low understanding. And, you know, something interesting in the most recent National Taxpayer Advocate report that came out where they have to list the ten most serious tax problems. They have added [00:19:00] tax literacy as one of the problems, which personally, I'm glad to see, because it's almost kind of unfair that we don't talk about how the tax system works. In California, where I am, there are often some pretty significant tax measures on the ballot. I mean, twice in California we voted on in the past. How should multi-state business income be apportioned? That's a complicated topic. It was on the.
Annie Schwab: Yeah.
Annette Nellen: That's for [00:19:30] people who, you know, have got no tax understanding, which is in person. I think they're kind of being cheated by not getting some Getting some exposure to how the tax system works. Um, both from a policy perspective as well as our own tax. I mean, you've got, you know, I'm sure a number of individuals who would be eligible to set up an IRA account that would be very beneficial.
Annie Schwab: But they know about it.
Annette Nellen: Know about that.
Annie Schwab: Yeah. Well, and some of the tax practitioners are not keeping up with their education and what's happening and [00:20:00] what's new and proper reporting. I mean, I've reviewed tax returns that have errors, blatant errors. And that's also difficult to, you know, there's got to be some sort of.
Roger Harris: Balance, you know, on both.
Annie Schwab: Sides. Yeah.
Annette Nellen: And it's the complexity. I mean, here I sound as a state, I, I run a graduate tax program where it exists, mainly because the complexity of the tax, the complexity. You need to know how to do tax research, have a really strong foundation of many parts of the law. Um, so you can continue to grow [00:20:30] from that. Um, but, you know, it's just the complexity of the tax law. And you see attorneys do the same thing. They'll often get an LLM in and Tex, those other lm's out there, but the most common one anybody would get would be an LM, a master's in law in Tex.
Roger Harris: Yeah. And I think sometimes the IRS, because the tax law is so complex and it's takes challenges to educate people, to enforce it, to collect it, to do all those things, they get blamed when I think the real core problem is the complexity [00:21:00] of the law, that a simpler law is easier to enforce, it's easier to collect, it's easier to educate. But we we put all the blame on the IRS, and yet a lot of it could be solved if Congress gave us simpler laws that made life a little easier. But I don't know that that's going to happen. And when you mention tax literacy, I'm a huge sports fan. And one of the things that I keep waiting to happen is with all these new athletes getting [00:21:30] all this name, image and likeness money for the last couple of years, what amount of education are they being given as they get this money, and what their obligations are to pay and track what's deductible, what's not deductible? Because we now have, I don't know how many hundreds or thousands of athletes getting some sort of money in college. And yet I just don't know if the education to is following up on the money. [00:22:00]
Annette Nellen: Yeah, I do know that often they do track down maybe the tax professor or someone to see if they'll give a an overview to for the students and for the students. You know, probably the bigger issue that they've got not federal is actually the multi-state.
Annie Schwab: Right. Right.
Annette Nellen: Because where are they domiciled? Um, where was it they earned? Oh, I was playing a game over in another state and did a.
Annie Schwab: Write.
Annette Nellen: Something, and they paid me money.
Roger Harris: Um, yeah. And the professional athletes know that. You know, they know that if they play a game in New York, they got to pay [00:22:30] taxes in New York, even if they're on the LA team. And then, you know, there's just some common things that you hear in hear in the news where the quarterback got $1 million and gave $10,000 to his offensive lineman to thank them for what they do now. Is that a deduction? And if so, how do you claim it? You know, there's just so many things that, you know, that I just wondered if we're going to hear all these horror stories 2 or 3 years down the road of athletes that didn't go seek out the professor. And all of a sudden now the [00:23:00] IRS is tracking them down for that million dollar nil deal that they got. And they never thought they had to report it because they probably didn't. You know, at that stage in my life, I wouldn't have grown up knowing anything about taxes. I just thought, this is the greatest thing in the world.
Annie Schwab: So I just basically what you're saying is I have really good job security, right? Yeah.
Roger Harris: Like, the.
Annie Schwab: More complex, the more complex the system gets, the better, the better my job security gets.
Roger Harris: Yeah.
Annette Nellen: A challenge of the complexity, [00:23:30] though, is also then always. Is it right? Did I miss something?
Annie Schwab: Um, yeah.
Roger Harris: Yeah. Now and again, you can speak for me, or you can speak for Annette. You know, funding.
Annette Nellen: That.
Roger Harris: Funding is such a I call it a pendulum with the IRS. They get money, then they get it taken away. And you know, how important is money to the IRS doing their job? I was in D.C. last week, and one of the things I [00:24:00] reminded some people of is if you don't fund the IRS, then every excuse for every problem is we didn't have the money. And so it's hard to really dig into what the real problem is, because they just say, we didn't have the money, and that's where the discussion ends. If we fund them properly, I think it's easier to hold them accountable for delivering the service that we expect of them, because we take away the excuse you didn't have the money to do it, which is what we always hear. We're in [00:24:30] a situation now where they got a bunch of money a few years ago when ago when the Inflation Reduction Act. Now it looks we've already seen some of that taken away. More taken away. How important is funding consistent funding to any agency? But let's talk about it from the IRS. If we want our tax system to work, can we get that? I guess we can always get it cheaper. But what's your feeling about IRS funding? I think we may have even talked about it, but what's the nets feeling on, you know, what's the right [00:25:00] thing to do when it comes to funding and the impact of probably not funding?
Annette Nellen: Yeah. Um, well, one thing that is noted in the report is just a lot of background information is the IRS does collect 96% of government revenues, which means the government needs that money to operate. And, you know, if all the money doesn't come in and they want to lower the deficit and the debt, you'll see Congress, oh, maybe we'll have a tax increase of some sort where it's like, okay, why not effort [00:25:30] to try and collect the tax already on the books. It's pushed for and blogs and articles for. For some time, I think the National Taxpayer Advocate reports over the years have done a good job of showing the importance of of funding. I know one report back a few years ago talking about what the IT budget was for the IRS versus what it might be for a single, you know, big bank saying, well, the bank is taking this to serve a much smaller customer base than what the IRS has. What do you expect the IRS [00:26:00] could actually do? So I think there's some good reports there. Plus, I know I've read in the past, you know, the Gao gives a report where you know which agencies have the oldest technology. It's always things like Department of Defense and the IRS at the top of the list. It's a big deal to, you know, upgrade any technology, but it needs to be done with a, I think like a not with your annual allocation. Hey, see if you can put a little bit off to slowly over ten years or so, improve [00:26:30] your technology because by the time you time you get that improved, the next technology has come has come out there. So yeah, I think National Taxpayer Advocate has done a good job over the years of highlighting the importance of you've got to have some like, you know, one time funding to just modernize like.
Annie Schwab: A special assessment or something to just do it all at one time. I did notice some really great improvements though, over the last, I guess, year and a half to two years with online accounts and being able to, you know, respond to notices online, [00:27:00] uh, even customer service I think improved the, the time, you know, the wait times, um, had improved, you know, is it great? Is it perfect? No. Yeah. Um, but but progress. I mean, I feel like a lot of people have noticed progress. Uh, unfortunately, without funding, there's not going to be much more progress. But, um.
Annette Nellen: Yeah, I'm sure there's with any agency, there's always, uh, more, more to be done. But, you know, with advances [00:27:30] in Advances in technology. I think going, you know, rather quickly in recent years. Right. Plus you've got now, you know, Gen Z, like their recent college grads that are at that age. They're they grew up tech dependent. So they expect a certain thing like they if you told them, oh, you've got to go find an envelope, print this off on a printer and mail this to Social Security, or you're going to mail this to them. They're like, what are you talking about? [00:28:00] I know, real.
Annie Schwab: Signature.
Annette Nellen: Not signature.
Roger Harris: Yeah. Tell them to write a check. What's that?
Annette Nellen: Right. That's right.
Annie Schwab: Do they even have one? They probably don't even know.
Annette Nellen: Yeah. Several years ago, opening an account in, uh. I was actually in Canada. My daughter was going to school in Vancouver for a bit. Um, when I opened the checking account, they. I said, are you going to give me checks or do you want checks? And I'm just being old fashioned. I thought, well, I think I might need some checks.
Roger Harris: Yeah, yeah, yeah.
Annette Nellen: Um, but, you know, there was a statement made by a former commercial [00:28:30] commissioner. Werfel, I think, was at his one year anniversary of speaking at American University. He says modernizing the IRS is a generational imperative. I thought, yeah, that's an interesting way to describe it, because, you know, you're serving obviously many I mean, the IRS has to serve all generations that are out there. And, you know, government data would show that, you know, about 9 or 10% of folks don't really use the internet, but certainly the expectations of, um, I think not just younger generation, but many people [00:29:00] would be. Yeah. What do you mean? I've got to mail something. And sometimes, actually, the code requires a physical mailing of something. So Congress needs to modernize to give other options to all, all their government agencies that they can do things digitally. But I think people would want to interact with the IRS just like they would interact with their bank, with, uh, Amazon, you know, any company they're dealing with where you just go online and take care of it. You don't have to be making a phone call and call and wait for somebody to call you back. [00:29:30] Yeah. And you're right. The IRS has certainly been doing a lot of those improvements, but they've got about the largest customer base of anybody out there. Because, you know, everybody is a customer.
Roger Harris: Everybody is a customer.
Annette Nellen: Of the IRS. So they've got a much bigger job. And certainly the security concerns of many government agencies are quite, quite significant.
Annie Schwab: And the bandwidth to hiring. I mean, there's no hiring freeze, but, you know, having the right people doing the job correctly [00:30:00] is no easy, you know, task hiring.
Roger Harris: And training them properly, getting them trained. Uh, and and again, that whole idea of we can, you know, if I hear one more time that there's 87,000 armed agents floating.
Annie Schwab: Around out there.
Roger Harris: Right? You know, uh, you know, instead of realizing some of those people answer the phone, some of those people do, you know, process the returns, and they're not all running around with with guns. Very few. Makes it hard.
Annette Nellen: I mean, very few are in the Criminal Investigation Division. [00:30:30]
Roger Harris: I mean, that's where they are. If they're in criminal, if they're not in criminal investigation, I don't think the person answering your phone is sitting there with a pistol on their desk, you know, to, uh, so, you know, we've got to get to where we've got to have people in technology to do things. And now, again, in the real world, we're we're potentially in a hiring freeze. I even think I read that they were sending some offers that had already been made. Uh, they're offering, I guess you call it. I don't know if it's early. Well, I don't know what [00:31:00] to call it, but basically, if you accept the offer, September 30th, you leave the government, I don't know. I didn't see the IRS being exempted from that. So I'm assuming IRS people are now being told that if you want to leave, we'll give you pay through September 30th and then you're out of here. And, uh, in a time when I think they need to add people, they could.
Annie Schwab: Be losing people.
Roger Harris: And couple that with the whole back to work. Uh, and [00:31:30] you got union contracts for some of the people that work in the IRS. Some don't have union contracts. How many people are you going to lose because they're not going to make an hour commute five days a week or something. It's going to be an interesting time at the IRS, because money and people are important to any company or any agency. But I think particularly at the IRS and I think right now, we don't really know where it's going to go. We don't even have a full time commissioner yet. And they bring their own. And [00:32:00] I'm saying this and then I'll give you time to comment because I'm off on a tangent here. Any commissioner brings their own personal, you know, feelings and priorities into the agency. And I personally, I don't even know the person that's been, uh, put up for the commissioner and haven't run anybody that really does other than people that say he's a nice guy. So, I don't know, interesting times at the IRS. And I know they're they're nervous.
Annette Nellen: Right? Well, you know, reports over the years, like I think Gao I [00:32:30] guess even IRS strategic operating plans have said, um, they've got lots of retirements. So as a college professor, I mean, I've known for for a long time, we really didn't even mention the possibility of working at the IRS because they just weren't hiring. And, you know, students, there's kind of like a grapevine of where, where, uh, opportunities are for employment. And, um, the IRS just hadn't been talked about, but certainly in the last year or two. Yes. I think a lot of students are well aware. Yeah. Good jobs available at the IRS. They were [00:33:00] doing active hiring. Um, and they needed to bring in folks because of not having been able to do adequate hiring, uh, for so many years. Plus, it just takes a while to get back in the groove of, you know, campus career centers say, oh, yeah. Yeah, the IRS, they, they, they hire. Um, but yeah, I would, I would guess if anybody at any place was offered. Hey, you're maybe close to retirement or you got other opportunities elsewhere and you can get eight months pay. [00:33:30] And of course, we're talking about, I guess, a recent executive order or something from President Trump. Right, right. Right, right.
Roger Harris: And and it may or may not be legal. Who knows if.
Annie Schwab: It's.
Roger Harris: Legal or you know, we don't have any idea, but it's out there.
Annette Nellen: It's going to be tempting for many people because they're close to retirement. Or it's like, yeah, I got other job opportunities out there. I'm, you know, well, well skilled, well skilled person.
Roger Harris: So, so if you got people leaving on the front end and you can't replace them on the back end, eventually the system is and you don't [00:34:00] have the money to invest in technology to take their places or re refigure some sort of product or service with technology. I think there's the potential that the service could be going through some difficult times in the next couple of years if if this goes no, none of this may happen. Let's let's understand this is this is all, you know, speculation at this point. But if all of those things were to happen, we'd we cut back on hiring. We give people that are already there an easy way out and we don't fund technology. Then, you know, [00:34:30] we're going to continue to expect the IRS to function and it's going to be harder for them. And that's going to come back on us as tax professionals or taxpayers.
Annette Nellen: Right, right, right. Because we've been through that before. Yeah.
Roger Harris: Yeah. Yeah. We're we're used to it. Yeah. And he may not she's younger than us but we've been through it. And and it looks like we may be going through it again. All right. Let's let's maybe we're getting too deep into the current [00:35:00] environment and the politics here. Let's get back to the report. And what do you want to talk about next from the report?
Annie Schwab: Um, let's talk about um, we mentioned the online accounts and that that was helpful. But what else is sort of like looking forward, like voice bots, like, um, what can we I know the business online accounts are starting to to rev up.
Roger Harris: Um, yeah. What did RSK think was the most important thing?
Annette Nellen: Yeah and [00:35:30] did you have a look at the report? There's actually four reports that deal with something about online accounts. Uh, one was just maybe just you need more promotions so people are aware that they can go. And if you go through id.me and then you can go activate your online account. Um, it just things I I've read in statements made by former Commissioner Werfel was that that would be the future of the IRS. Um, just like, you know, if you want to deal with your bank, you log into your account and you can do all kinds of things. I think that [00:36:00] was what they were talking about in the strategic operating plan. So they are very important. But people need to know they can form these and be able to do something. I think with the when the tax professionals were told, hey, you can manage your powers of attorney there, that was wow, okay. That's fantastic. I better go open that. That sounds like a good thing. So finding ways to promote it, making sure you know that that expected tech advice is there. I got a problem. You know, if you log into. Oh, I bought some product and I got a question about it. You log into the website, usually a chat thing pops up right [00:36:30] away. Do you want to chat about it and take care take care of it. So they need to be aware of what you know people are used to outside of, um, uh, government dealing with, uh, private enterprise. Uh, the report also includes a list of things that people would probably like to see in the business online account and then, um, discussion about for the, for the business online accounts. That's an added challenge beyond what an individual is because, you know, some big company who is the designated official, who are the users, [00:37:00] how does the.
Annie Schwab: Taxpayer data.
Annette Nellen: Not violating, you know, disclosure rules and it gets more.
Annie Schwab: Privacy and everything else?
Annette Nellen: I think if people want to know more about that, I think, you know, the background, the recommendations. That part of the report is, uh, is interesting. But, you know, I think people have to realize in your regular everyday life, how many times are you logging on to do something? Wouldn't you want maybe all the government agencies you deal with to have something similar? And some do, certainly. But governments [00:37:30] don't always get the same funding as private industry.
Roger Harris: Yeah, Andy. Andy can speak to it better than I can. We've gone a long way to encouraging our people to encourage their clients to set up the online accounts, because it it makes our job much easier if we need something. You know, it's I think they're I mean, they're not perfect, but I think they're really good in a great place to go to do certain things and certainly to get information. I know, Andy, we've run into.
Annie Schwab: Make payments, change estimates, get a document. You lost. See, I think they're up to five years [00:38:00] of comparable information that can be found in their, um, offering compromise. Uh, if I like it just for the fact that, you know, the scammers are so good, right? So just just knowing you got an IRS notice, clients are like, is it real? Is this right? You know, and if you go into your online account, then you can see, you know, if that notice is sitting in that account or not.
Annette Nellen: Right. Just like you get the email, your Amazon account has been closed.
Annie Schwab: Right right, right. And then.
Annette Nellen: You can check it's [00:38:30] a it's a bogus one because suddenly you log into your account and see that that's not.
Annie Schwab: Everything's fine. Right.
Annette Nellen: Yeah. Yeah I would just as a professor just watching technology, I would guess it would just keep on growing. And just one example it comes to mind. I talk about and do a lot of update presentations. The IRS came out with a new form to make an 83 B election where, you know, before election, just write it on a piece of paper, mail it off. But now it's a form 15 620 which you can fill out, you know, online, print it off because you have to [00:39:00] mail it in. But I would guess that that's an example of at some point, I would guess you would just be able to log into your online account. Want to make an 83 B election form pops up, fill it out, hit submit. Done. And it's noted in your account. Yes, this is the day you file this election. Anybody at the IRS? Or you can always look at it because I think that's what people would expect. I mean, I know that's what my students would expect. Isn't that the way I would do this? What do you mean? I got to go. I think.
Annie Schwab: It's fantastic.
Roger Harris: Yeah. Yeah. And Chad, you mentioned Chad. [00:39:30] I was at a briefing last week, and they've added chat, you know, in the collection department, where now you can schedule your appointment by using a chat box. And instead of having to call some number and stay on hold or hope you can go through a chat box now and say, hey, this is my issue. You know, when can we chat? You know, when can we not chat but.
Annie Schwab: Schedule the appointment?
Roger Harris: Yeah. So I mean, they're making strides and I think that's kind of what air sac and all of us want them to do. We want them [00:40:00] to continue to get more like what we deal with every day. Absolutely. With every other company that we deal with. You know, I used to jokingly tell people, the IRS can send me a letter, give me a phone number to call, and a supposedly a person to talk to, and they have no idea when I call, why I'm calling, what the issue is or whatever, but I can call my pizza place down the street who didn't know I was going to call and they can tell me where I live, what my last pizza was, and how long it'll take to get it to me. [00:40:30] So can we at least get our technology at the IRS as good as the pizza joint place.
Annette Nellen: The pizza place has you all recorded by your phone number.
Roger Harris: Right?
Annie Schwab: Right.
Roger Harris: Yeah. And so they know everything. And yet I'm calling you because you told me to call you. And nobody knows who I am. Or why am I calling you? And that's the kind of experience that frustrates people when, when they, they, they see such a disconnect between how they interact day in and day out. And, and then when it comes to dealing with their tax agency, [00:41:00] it's like, well, we don't know.
Annette Nellen: And of course, other things to consider is that, you know, the IRS has everybody is its customer. Your pizza place has a.
Annie Schwab: Limited.
Annette Nellen: Clientele.
Roger Harris: Yeah, there's a few more customers.
Annette Nellen: The IRS has greater concerns because your pizza place probably doesn't have your Social Security number. Um, where the the IRS has a lot of personal information for you. Um, so just. And then, of course, the IRS has to deal with everybody. I mean, that pizza party, I mean, you see businesses, for example, say, hey, we don't take cash anymore. [00:41:30] Okay. Right. That's fine with them. But, I mean, the IRS has to take hey, if you want to pay us cash or whatever, you know, we're going to.
Roger Harris: We got to get.
Annette Nellen: You. Don't use the internet. We still have to be able to serve to serve you. So they're realizing that basically all government agencies, particularly the IRS.
Annie Schwab: Um, there are hurdles for sure.
Annette Nellen: Oh, be serving everybody and capable of doing that, which is added added challenges of um, uh, making sure they can do all that.
Roger Harris: Yeah. [00:42:00] Let's talk a little bit because I know this is something that's been in the report for a while, and I know it's kind of near and dear to a lot of people in our profession. Uh, two things as it relates to practitioners. Number one, uh, I think recommended that EA's be able to take some CPE courses that aren't tax related, more practice management kind of kind of putting them on par with CPAs in terms of the kind of education they.
Annie Schwab: Professional development, those kinds of things.
Roger Harris: And then secondly, the whole idea of some sort of minimum standards registration [00:42:30] or something of the people who prepare taxes. Can you talk a little bit about those two areas? What what are found and why they're making those suggestions. And then we can speculate as to whether anything will ever happen.
Annette Nellen: Yeah. The one on the practice management, I mean, if you look at actually even what the curriculum is that the IRS, nationwide forums and Roger, you present on these things, they're practice management, but it doesn't count for enrolled agents at the university. [00:43:00] Our MST program is a IRS certified provider. And I was at the catch all. This is a very important topic, but it might not count for e e credit. We had a session on Artificial intelligence, a free webinar for our our friends and that won't count for. Um, I don't I don't think it would count for a credit on that, but but, uh, suggesting that obviously things that are very important to effective tax practice, everything from understanding, you know, how you how you keep all all your records, how you, [00:43:30] you know, find clients, how you decide maybe certain clients shouldn't be there. Anything could fall very broadly under practice management. Uh, the report suggests why not allow means optional up to four hours of the total 72 to be practice management courses. Because, you know, obviously, actually, attorneys often have things similar to that practice management. Um, why not for the, uh, enrolled agents and still even at 72 hours or even 68 [00:44:00] hours of technical education, and I'm sure many of them get far more than that. Um, it didn't seem to be. It seems like.
Annie Schwab: It was a good idea.
Roger Harris: Yeah, yeah. Well, And if you look, they just proposed some changes to circular 230. And a lot of those changes are more practice management driven than tax technical. It's talking about things like data security. It's succession planning. It's what to do if you're mentally impaired. And and all of.
Annie Schwab: Those familiar with technology. There was a lot of stuff in there about [00:44:30] technology and competence.
Annette Nellen: To include technology, technology competence.
Annie Schwab: Right, right.
Roger Harris: So if all of that's important enough to be part of circular 230, why shouldn't we be able to take a course to improve us in those areas as part of our of, of our requirement each year to, to to practice before the IRS? So hopefully that will get some traction and some attention because it's there's more to being good in the tax world than just knowing the [00:45:00] tax law. Obviously, that's the most important thing. You got to know the law and you got to know how to do the return. But you got to know how to run a business, protect the data, inform clients what to do when certain things come up that you know, aren't necessarily tax related. And so hopefully that'll. I was very happy to see that in uh, in the proposal.
Annette Nellen: Uh, it is very important. I run a graduate tax program where it's mostly accountants or some of these people changing careers. But one of the things I hand out to my orientation, I hand them a book about [00:45:30] emotional intelligence, and we have discussion about it because and I ask them questions like, you have to give your clients some bad news about how something works, and they're going to get really mad at you, you know, what do you do? Because it is important, effective. Absolutely. Just, you know, managing expectations and a whole host of things to be an effective tax practitioner. We also talk about your career. How do you plan your career. Because you can have all this tax knowledge. But if you can't fully utilize it for your own benefit and your clients or your employer, you haven't [00:46:00] gotten the full picture, right?
Annie Schwab: No.
Roger Harris: No. What about the whole idea of of the I know we had, uh, a bill that or a plan from the IRS. It's not a bill to regulate return preparers. And then we had the loving case and that went away. And we're certain states have are regulating but not the federal government or that came out in favor of doing something in that area. What what kind of brought it on? And is there a specific recommendation or [00:46:30] just do it?
Annette Nellen: Uh, actually, since recommendations are directed to the IRS, where another advisory group in the IRS electronic tax advisory is actually directed to recommendations to Congress. And I think every year for recent years has had, you know, allow make a statutory change to allow the IRS to regulate return preparers on a national taxpayer advocate makes the recommendation and past reports at times had made that in 2018. I think it was the most recent time where [00:47:00] Ersek had said that they encouraged IRS, I think, to go to recommend that Congress, you know, make this change. So what this earthquake report has is. Well, those recommendations are made for some time. Um, but nothing seems to to happen. And, uh, is there something maybe the IRS could do to perhaps bring more folks into, um, being subject to Cercla? 230 I mean, they have after the [00:47:30] the loss and loving decision, which, you know, over ten years ago now. Right. And of course, the proposed circular. 230 will finally pull the registered tax return preparer out of that, which is, you know, ten years outdated there, um, that they went to this annual filing season program, uh, where they do have some. Two 30 minute. They're subject to 230 as part of your agreement that you will be in this voluntary program, you've taken the requisite course, taken 100, take a test. I mean, it's all the annual filing [00:48:00] season program. Um, what I was suggesting in the report was why not further? It will actually replace it with something we would, we suggested, called a filing season agent, and they would have to take two parts the individual and the ethics part of the enrolled agent exam.
Annette Nellen: They'd be subject to, um, fewer education hours. And then they would something else that regarding uh, practitioners. I think it's always widely known [00:48:30] is that what are your practice rights? I mean, enrolled agent, attorney, CPA can represent anybody before the IRS, whether or not they're prepared to return. The voluntary, uh, program person can represent someone if they prepared the return that other people can't represent anybody. So we were just thinking maybe if something if it was a little more formalized. Um, and of course, then if someone wants to become the enrolled agent, they would just have to take the third part of the test and they would move on and have greater practice rights from the filing season agent. But basically, what [00:49:00] is getting at that part of the report is, is there anything the IRS can do? Because there's plenty of recommendations, in fact, Actually, um, I know this is just from reading many things in my career that President Trump's budget years ago had a proposal to regulate return preparers. President Biden's budget had a proposal to regulate return preparers. Well, if you've got two presidents that supported it and still no change, nothing happened.
Annie Schwab: Yeah.
Annette Nellen: Is there something that the IRS could do to bring [00:49:30] more into coverage under 230 with some required education element there?
Roger Harris: Yeah. Anything I mean, anything is better than what we have. And I think that, uh, Taxpayer Advocate is in her report to Congress for years has recommended this. And, you know, it's just, again, at some point, it seems like common sense. There's so many other professions that are regulated, you know, and yet somehow tax preparation is not not. And [00:50:00] I think a lot of our clients probably think we're all regulated to some extent.
Annette Nellen: You know, that's right. They probably they probably would, uh, think think that. And of course, the law is so complicated. Um, but.
Roger Harris: Yeah.
Annette Nellen: Yeah, I mean.
Roger Harris: We're not born with this.
Annette Nellen: Kind of education.
Roger Harris: To go to college and have to go take courses and try to do this. It's not like we just wake up one day and we know everything to do a tax return properly. Um. All right. We're running. This has been great. We're about to run out of time. Any what else do we need to [00:50:30] touch on before we wrap it up?
Annie Schwab: There are some new forms out there as it relates to digital currency. Um, you know, hopefully. I know there's still a need for regulating, um, that whole cryptocurrency, digital currency, digital assets environment, but with additional forms coming out, I think it will, although it keeps getting so complicated that the forms are going to have to change. And I don't even know all the terms related to to cryptocurrency, but anything on [00:51:00] that front, before we wrap up for the day.
Annette Nellen: One of the subgroups that, uh, RSK has, which actually used to be its own separate years ago. Its own separate advisory group was information reporting and.
Roger Harris: Just.
Annette Nellen: Incredible expertise there. But, um, RSK does issue a annual report in November, but it can also where it has recommendations that are needed earlier, like when the 1099 Da first was released earlier in 2024. They wanted comments by a certain date. [00:51:30] And so, um, RSK did submit comments on that and that that letter is actually there was seven comment letters actually in the appendix, uh, that went off earlier than the November report. Um, but yeah, people aren't aren't aware there's not a RSK item, but in regulations that, uh, all tie to the Infrastructure Investment and Jobs Act that was enacted in November 2021, one of the papers was to bring in broker reporting for digital assets. And it's very complicated project. I spent a lot of time on the digital asset space, [00:52:00] um, for for a variety of reasons that we just we're running a our second annual blockchain tax conference at the. Through our MST program, where it's just the complexity in the area is quite immense. But yes 1099 reporting actually starts one 125 so there are going to be people who, for the very first time, they've never seen before, likely in January or February of, of next year. That's going to raise a good number of questions by practitioners and all that, because [00:52:30] the Da is not going to report all transactions. The first ones aren't going to have any basis information on them. Even later ones might not have basis information on it. So it's a fairly complicated area and seems to get oh yeah, I think it's more complicated every day just because the types of transactions that change on a regular basis.
Roger Harris: Yeah, it's it's we did a podcast with a gentleman who's smartest guy I've ever heard talking about cryptocurrency. And I can say for the whole hour, I'm not sure I understood half of what he was talking about. I mean, it was [00:53:00] just.
Annie Schwab: Yeah.
Roger Harris: It was just.
Annie Schwab: So.
Roger Harris: Complicated and so many wallets and this and that.
Annette Nellen: And yeah, it's tough. It's almost you know, a lot of firms have, you know, somebody or multiple people where their full time activity, they're just spending it on.
Annie Schwab: Specialized at that. Yep. Yep.
Roger Harris: Yeah. You get that question on the tax return. Did you sell any crypto. And you just hope you can answer no. Uh, well.
Annette Nellen: I tell people a lot of these presentations, I'm pretty sure you all have at least one client with digital assets.
Roger Harris: Yeah, [00:53:30] whether you know it or.
Annie Schwab: Not, whether you know exactly.
Annette Nellen: Whether you know it or not.
Annie Schwab: Wow.
Roger Harris: Well, we didn't get near through the list of things we. So we got to get you back in net where we didn't, uh, but this has been great. I want to thank you a lot for for doing this.
Annette Nellen: And I hope people, you know, just learn a little bit more about Earthcheck. And we've talked about a lot of topics beyond Earthcheck, but any reports I think are always good background reading.
Roger Harris: Oh yeah. No, it's always in all the reports. It may not be 100% relevant to you, but I guarantee you there's a lot of stuff in there that would.
Annie Schwab: It is interesting.
Roger Harris: Relevant [00:54:00] to you, uh, if you're in this industry and write in any level and we will have to get you back, because I'm looking at my list and I think we got through like three of 12 or something. So we we.
Annie Schwab: Would love to have you back.
Roger Harris: Well, we'll.
Annette Nellen: Be glad to glad to come back. I always like to talk about.
Roger Harris: And you're back on set for the rest of the year, so who knows what you'll find out. You're going to be on the front lines of a challenging year, I think, for the IRS for certain. Any any final.
Annie Schwab: Thoughts [00:54:30] or comments? I've enjoyed this, and I do hope that we can get you back sooner than later. And thank you so much for your time. And thank you to our listeners. Hope you've enjoyed this episode. And that's all I have for today.
Roger Harris: Annette. Thank you. Thanks to all of you for listening. Hope you'll be back for another federal tax update podcast.
Roger Harris: Bye everyone.
