How to Speak to Your Clients About the IRS

There are several factors that explain how the IRS has failed to meet their commitment to service for the American people. As we’re all well aware, public health concerns from the pandemic necessitated a remote work model and the decentralization of the agency has compounded their problems.

To date, they’ve yet to build or optimize a remote infrastructure that would fully support their employees’ ability to work from home. Not to mention, the majority of the IRS’ IT and telecommunications systems are outdated, unable to integrate with newer, more digital platforms. This means that IRS agents themselves have connectivity issues, with little to no help available to reconcile them.

Lastly, the agency’s staffing level is woefully short to meet the growing needs of its individual and institutional audience, who continue to struggle in working through many of the complicated taxation issues brought about COVID-19. And this shortfall has filtered down to another overmatched U.S. agency – the postal service. Hence, checks and correspondence are routinely delayed and impossibly behind schedule. The IRS’ budget has shrunk 15% over the last decade, and the agency began this year with a backlog of more than 11 million unprocessed returns.

That’s the gist of the bad news facing the IRS. As accounting professionals, we’ve all been on the frontlines of this crisis for many months now. Our clients are frustrated, irritated, and worried about securing the resolutions they need to be at peace. Bashing the IRS has never gone out of style, and the current circumstances have only directed additional vitriol and invectives their way.

But remember – in our role as CPAs and accounting professionals, we’re the key go-between for the IRS and our clients. They’re looking to us for the answers, and though we may not have all of them, we owe it to our profession to address the situation in an even-handed and fair manner. The majority of us don’t want to be pencil pushers and fill-in-the-blank artists. We yearn for the opportunity to practice the one crucial amenity we do provide – advisory services. My friends, that time has arrived.

Where the IRS is concerned, help is on the way. And we need to communicate these updates to our clients honestly and professionally. So, I implore you to get up to speed on the changes headed to the IRS and manage your client’s expectations accordingly. This is how to speak to our clients about the IRS.

On the Inflation Reduction Act

On Aug. 16, President Biden signed the Inflation Reduction Act into law. This bill represents months and months of effort by congressional leaders to resolve the country’s economic woes – not the least of which is an inflation rate the likes of which we haven’t seen in decades. But the bill also singles out the IRS for immediate assistance – about $80 billion worth, to be used over the next 10 years.

What Your Clients Need to Know

As CPAs, we need to filter out any political bias currently circulating through the media. The appropriated funding is allocated for two general areas 1) to bolster taxpayer services, and 2) to increase enforcement of the tax code. Here’s a great breakdown of these funds, as published by the nonpartisan Congressional Research Service:

• $45.6 billion goes to tax enforcement, to reduce the “tax gap” of average unpaid federal taxes
• $25.3 billion goes to operations support to cover routine costs like rent, facilities, and upgraded systems
• $3.2 billion goes to taxpayer services, such as filing and account management
• $4.8 billion goes to business systems modernization

The budget would support the hiring of an additional 86,852 full-time employees over the next decade. Not just enforcement agents, but all workers – even those who answer the beleaguered customer support lines.

The funding will not – despite the current rhetoric – create an army of new tax enforcement agents. Nor are these enforcement agents targeting any individual or institutional taxpayers with a taxable income below $400,000. It literally says that exact phrase in the bill that’s now been signed into law. The new funding will also not increase the chance of getting audited. This pledge came directly from U.S. Treasury Secretary Janet Yellen, who is quoted in written correspondence here:

“Specifically, I direct that any additional resources—including any new personnel or auditors that are hired—shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels. This means that, contrary to the misinformation from opponents of this legislation, small business or households earning $400,000 per year or less will not see an increase in the chances that they are audited. Enforcement resources will instead ‘focus on high-end noncompliance.’”

The nonpartisan Congressional Budget Office has reviewed the legislation and believes that this new funding allocation will raise net federal revenue by more than $124 billion. That’s money owed to the government in the first place. Now, they’ll have the means to recoup it.

We owe it to our clients to provide honest, straightforward answers about the current challenges and proposed resolutions for the IRS. Regardless of any political affiliation, we can – and should – present just the facts to our clients. And do it no differently than when we process the precise numerical figures in their tax filings. In times such as these, we should all make a conscious effort to lower the temperature of the rhetoric. We’re supposed to be accounting and tax professionals who provide accurate advisory services. And I believe the time has come to follow through on it.

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Ernie Villany, CPA is the founder and president of Boulder Valley CPAs (BVCPAs), a Colorado-based CPA/advisory firm representing clientele in 30 states. Ernie has over 20 years of experience in public accounting, helping small to medium-size businesses around the world plan and manage their financial growth, while mitigating tax liabilities. He can be reached at ernie@bouldervallycpa.com.