Chairman Portman, Commissioner Dronenburg, distinguished guests, my name is Diana Thompson and I am an Enrolled Agent engaged in private practice in Cincinnati, OH. I have been a tax practitioner for more than 20 years and received my EA card in April 1989. In 1992 I became a National Tax Practice Institute Fellow which means that I have completed a rigorous course of advanced study in tax practice and taxpayer representation. I am the owner of Tax Tyme, Inc., a tax and accounting business serving individual and small business clients. My firm handles more than 1,000 tax returns each year. Off-season I have a substantial practice representing clients in audits and collections.
I am very pleased to have this opportunity to present testimony on behalf of the Ohio State Society of Enrolled Agents, the Ohio affiliate of the National Association of Enrolled Agents. I serve as First Vice President for OSSEA. OSSEA receives no Federal grants or contracts. The testimony I am presenting represents the collective views of our Members here in Cincinnati and in Ohio.
As you know, Enrolled Agents are licensed by Treasury to represent taxpayers before the Internal Revenue Service. Enrolled Agents were created by legislation signed into law by President Chester Arthur in 1884 to remedy problems arising from claims brought to the Treasury after the Civil War. We represent taxpayers at all administrative levels of the IRS. Since we collectively work with more than 4 million taxpayers and small businesses each year, Enrolled Agents are at the front lines of tax administration.
If you wish to improve the lot of Ohio's taxpayers, I can think of no better place to start than with various provisions of the tax code which are extraordinarily complex.
As a practitioner working with families, I am finding problems with the Alternative Minimum Tax (AMT) for people who are involved in sales and for children whose interest on college funds is propelling them into the AMT. My colleagues tell me that they, too, are finding more clients with AMT issues.
Surely, this isn't what Congress intended when it created the AMT. Rather, my understanding is that it was intended to make certain that various tax deductions and exclusions didn't result in wealthy individuals zeroing out on tax while Joe Sixpack paid full freight. Today we seem to have a conflict in public policy goals, between the need to save for college and making sure everyone pays something toward the cost of running the country. How you sort this out is a question for the Commissioners to confront and may require legislation to resolve, but I raise it as an example of a problem that we are seeing in our practices.
Due to the unique interaction of the Ohio State tax code with the Federal tax code, it is better for many married taxpayers to file as married filing separately although it is my understanding that the preferred status is for married taxpayers to file jointly. Again, this is a situation for which there may be no solution, but I call it to your attention as an example of unintended complexity.
The Earned Income Credit has been controversial, particularly in the 1995 filing season. While fraud stemming from electronic filing involving the EIC seems to have disappeared, as practitioners we see individuals coming in who know how to present their situation so that they can maximize their benefits. Perhaps the husband claims two children and the wife claims two children and they don't mention that they're married, both working, and living together. This situation undermines confidence in the fairness of the tax system when we have a provision that on the one hand is overly complicated and defies the understanding of ordinary taxpayers and on the other hand invites abuse. Perhaps this is an area where the Commission should request hearings by the House Ways & Means Oversight Subcommittee.
The complexity of our present system is perhaps best demonstrated by clients who now request letter rulings from the IRS -- at $500 per letter ruling -- in order to be sure that they are not violating the law in certain gray areas. We realize that the $500 was a revenue raiser, but we don't think compliant taxpayers, taxpayers who are trying to do the right thing, should be forced to pay $500 to find out for sure what they should do. Again, it undermines confidence in the system.
Impact of the IRS Budget on Local IRS Operations
We are very fortunate to have a District Director, Ashley Bullard, who is knowledgeable, experienced, and accessible to practitioner groups on a regular basis. He is very cordial, listens closely and shows concerns for our problems. Similarly, our collections chief, Johnny Powell, has gone out of his way to be of assistance when problems arise. The Problem Resolution Office runs well and we have not been made aware of any problems with the practitioner hotline. Overall, the filing season is running smoothly.
Congress must ensure that the IRS has the funds it needs to be adequately staffed, trained, and supplied. It must be able to provide the services taxpayers need in order to fulfill their legal obligations. I realize that it's popular to complain about mismanagement at the IRS, but many of the individuals we are dealing with are hard working, dedicated and want to do right by the taxpayer. There are, however, serious shortfalls in resources -- personnel, training, supplies -- to do what needs to be done. You cannot starve this organization. It is as vital a part of the national infrastructure as highways, airports, the military. In fact, we will have none of those without an effective, functioning IRS to collect the taxes which fund all of those services.
Most IRS personnel are professional and helpful. Still, we see some areas for improvement and for the most part they are budget driven.
Some personnel at the Automated Collection Service who answer the phones seem to be overwhelmed. They treat tax practitioners rudely and have even been known to hang up on callers. When that happens you have to call again, get back on hold for another 20 minutes, and hope for the best. Even Revenue Officers have told us that they are having difficulties with these
people. Clearly there is a need for more personnel and better training. However, I understand that IRS training funds have been curbed which is most unfortunate.
With this in mind, OSSEA has taken the initiative in Ohio to improve relations between IRS and our membership and to increase our membership's understanding of ACS and EFTPS. Through John Gallagher, Chief, ACS Branch, we have arranged for our membership to visit the Cleveland ACS facilities and to be updated on EFTPS. This arrangement is the type of positive working relationship OSSEA hopes to achieve with other areas of IRS.
There are not enough personnel at the local site. You can wait 15 minutes just to get the attention of a clerk to let him/her know you're there for an appointment with an administrator.
The downtown Cincinnati office is running well. However, the Tri-County satellite offices need to be improved. People pile up in line because many of the forms needed by practitioners are not out on open shelves and must be requested. The time you are in line seems like forever when you have clients waiting and returns to complete, even if it's only 15 or 20 minutes. We realize that most forms are available on the IRS Homepage, but not all practitioners have online access.
The downtown office has a larger and more experienced staff. They take a more formal approach to their work and are not as laid back as in the Tri-County offices. In the Tri-County offices, if your views differ from the Revenue Officer's even the Supervisor will not help you work out the situation. It's "their way or no way." Practitioners complain that if there's something about the case an RO does not like, there is no mediator. Sometimes you can get another Revenue Officer to help out.
National Standards on Collections
These have been very controversial from the start and are under revision by the National Office. We expect that we'll see the new version shortly. In the meantime, as practitioners, we see taxpayers put in a difficult position. For example, the housing allowance is a set amount without regard to family size. So much for family values!
It seems very unfair that tax practitioners who are assisting taxpayers must pay for some IRS publications. Originally, we would have had to purchase a bulk supply, even if we only needed one copy. Then the Superintendent of Documents decided that we could get one copy if we needed it. Here in Ohio we have many older tax practitioners. They can't take a form or publication off the website or the IRS fax on demand because they use neither computers nor fax machines!
There has been progress between NAEA and IRS. Some notices have been eliminated. We feel continued joint efforts are needed. Letters and notices from IRS are still not as user friendly as they could be. Certainly, taxpayers have trouble following them, and we do, too. We understand a new set has just been made available for practitioner comment, so we are hopeful of improvement.
We've recently learned that the IRS has lowered the audit rate locally. Apparently this is because resources have been deployed to help with filing season. How to properly allocate resources is a difficult judgment call. However, think of a client who is midway through an audit and his auditor is called on special detail until April 15. When the auditor returns, the client finds that the interest and penalties have piled up. To the taxpayer, this just won't seem fair.
Electronic Federal Tax Payment System (EFTPS)
Here in Ohio we are finding that local banks don't understand the system well; that small businesses are being unfairly charged for services by the banks; that employers and employees don't understand the system. We do not believe that the practitioners are as well informed as they could be. Clearly, we need more outreach, perhaps in the form of education sessions for both tax practitioners and for small businesses so that we can all ask questions and understand what this system is all about.
This outreach effort becomes more crucial when you realize that many of the businesses we are dealing with are not affected by the current round of mandates but will need to be on board next January. Reaching these smallest of small businesses is going to require the cooperative efforts of both tax practitioners and the IRS. We should start as soon as filing season is over.
On behalf of the Ohio State Society of Enrolled Agents, I would like to express our appreciation to you, Chairman Portman and Commissioner Dronenburg, and to the Commission staff for taking time to visit us here in Cincinnati. Since this is now tax filing season, it's just not possible for us all to go all the way to Washington. However, we are all very grateful for your commitment to ensuring that America's taxpayers have the best tax administration system possible. I will now answer any questions you may have.