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IRS Tries Walking in Our Shoes

By Michelle Singletary
Sunday, February 15, 2009

With a budget deficit projected to top $1 trillion this year, IRS Commissioner Douglas Shulman may start feeling some pressure.

After all, it's the IRS's job to collect the money that finances most government operations and public services. Quite naturally, one would think there will be increased demand to collect every penny that taxpayers owe.

But Shulman, who is just one year into a five-year term, says he's committed to creating a balance between taxpayer service and strong tax enforcement.

"We need to be a world-class service organization," Shulman said during an hour-long interview. "We need to walk a mile in the taxpayer's shoes. My theory is people don't expect flawless service. But they do want to be told what to expect and then get it."

The IRS is probably the most loathed federal agency, the one people dread coming into contact with. Of course, that may have something to do with the fact that the IRS collects money many people would rather keep for themselves.

I remember congressional hearings in the late 1990s when taxpayers testified about the rough, "Sopranos"-like treatment they were getting from IRS agents.

Talking behind big screens, longtime IRS employees accused management of fostering a culture in which workers were preoccupied with achieving high collection statistics, even if their collection tactics were illegal.

The late William Roth, the Delaware Republican who was chairman of the Senate Finance Committee at the time, held a series of hearings on IRS tax collection efforts.

"There is no other agency in this country that directly touches the lives of more Americans," Roth said. "The threat of an audit . . . looms like the sword of Damocles over the heads of taxpayers."

Although subsequent investigations didn't turn up widespread abuses, the hearings were instrumental in passing legislation that restructured the IRS and expanded taxpayer rights.

"We want to systematically find where people get lost in the system," Shulman said. "We want to understand the taxpayer experience."

Right now, for many taxpayers, what they are experiencing is being broke. Recognizing the problem, Shulman said he gave front-line IRS employees the authority to be easier on people having trouble paying their taxes because of the economy.

"We are going to suspend action and take people out of the collection queue," he said.

The leniency efforts will be aimed at taxpayers who are unemployed or are solely relying on Social Security or public assistance.

But Shulman quickly added that they won't get a "free ride," just a break. And such grace is aimed at people who have paid up in the past.

"We want to help people who have always been upstanding," he said.

There's not just an altruistic goal here. This is still the IRS. Shulman said his goal is to keep "compliant taxpayers in the system."

Shulman came to the IRS from the Financial Industry Regulatory Authority, the private-sector regulator of all securities firms doing business in the United States. He was the agency's vice chairman responsible for strategy, services and operations.

Despite the IRS's focus on service, Shulman said enforcement actions won't suffer because, of course, there's the deficit to contend with.

Shulman said he's going to ratchet up enforcement among three groups of taxpayers: high net-worth individuals, U.S. businesses with international operations, and large corporations.

He said the way to increase compliance among these groups is to increase third-party reporting.

For example, beginning in 2011, financial firms will be required to tell the IRS what people paid for stock in order to capture what is known as the cost basis. Other investments will also fall under the new reporting rule. This means the IRS will have a paper trail to help it find people avoiding paying their capital gains taxes in full.

Also beginning in 2011, financial institutions will be required to tell the IRS the annual gross credit and debit card payments made to businesses.

Based on the Joint Committee on Taxation's estimates, the provision on cost basis reporting alone could bring in $6.7 billion over 10 years, and the credit and debit card reporting provision could bring in $9.5 billion more over the same time period.

"We are going to be matching up revenue with what's being reported to the IRS," Shulman said. "Honest taxpayers have nothing to fear."

If Shulman can achieve that balance of enforcing taxes and helping taxpayers, it will certainly go a long way in chipping away at our gargantuan federal deficit and maybe even eliminating the shivers you get at the mere mention of those three little letters -- IRS.

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and at http://www.npr.org.

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

· By e-mail: singletarym@washpost.com.

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