IRS Tech Issues

I have a memory from my first job as a lawyer that reminds me how slow the legal profession can be embracing new technology. Or maybe it just reminds me of how old I am.

It was 2003 and we were using these lined, carbon copy half-sheets we called “quick notes” to send informal hand-written messages to opposing attorneys, doctors, etc. I don’t remember sending them to clients because they didn’t really make the best impression, so we would dictate actual printed letters on official letterhead when writing to clients. We mailed the top white sheet to the recipient and saved the yellow carbon copy for the file. This form of communication seemed a little dated to me, even then, but it worked, and it was efficient. Even though it had been in the mainstream for about 10 years, I do not remember using email at that job.

Some people, or groups of people, just don’t latch onto technology very quickly. Because the taxpaying public includes every category of person imaginable, it is easy to see how a large percentage of taxpayers would have a hard time with the IRS’ suite of web-based services. The National Taxpayer Advocate, Nina Olson, is concerned about those who may get left behind as the IRS moves more and more of its services online. These are some of the concerns outlined in her annual report to Congress that was published a few days ago.

Somewhat of a contradiction has been developing over the years as the IRS formulates its “future plan” that heavily emphasizes technology and, specifically, online taxpayer accounts. Online tools are supposed to make things easier and more accessible for taxpayers (in fact, that is always their stated purpose), but it is obvious that the main purpose is to save the IRS money. Can you have both? Sure you can, but the key is that you don’t completely phase out the low-tech alternatives so that there are still options for the “quick note” users. For example, the IRS plans to phase out face-to-face taxpayer assistance. First they changed the name of walk-in sites to “Taxpayer Assistance Centers.” Then they plan to eliminate walk-ins and require appointments. Is it only a matter of time before these assistance centers are completely off limits to the public? It’s true, the IRS has a tricky balancing act when it comes to implementing new technology, and frugal administration of the tax system is certainly a worthy goal. But forcing everyone to embrace online accounts and tools will only cause more frustration, distrust, and inefficiency — things the IRS has been trying to avoid for decades.

IRS Doesn’t Hire 20-year-olds Because They’re Used to Stuff that Works

One of the most hilarious things for IT people is to hear non-IT people try to talk about computers and technology.  By no stretch of the imagination am I an IT person, but I do see the humor in that sort of thing as well.  Here is 75-year-old John Koskinen in a recent interview with Tax Analysts’ William Hoffman:

[W]e have a huge turnover in people under 30 because we’re not hiring that many. But when we’re hiring them, we’re obviously not keeping them at the rate that we would like….Part of that is because our technology is so abysmal. You take people, young people coming in at 23, 25, 27, and they’re used to….stuff that works. You know, they’re at the high end and they Twitter and they do all of that stuff. When you come into an organization still moving people onto Windows 7 from Windows XP, that’s not exactly a cutting-edge technological group….Now, on the other hand, we’ve proved technological, technology people because we are doing great things. We don’t have enough resources, and we’re way behind what we’d like to do. But, you know, the apps we’re doing — Where’s My Refund, Get Transcript, and that — so we’re pushing various state-of-the-art stuff, which is why I refer to our IT as a Model T with a great GPS and wonderful sound system….And so that’s some extent, so we’ve got some state-of-the-art apps and, you know, really ancient — you know the average age of our IT equipment is 15 years. So we have to be the only serious large organization of a financial institution running with average equipment age of 15 years. So our computers are too old, our servers are too old. You know, we still got stuff in COBOL programming….So that’s the problem at the front end.

I’m not 27 any more and I feel like I am used to stuff that works too.  It would absolutely drive me crazy to work with 15-year-old computer equipment.  I couldn’t work there for 1,000 other reasons, but that would be a big one.

This quote is so full of awesome lines I don’t even know where to start.  My favorite line: “You know, they’re at the high end and they Twitter and they do all of that stuff.”  It is funny to me that the head guy at the IRS says things like this.  I mean, it’s fine, we don’t need a spry young kid at the high end who Twitters or anything.  As long as he can manager other high end people who Twitter, things should be fine.  The IRS definitely has proved technology people and they’re doing apps and pushing various state-of-the-art stuff.  Oh boy, don’t even get me started on the IRS apps, Mr. Koskinen.  They aren’t that good.  After all, it doesn’t make much sense to put a GPS in a Model T if the Model T can’t go 99.99% of the places shown on the GPS.

IRS Claims Lerner's Emails are Unrecoverable

The IRS scandal involving the disparate treatment by the IRS of certain tax exempt organizations (or their applications for tax exempt status) still has life.  The government committees responsible for investigating the IRS “targeting scandal,” as it has come to be known, wanted to see Lois Lerner’s emails, and last week the IRS responded that they are unable to recover her emails, apparently due to the fact that her computer crashed in 2011 and the IRS did not make a practice of preserving all emails on their servers.

Experts find it hard to believe that the IRS lost the files innocently and that they cannot be recovered.  From a legal standpoint, it is common knowledge that you don’t delete emails anytime there is a potential for litigation; in fact, you do whatever you can to preserve them.  From a tech standpoint, it is difficult to believe that the emails could have simply disappeared, even if the IRS was not conscientiously backing up data at the time.  The idea that files are never really 100% gone when you delete them has some truth to it.

From a layperson point of view, it appears that we’re witnessing some sort of cover-up.  It just doesn’t pass the “smell test.”  I feel like my 10-year-old would be able to sit down at Lerner’s computer and at least find something.  But if not, in this day and age, computer geeks are a dime a dozen.  Why can’t we just hire the world’s smartest forensic geek at the FBI or CIA and be done with this?

However, as much as the experts and the general public do not believe the emails were lost inadvertently, I have to admit that the facts as we know them do not sound too far fetched to me.  From the viewpoint of a tax attorney who deals with the IRS every day, it seems plausible that the IRS really would not save or properly back-up the emails.  There’s no way the IRS could possibly save everything.  And as for Lerner’s computer crashing, well that kind of thing happens constantly at IRS service centers all around the country.  Sometimes when I’m talking with an IRS representative on the phone, I try to imagine the computer their working on and, in my mind, it usually has a 3.5″ floppy disc drive and a behemoth monitor that is twice as deep as it is wide.

IRS Provides Guidance on Tax Treatment of Bitcoin

Its status has been up in the air for some time now, but today the IRS provided guidance on the tax treatment of online currency such as Bitcoin.  The official position is that virtual currency is not to be treated as legal-tender currency, but should be treated as property instead.  Bitcoins, therefore, should be reported and taxed as ordinary income, or as assets subject to capital gains, as the case may be.

[V]irtual currency is treated as property for U.S. federal tax purposes.  General tax principles that apply to property transactions apply to transactions using virtual currency.

Therefore, in real world applications, employees who are paid in virtual currency must pay taxes on that income just as they would pay taxes on dollars.  And an employer would have to withhold taxes, report these wages on a W-2, and comply with payroll tax laws.  And, of course, a 1099 is required for the self-employed who are paid in Bitcoin.

Perhaps of greater concern to some Bitcoin users around the world is the impact this IRS notice will have on “miners” (computer geeks who compete to unlock new Bitcoin by cracking codes).  If they want to be 100% legit, they will have to go back and determine how much Bitcoin they mined throughout the year, its fair market value on the date it was mined, and include it in their income.

IRS Violating Software License Terms

The IRS is using some computer software that it hasn’t paid for, and is paying for other programs its employees aren’t even using, according to a new TIGTA audit released Tuesday that said the tax agency could be violating copyright laws.

The Treasury Inspector General for Tax Administration found serious problems with IRS software license management practices, many of which could be remedied if they would simply keep better records.  Read the full report here.

Software licenses are typically written in such a way that the software may be shared only on a certain number of computers.  The IRS appears to be doing what so many other private parties tend to do: sharing software on more systems than is allowed by a license.  And then they have also been doing what few people in their right mind would do: paying for licenses that they aren’t using.  This is a signature IRS move if I have ever seen one!

IRS Getting Geekier

As if the IRS weren’t geeky enough already, according to a US News Money story, they are really stepping up their game with regard to tracking taxpayers’ digital activities.  I sometimes lovingly refer to IRS employees as bean counters, and I similarly use the term geek here with all due respect.

The IRS has new advanced digital tracking technology similar to “cookies,” — but more powerful than cookies because the IRS also has access to social security numbers and other confidential information unavailable to the private sector.  It isn’t clear exactly how the IRS will use this new technology, but it appears they will have access to pretty much anything you do online whether it be posting on Facebook, making a purchase with your credit card, or anything in between.

Understandably so, the IRS isn’t rolling out this technology with much fanfare or noise.  The less the public knows about what triggers an IRS audit or what information is used to identify suspicious activity, the better, as far as the IRS is concerned.  But industry experts and scholars are very concerned about what all this could mean for individual privacy rights.  One thing that is clear is the IRS can’t continue to operate under procedures and safeguards that were designed when everything, including tax returns, was recorded on paper.

So, exactly how much can the IRS find out about you?  The answer to this question is quickly approaching “everything” if at one time it was somewhere in cyberspace.

And finally, some interesting geeky statistics:

  • An entire year of tax returns occupies 15 terabytes (only 1.5% of total IRS storage)
  • Total IRS storage is 1.2 petabytes (one quadrillion bits of information)
  • IRS has expanded its data capacity  by 1,000 percent in the past six years

IRS Uses 40-Year-Old Data Processing System

The Commish recently addressed the National Press Club to discuss some of the IRS’ major deficiencies and how the agency is overcoming them by never being satisfied with the status quo:

[T]he germination of any idea…the cultivation of a concept…is only the beginning. Then, begins the real work of teasing it into life, and growing it. And that process never ends. It’s one of continuous improvement.

~IRS Commissioner, Douglas H. Shulman

The speech is long, and my attention span is not.  If you want to read the whole thing, here is the link.  But there was at least one interesting point that I want to share having to do with technology.  In my experience, small tax problems can become bigger when IRS technology is not up to par.  I have always said that the IRS has been behind the curve when it comes to technology.  Even the strides that have been made recently to appear tech savvy seem to have been more for show than anything.  I’m referring to changes that have been made to the IRS website and their entry into YouTube and social media.

Well, it turns out I’m even more correct than I thought.  Shulman says that the IRS uses the same basic data processing system that was used in the 1960s.  Here’s why (according to the Commish) the IRS has not made a comprehensive technology upgrade:

  • The IRS believes in the philosophy “if it ain’t broke, don’t fix it.”
  • The IRS relies on a complicated hodgepodge of new and old computer systems (so it’s not ALL old)
  • The IRS hasn’t been able to get the funding they need to make a comprehensive upgrade

So, which is it?  Is it because they don’t get enough funding, or is it because they are satisfied with the way the 40-year-old technology works?  I suppose it’s both.  The amount of funding is never quite enough to do any kind of comprehensive technological overhaul, and when they do get some money, they (quite correctly) spend it on whatever is broken regardless of how old or new it is.

IRS Introduces Mobile App “IRS2Go 2.0″

If you own a smartphone, chances are you probably use it throughout the day to post, tweet, like, and follow. Maybe your addicted to Words with Friends or Angry Birds. You’re probably NOT ordering tax transcripts or checking on the status of your refund. But according to the IRS, at least 350,000 of you have the app that allows you to engage in said geeky mobile activities. And who knows, that number may have shot up even further after today’s announcement that the IRS is rolling out the updated version of its mobile app “IRS2Go 2.0.”

I don’t know, there’s something about the IRS and technology that reminds me of the time I witnessed my mother trying to communicate with Siri. A little awkward.

~ John Wetenkamp, tax relief attorney

IRS2Go has 7 main features (#4, #5, and #6 are new in version 2.0):

  1. Get Your Refund Status
  2. Get Tax Updates
  3. Follow Us
  4. Watch Us
  5. Get the Latest News
  6. Get My Tax Record
  7. Contact Us

For whatever reason, I’m doubting that 350,000 downloads figure. How many times have you installed a free app only to uninstall it minutes later after discovering you don’t like it? Does the 350,000 include that scenario? It’s not that the IRS doesn’t know technology. It’s not that the app has completely unusable features either. I just can’t imagine very many people would want to be reminded of their tax obligations (or tax problems) 6,000 times a day — each time they glance at their phone. Most people only want to think about the IRS one time per year, and even then they don’t want to have to ponder the thought for too long.

IRS May be Levying you in their Underwear

The IRS has expanded its use of a wireless and remote access technology over the past several years, allowing employees to access the IRS Network from airports, hotels, their homes . . . anywhere. While it’s interesting to think of the IRS revenue officer sitting at home in his boxers in front of the TV sending out wage garnishment notices and lien letters, the more noteworthy issues here are (1) the efficiency of wireless technology and (2) the security issues it poses for the American taxpayer. The IRS really has to balance these competing values and TIGTA has stepped in recently to help do some balancing.

Today TIGTA released an audit report giving mostly positive marks to the IRS wireless activities. The IRS has adequate controls in place that monitor whether or not the secure network has been breached, and these controls are functioning properly. However, some IRS employees have been accessing the wireless network from unauthorized wireless devices (personally owned USB wireless adapters).