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MSP #7: INTERNATIONAL TAXPAYER SERVICE

The IRS’s Strategy for Service on Demand Fails to Compensate for the Closure of International Tax Attaché Offices and Does Not Sufficiently Address the Unique Needs of International Taxpayers

TAS Recommendations and IRS Responses

1
1.

TAS RECOMMENDATION #7-1

Reopen the four international tax attaché offices and provide funding for TAS to establish one LTA position at each office.

IRS RESPONSE TO RECOMMENDATION: The IRS recognizes the issues faced by individual U.S. taxpayers working, living, or doing business abroad. We continue to look for opportunities to improve services delivered to this taxpayer base. Improving taxpayer services to assist taxpayers in fulfilling their U.S. tax obligations is an important strategic goal for the IRS. The goal of the IRS is to ensure that all taxpayers with an obligation to pay U.S. tax have the education and assistance that they need. At the same time, the IRS must leverage its resources to focus on the most efficient and effective ways to provide taxpayer service as we address our compliance risks.

The primary purpose of the IRS’s foreign posts was to facilitate relationships and interactions with foreign governments. Although the activities of IRS personnel stationed overseas included taxpayer assistance and outreach, the predominant functions performed involved government-to-government interactions. As interactions among governments have accelerated and expanded in recent years, many more IRS employees, any of whom may be located geographically anywhere in the United States, interact on a regular basis with their counterparts in foreign tax administrations in increasing numbers of jurisdictions around the world. This trend has resulted in a greater acceptance of government-to-government interactions through e-mail and other technological tools, which can be accentuated by travel when necessary to address particular issues or problems. The ultimate outcome has been a reduced need to physically maintain a contingent of employees in foreign jurisdictions. Accordingly, we took into account our global mission, technological advances, and budgetary constraints, and made the decision to realign functions and positions from foreign-based to U.S.-based.

The budgetary funding in light of increased costs to maintain the foreign posts, combined with existing workload, security concerns, and available technology, required the development of alternative approaches to providing services to taxpayers living abroad. In fiscal year 2015, IRS funding was reduced by $346 million, with another $250 million specified for mandated costs; this is the equivalent of a discretionary budget reduction of almost $600 million. The IRS had to make difficult decisions about areas where costs could be reduced. One decision the IRS made was to close the foreign Tax Attaché offices and eliminate the costs associated with the operation of the foreign posts. Most of the work such as responding to exchange of information requests could be handled more efficiently by IRS personnel located in the United States and already performing similar work. Other work, including services to international taxpayers, could likewise be integrated into functions carried out in the United States.

The IRS is committed to our expatriate community as well as meeting our international obligations. The IRS continues to provide free tax assistance and return preparation through its Volunteer Income Tax Assistance (VITA) program at VITA sites located overseas at U.S. military bases. In addition, the IRS has expanded the services provided through IRS.gov. International taxpayers have indicated that obtaining tax information through the IRS website is the preferred channel. The IRS has redesigned the international pages on IRS.gov to be more useful to international taxpayers and has added the following features:

  • A redesigned international landing page organized by taxpayer category. Each category links to a separate landing page with relevant categories.
  • A links about the effect of the Affordable Care Act on U.S. citizens and resident aliens living outside the United States.
  • A Tax Map of international tax topics that makes it easier to search and find topics of interest.
  • A link from the “Make a Payment” Main Page with instructions on how to make electronic payments via a foreign bank account for taxpayers living abroad who no longer have a U.S. bank account.
  • The expansion of the Frequently Asked Questions page for the international taxpayer.
  • The development of six YouTube videos for international taxpayers.
  • The development of two international topics on the Tax Trails interactive section.
  • A link to a newly developed page providing tips on effectively receiving a refund, including information on how to reduce foreign addresses, to reduce undelivered mail returned to a U.S. embassy.
  • Links in Help and Resources to provide easy access to other relevant pages such as Report of Foreign Bank and Financial Accounts (FBAR) and Foreign Account Tax Compliance Act (FATCA). All of these sites allow for efficient sharing of relevant information for taxpayers residing outside the United States.

Additionally, taxpayers can obtain tax assistance, including assistance with account issues, through the International Taxpayer Service Call Center at 267-941-1000. Alternately, overseas taxpayers may also fax their written tax questions to IRS by dialing 267-941-1055. Lastly, taxpayers in Guam, the Bahamas, U.S. Virgin Islands, or Puerto Rico, can call 800-829-1040 for assistance. The IRS will continue to seek new ways to improve taxpayer assistance to all taxpayers both in the United States and abroad while promoting voluntary compliance.

The closures of the overseas post of duty offices will increase efficiencies in achieving the IRS mission and help us move forward with our strategic priorities during a declining budget environment. Consequently, the IRS does not believe reopening the four Tax Attaché offices is appropriate at this time.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS’s response overlooks much of the important work done by the attaché offices abroad. As detailed in the MSP, the attachés provided a valuable feedback loop between taxpayers and the IRS, allowing the IRS to learn firsthand about the problems international taxpayers faced and then use that information to better tailor its resources for these taxpayers. The IRS response lists numerous website resources available to international taxpayers, but does not provide any toll-free options for taxpayers outside the United States or its territories to interact with IRS employees. Without this interaction, the IRS may not know whether its website resources are even meeting the informational needs of international taxpayers. Contrary to the IRS’s suggestion that closing the attachés will increase efficiencies, the IRS may actually become less efficient because instead of answering taxpayers’ questions upfront and being proactive in response to their needs, the IRS may have more problems to fix later, requiring the revision of established procedures and increased enforcement action.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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2.

TAS RECOMMENDATION #7-2

Conduct impact studies to determine the effects on taxpayer service, compliance, and revenue by opening additional tax attaché offices around the world.

IRS RESPONSE TO RECOMMENDATION: ​As noted above [in response to Rec 7-1], the primary purpose of the IRS’s foreign posts was to facilitate relationships and interactions with foreign governments. The IRS determined that existing foreign posts should be closed and that the IRS would render existing functions, including providing assistance to international taxpayers, in other ways, such as through technological tools. The same primary variables (budget, security, and technology) that resulted in this decision to close the existing posts argue against opening additional offices. As a result, the IRS will not conduct impact studies about opening additional foreign posts.

CORRECTIVE ACTION: N/A

TAS RESPONSE: Without conducting impact studies, the IRS cannot make an informed decision about closing the attachés or opening additional offices abroad. The IRS indicated that it looked at budget, security, and technology in making its decision, but gives no indication that it considered cost-benefit analysis based on taxpayer service, voluntary compliance, and revenue. Improved taxpayer service and increased compliance could result in revenue equal to or greater than any budgetary costs associated with reopening the closed attachés or opening additional ones. However, the IRS persists in refusing to consider these factors.  Furthermore, the IRS has not shown that its current or planned technology will allow it to provide a substitute for all of the services offered by the attachés.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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3.

TAS RECOMMENDATION #7-3

Reestablish the ETLA (or a similar program) with timeframes for responses and create a process for using the information from ETLA inquiries in updates to IRS internal and external materials, including the irs.gov website.

IRS RESPONSE TO RECOMMENDATION: NTA Recommendation Not Adopted as Written, but IRS Actions Taken to Address Issues Raised by NTA. The IRS is committed to enhancing the service it provides to international taxpayers in a cost effective manner. Since the launch of ETLA in 2005, the IRS has developed additional web-based self-service channels. The International Taxpayers page on irs.gov is packed with information designed to help taxpayers living abroad, resident aliens, nonresident aliens, residents of U.S. territories and foreign students. The web site also features a directory that includes overseas tax preparers. Online tools such as Tax Map and the International Tax Topic Index are valuable sources to locate answers to tax questions. These online tools assemble or group IRS forms, publications and web pages by subject and provide users with a single entry point to find tax information. Other self-assist tools available on irs.gov include Forms and Publications, FAQs, Tax Topics, Tax Trails, and the Interactive Tax Assistant (ITA).

In 2015, the IRS created six videos to assist international taxpayers with some of their most common questions. The videos topics include:

  • Filing Requirements
  • Foreign Earned Income Exclusion
  • Individual Taxpayer Identification Number (ITIN)
  • Filing Status if Married to a Nonresident Alien
  • Foreign Tax Credit
  • Introduction to the International Taxpayers Web Page

In October 2015, the IRS added two international tax topics to the Tax Trails application on irs.gov.

  • Am I required to file a U.S. individual income tax return (for U.S. citizens/resident aliens living abroad and nonresident aliens?
  • Filing Status of a U.S. Citizen or Resident Alien Married to a Nonresident Alien

Three new ITA international topics are scheduled for deployment to irs.gov in January 2017:

  • Am I qualified for the Foreign Earned Income Exclusion?
  • Do I qualify for the Foreign Tax Credit?
  • Do I need an ITIN (Individual Identification Number)?

Update: This item has been completed with the posting of three YouTube videos to IRS.gov as follows:

Individual Taxpayer Identification Number (ITIN), Posted to web 5/12/2015, https://www.youtube.com/watch?v=S2uJJzyf4YQ

Foreign Earned Income Exclusion (FEIE), Posted to web 6/12/2015, https://www.youtube.com/watch?v=DUDOXG4_5-U

Foreign Tax Credit (FTC), Posted to web 6/12/2015, https://www.youtube.com/watch?v=gw-7FAIaP2w

Update: Complex Tax Law Topics are now out of scope.  However, we worked with International to determine topics most needed. We have developed 2 International topics that were deployed as Tax Trails on irs.gov:

  1. Am I Required to File a U.S. Individual Income Tax Return (for U.S. Citizens/Resident Aliens Living Abroad and Nonresident Aliens)?
  2. Filing Status of a U.S. Citizen or Resident Alien Married to a Nonresident Alien

In addition, we have deployed 5 topics, including 2 additional International topics, in the ITA tool on irs.gov. Those topics include:

  1. Am I Eligible to Apply for an Individual Taxpayer Identification Number?
  2. Can I Exclude Income Earned in a Foreign Country?
  3. Is My Income Subject to Self-Employment Tax?
  4. Am I Eligible to Claim a Credit for Adopting a Child or to Exclude Employer-Provided Adoption Benefits from My Employer?
  5. Do I need to include the IRA transfer or rollover to my tax return?  (Note: This topic includes three ITLA topics rolled into one ITA tool.)  The incorporated ITLA topics include:

Retirement Plan Rollovers, IRA – Traditional and Roth Rollovers and Transfers, Roth Conversions

CORRECTIVE ACTION: Deploy three ITA topics to irs.gov January 2017.

TAS RESPONSE: The National Taxpayer Advocate appreciates the increased focus on providing resources for international taxpayers by grouping information in a single place on the website, creating targeted videos, and expanding the Tax Trails and ITA.  While these are helpful, they are not a substitute for ETLA. The web self-service tools do not provide a method by which taxpayers can communicate with IRS employees to ask their individual questions and receive a specific response. While the IRS can attempt to provide answers to what it believes are common questions, the IRS is unable to learn what questions taxpayers really have and provide answers to. The IRS’s expansion of online resources, which do not actually provide for any interaction between taxpayers and IRS employees, does not address the issues raised by the National Taxpayer Advocate regarding the termination of ETLA.

Reestablishing ETLA is a cost-efficient option for filling the gap created by the elimination of all channels of direct communication with taxpayers abroad which left the IRS not only being unable to provide direct answers to tax law questions of those international taxpayers who are willing to comply, but also being unable to know whether it is providing the information taxpayers need through the only remaining channel — irs.gov. The IRS fails to comprehend the importance and the net effect of this recommendation, which is a reversion back to a dialogue with taxpayers, an important part of fair and effective tax administration which cannot operate in a vacuum.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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4.

TAS RECOMMENDATION #7-4

Allocate funding for staffing additional telephone service to accommodate the need created by the expansion of international enforcement activities.

IRS RESPONSE TO RECOMMENDATION: We agree with your recommendation to increase the staffing on our International telephone line and will consider implementation if resources and funding become available. The International telephone line is considered a specialty product line and Accounts Management (AM) strives to deliver a higher Level of Service (LOS) on this line than the general toll-free line. We have set the LOS for International telephone service at five percent higher than our general toll-free line. Once the projected increase in demand is determined for the expansion of international enforcement activities, then we may need to adjust LOS.

Update: Demand assumptions were provided to JOC and they provided a forecast to AM showing how many calls need to be answered to achieve the desired Level of Service (LOS) for the International product line, which was set at five percentage points higher than our general toll-free line (69% vs. 64%). To ensure sufficient staffing was in place to meet the FY17 projections, AM moved approximately 100 agents from domestic to International. Through week ending February 25, 2017, the International LOS is at 72.5% for the FY, so we are exceeding the FY goal of 69% by 3.5 percentage points. If additional demand materializes due to the expansion of international enforcement activities beyond what is already forecasted, AM will determine if additional staffing is needed on the International product line, but as of today, the necessary funding and staffing has been allocated to deliver the desired LOS of 69%.

CORRECTIVE ACTION: We agree with your recommendation to increase the staffing on our International telephone line and will consider implementation if resources and funding become available.

TAS RESPONSE: The National Taxpayer Advocate recognizes the IRS’s budgetary constraints and is pleased that the IRS is prioritizing service to taxpayers who face limitations in how they can contact the IRS.  Once the increase in demand is determined, the IRS should allocate appropriate staff and funding to achieve the higher level of service for the international line.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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5.

TAS RECOMMENDATION #7-5

Create a task force to analyze and provide a report within one year on the barriers to VOIP usage and partnering with the U.S. Department of State to employ VSD technology for taxpayers at U.S. embassies and consulates.

IRS RESPONSE TO RECOMMENDATION: Actions were already implemented in February 2016. The IRS created a task force which included representatives from Information Technology, WebEx Information Technology and the International Individual Taxpayer Assistance office. The task force identified the following barriers and issues with the Voice Over Internet Protocol (VOIP) technology for use in international taxpayer assistance that do not exist in the public switched telephone network (PSTN):

  • A “live” person is still needed on the call.
  • An “active”  high speed internet connection is needed by each user.
  • A computer, adapter or specialized telephone is required for each user.
  • VOIP providers generally piggyback off the networks established by Internet Service Providers (ISP); this poses security risks.
  • Mobile telephone and other devices are considerably more expensive to call internationally than landlines.
  • Free or low cost providers generally provide poor sound quality.
  • Most VOIP providers do not operate in all countries.
  • VOIP technology is subject to a number of challenges to satisfying security concerns, including:
    • Eavesdropping
    • Identity theft
    • Phishing, which involves a fake party calling as a trustworthy organization to request confidential or critical information
    • Viruses and malware issues
    • Denial of Service, which is carried out by flooding a target with unnecessary SIP (Session Initiated Protocol) call signaling messages in order to take control of a system remotely
    • Spamming
    • Phishing attacks
    • Call tampering
    • Older firewalls may not recognize VOIP protocols and block traffic
    • VOIP security is only as reliable as the underlying network security of each user
    • Man-in-the-middle attacks that intercepts call-signaling SIP message traffic and masquerades as the calling party
    • Wireless systems expose VOIP vulnerabilities.

The IRS is unable to implement VSD communication through U.S. embassies at this time, as the IRS currently does not have the VSD technology capabilities required for such communication.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate is disappointed by the IRS’s lack of commitment to transparency and by the incomplete or misleading information provided in response to TAS’s formal information request during the drafting of this MSP. TAS specifically asked the IRS what the barriers were to using VOIP for all overseas taxpayers. The only part of the IRS’s response applicable to that question stated: “Based on the IRS experience as a tenant of the US Embassy in London, the service does not allow call forwarding and taxpayers cannot use the phone system to contact an IRS taxpayer service line in the United States.” The IRS’s elaborate response above identifies a multitude of issues with using VOIP for all overseas taxpayers, and such information would have been useful during the drafting of the MSP.

Moreover, we note that many of the issues the IRS identified as challenges to VOIP are also concerns shared by regular telephone (for instance, social engineering, eavesdropping, or phishing, etc.). Thus these vulnerabilities are not a valid reason for refusing to use VSD technology for international taxpayers.The IRS can and should acquire secure VSD communication technology widely used in private sector. If spotty online access or lack of high speed internet were a concern, the IRS would have retained the four attaché offices abroad instead of shifting most material on the IRS.gov site. Finally, if the IRS had tax attachés, at least in Europe, it would have assisted international taxpayers to reach the IRS via phone as many phone companies have free calling within Europe and to the United States.

The National Taxpayer Advocate hopes the IRS will continue to explore ways for taxpayers abroad to make toll-free calls to the IRS and will reevaluate the use of VOIP or similar methods if technological changes are made to mitigate the security and accessibility concerns.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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6.

TAS RECOMMENDATION #7-6

Reinstate the IITA Team, with a formal charter, regular meetings, objectives, and measurable results.

IRS RESPONSE TO RECOMMENDATION: NTA Recommendation Not Adopted as Written, but IRS Actions Taken to Address Issues Raised by NTA. The IRS continues to recognize the importance of a team focused on international taxpayers and welcomes the opportunity to continue working with National Taxpayer Advocate (NTA). Improving taxpayer service to U.S. taxpayers who work, live, and conduct business abroad is an important strategic goal for the IRS. The International Individual Taxpayer Assistance Team (IITA) was established in 2012, partly in response to an NTA recommendation. The IITA program was made permanent in 2013, with an identified Program Manager. Since that time, the IITA reviewed and evaluated services provided to the international taxpayer and has completed the following actions:

  • Redesigned the landing page for international taxpayers on IRS.gov to group the content of the information by type of taxpayer.
  • Developed six YouTube videos.
  • Developed two question-and-answer formats for the Tax Trails interactive site.
  • Provided a “Preparing for the Tax Season” summary of useful information that was made available at embassies and posted on the State Department website.
  • Added a link to information on how to make electronic payments via a foreign bank account for taxpayers living abroad who no longer have a U.S. bank account.
  • Added information on receiving refunds, including information on providing a correct and updated address, to minimize undelivered checks.
  • Added a link for Affordable Care Act information for the international taxpayer
  • Improved and added questions on the FAQs page.
  • Added a “Tax Map” of international tax topics to make it easier to search and find topics of interest.

The IITA Program Manager continues to explore and develop ways to improve services to the international taxpayer community, including through the use of web-based seminars. The IRS continues to believe that an IITA team with a more formal structure may limit the IITA’s ability to quickly react to identified needs and direction of the services provided to the international taxpayer. For example, the IITA as structured was able to provide the “Preparing for the Tax Season” summary for the State Department within 2 weeks of receiving the request.

The recent realignment of the IITA program requires an evaluation to assess the strategies, mission, needs, and future direction of the program. The IITA continues with an ad hoc operating structure that allows the IITA to provide the quickest, most responsive, service. After we evaluate the effectiveness of the realignment, the IRS will consider the structure, goals, and functions of the IITA team.

Update: We recommend closing this correction action without further action. The IRS believes that the  Withholding and International Individual Compliance (WIIC) Practice Area under the Large Business and International Commissioner can continue to deliver International Individual Taxpayer Assistance by drawing upon the organization’s subject matter experts on an ad hoc basis without a formal charter or regular meetings of an IITA team. The Director (WIIC), through the Executive Assistant to the Director, will continue to ensure that issues are elevated to the appropriate personnel and that problems are addressed as resources allow. This effort will include maintaining an ongoing dialogue with the Taxpayer Advocate Service and the other operating divisions.

CORRECTIVE ACTION: The recent realignment of the IITA program requires an evaluation to assess the strategies, mission, needs, and future direction of the program. The IITA continues with an ad hoc operating structure that allows the IITA to provide the quickest, most responsive, service. After we evaluate the effectiveness of the realignment, the IRS will consider the structure, goals, and functions of the IITA team.

The Withholding and International Individual Compliance Practice Area oversees the International Individual Taxpayer Assistance office, which is responsible for providing tax information to individuals abroad. These functions are the responsibility of the Large Business and International Commissioner.

TAS RESPONSE: Without a formal charter, regular meetings, objectives, and measurable results, the IITA will likely become inactive again. As noted in the Most Serious Problem, the IITA accomplished little during the last two fiscal years. A formal charter could ensure the group meets regularly, includes representatives from various IRS offices who are involved with international taxpayers (including TAS), and is held accountable for achieving results. A single program manager is not a substitute for a cross-functional team.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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