Stakeholder Input for ETA Success

CERCA Feedback Regarding:
"A Strategy for Growth"
The ETA STRATEGIC PLAN
Issued December 1998
by Internal Revenue Service

April 23, 1999
Mr. Robert E. Barr
Assistant Commissioner
Internal Revenue Service
1111 Constitution Ave., N.W.
Washington, D.C. 20224

Dear Mr. Barr:

With the publication of the ETA Strategic Report in December 1998, you launched the beginning of a process that will represent a vital exchange of ideas among the agency, stakeholders and the American people. In fact, within the first few paragraphs of the publication, it is noted that "the IRS welcomes comments."

The CERCA membership has assembled a subgroup of extremely well-qualified experts to analyze and comment on this important document. We have assembled this group several times to discuss the breadth of perspectives represented by our membership, and have agreed upon the comments that are articulated in this document.

As you are aware, we are in full support of the electronic communications initiatives within the IRS. The intent of these comments is to enhance the IRS’s very thorough analysis of the ETA initiatives with the informed insight of the CERCA membership. The CERCA membership represents a very diverse stakeholder set, including tax preparers, transmitters, financial institutions, State Governments, and other interested industry participants.

We offer our suggestions and comments for the sole purpose of aiding the IRS in your planning so that we may collectively support the Congressional mandates for electronic filing and set the foundation to further enhance electronic communications.

Sincerely,

Lee Ann White Computer Sciences Corporation Chair, CERCA E-Filing Comt.		Eddie Feinstein H&R Block Tax Services, Inc. Chair, CERCA
Michael Mango AmeriFile Chair, CERCA E-Filing Comt		Michael Cavanagh Executive Director CERCA

CC: The Honorable Charles Rossotti, Commissioner Internal Revenue Service

  CERCA

Introduction

The Council for Electronic Revenue Communication Advancement, Inc. (CERCA) is a not-for-profit association that was founded in 1994 by private-sector companies and government agencies (state and Federal) with an interest in IRS efforts to:

• Dramatically expand electronic filing
• Improve all forms of electronic revenue communication, and
• Modernize operations.

  Membership

CERCA represents approximately 50 member organizations that work through committees to deal with key issues. At the specific request of IRS officials, these committees often examine issues that affect the private sector and/or other government agencies. An appendix has been included to detail the full listing of:

• CERCA member organizations
• Current Board of Directors of CERCA, and
• Individuals who comprise the working group of CERCA that developed the comments for approval by the CERCA Board. The working group is an ad hoc panel of the CERCA Electronic Filing Committee.

       Feedback for ETA Success

Executive Summary

This Strategic Plan, mandated by the IRS Restructuring and Reform Act of 1998, is an excellent starting point which will benefit greatly from on-going public dialogue. CERCA endorses Assistant Commissioner Barr’s stated intentions to further refine this Strategic Plan.

Within the first few sentences, the document suggests that definitions should be more clearly set on the actual meaning of the "80%" and "interim" goals. We strongly agree with this statement. If the Service is unable to clearly define the goals, it will be impossible to determine progress against those goals.

Progress has indeed been made already. Specifically:

• The development of e-filing, STAWRS and EFTPS provides the basis for optimism regarding the daunting goals ahead.
• The IRS Web site has been a remarkable success, although some reevaluation of content organization is now appropriate, given how vital the site has become.
• The ETA office has been staffed with experienced personnel from the IRS and the private sector.
• The ETA Advisory Council (ETAAC) has been established and has begun its work
• The ETA Office is currently piloting key initiatives to overcome barriers to electronic filing, including pilots in the areas of Personal Identification Numbers (PINs) and credit card payment systems.

The 1999 Filing Season, now just complete, has been a time of continued growth and innovation. But, we also agree with the ETA Strategic Plan’s statement that "more needs to be done." Specific recommendations and observations from CERCA include:

• Further definition of the 80% goal
• Specification of more intermediate goals
• More emphasis on working with tax practitioners
• Attention to the IRS requirements for electronic filing that add costs to EROs
• More strategic attention to interfaces with other government organizations (e.g., Federal payment systems, state governments, and information providers)
• Enhanced coordination with the private sector industry partners that support the filing process

CERCA urges IRS leadership to continue its commitment to Electronic Tax Administration as a top priority. We also hope to see an on-going integration of ETA into PRIME project priorities as IRS’s technical infrastructure is updated.

  ETA STRATEGIC PLAN ANALYSIS

  Mission, Goals and Key Strategies

The strategic plan offers baseline projections for filing, but does not specify intermediate or final goals for each category of filing. Intermediate goals will act as a yardstick to help the IRS to determine if it is on track. If the IRS falls short early on, then it can more aggressively pursue program enhancements and consider incentives and mandates as alternatives to meeting volume goals.

In order to determine whether or not an 80% compliance to electronically transmitted tax and information returns is realistic, there must be an understanding of the total population. How can the IRS meet a goal that is not clearly defined?

CERCA would also like to see a clear definition of what "electronically transact with 80% of US taxpayers" means. Specific questions include:

• Electronically transact with whom? Individual income tax return filers only?
• Does this goal include correspondence?
• Does the goal include business and information returns? Payments?

Specific information around this goal will help the IRS to measure whether or not it is making progress in this area.

Findings of Resistance to Electronic Filing among Tax Preparers:

CERCA members have found that there is still resistance to electronic filing by many tax preparers. We have made this observation because we believe it is important to consider the tax preparer community’s attitudes as strategies are refined. It is our understanding that most of the IRS’s research to date has been focused on the individual taxpayers’ attitudes. The following are pervasive attitudes of resistance among the tax preparer community:

• Electronic filing is too much of a hassle.
• There are no benefits to my balance due clients, and therefore, many of my clients won’t pay the extra money.
• Not all forms or schedules can be filed electronically.
• If I file electronically for my clients, the IRS can go directly to them and bypass me completely.
• If the IRS processed returns every day so that people could get their money back faster, then I would do it.

      Reduce Cost to Less Than $2.

This goal clearly does not take ERO costs into account. If the IRS is referring to its own internal cost, this is a realistic and attainable goal. CERCA recommends that accurate figures and accounting procedures be used to determine the true cost of overall filing operations and set a baseline against which the cost reductions can be measured.

Transaction Integrity and Accuracy

This is an excellent goal, but to attain it IRS will have to work with the private sector in a true give-and-take forum. As the IRS has experienced in the past, the private sector is willing to offer its capabilities and knowledge as a partner to provide input into planning at the IRS.

Gaining Insight into the Needs and Direction of Taxpayers.

The private sector and other public sector organizations can provide significant insight into taxpayer needs. In the past, it has appeared to some outside the agency that decisions were based on perceptions or minimal information. In order to have effective interaction among all parties (taxpayers, private sector and IRS), the IRS can:

• Take advantage of feedback from private sector distribution channels
• Capture and use feedback from direct contact with taxpayers, and
• Utilize the informational comments and feedback left at its Web site.

Follow-up will enhance the formation of programs, products and efforts that will make the IRS goal attainable.

Achieve Distributors’ Satisfaction:

CERCA believes that support of national distributors is a key strategy. The distribution channels mentioned in the ETA report are the backbone for attaining the overall goal that the IRS has set for itself. A survey or evaluation of the information gathered would be invaluable in determining the future direction of the Service in fulfilling the distribution needs. We specifically suggest that surveys be taken annually of each channel. Pre- and post-season surveys would be optimal.

    Challenges

Technical Infrastructure and Competing Information Systems Priorities

The income tax preparation industry is dependent upon the efficiency and reliability of the IRS Technical Infrastructure for Electronic Tax Administration. To perform its function, which is essential to the success of ETA, industry leaders, major firms and organizations such as CERCA must be kept informed of IRS progress in rebuilding its ETA infrastructure to meet anticipated growth.

The private sector needs advance notice of any potential problems or deficiencies in order to have adequate time to develop appropriate contingency plans. (For example, elimination of the DDI for 1995 without adequate warning resulted in a major crisis for tax industry.) We recommend that this issue be addressed in the Strategic Plan.

Product and Service Cost and Complexity

We recommend that this section be expanded to address the concerns of EROs. Cost and complexity (which adds to cost) are certainly major issues – not only for taxpayers, but also for tax practitioners. Many tax practitioners - especially those preparing relatively few tax returns - must incur additional costs to file electronically. In order to comply with IRS requirements, supporting ERO processes add operational costs that must be passed on to taxpayers. Specific examples include:

• Signature document processing
• Photocopying W-2s and IDs
• Giving the taxpayer a copy of the completed return (before the signature can be obtained)
• 8633 application costs

Practitioners may be reluctant to offer e-filing (or promote e-filing to all clients) if doing so would result in decreased profits or the inability to remain price-competitive.

Price is not the only concern of taxpayers. The real questions many taxpayers will ask themselves are: "What is the value of e-filing to me?" and "Is e-filing worth the cost?" Taxpayers need to be convinced of some additional value and e-filing must be made as easy as possible for professionals.

Taxpayer Suspicions

We recommend expanding market research to determine why taxpayers are suspicious of e-filing and define their suspicions more precisely. For example, the concerns of elderly taxpayers should be considered. Are elderly people reluctant to agree to e-filing, even when offered at no additional charge? The IRS may effectively reach this population by working with AARP and/or other groups representing seniors. In addition, tax practitioner suspicious attitudes and perceptions of e-filing need to be researched. Tax and accounting industry trade associations

Typically, the IRS has used Public Service Announcements (PSAs) to reach taxpayers with information about e-filing. Other than in some high-profile instances, PSAs are typically aired by the media when audience is small. To effectively reach taxpayers with messages that dispel the myths of e-filing, we believe an extensive paid advertising campaign is necessary (complemented by a public relations campaign).

  Security and Privacy

The "Draft IRS Electronic Authentication Policy" is very comprehensive and clearly designed to ensure security and preserve the rights and privacy of taxpayers. However, these issues are far too complex to be readily understood by the average taxpayer (or studied by the average ERO). We recommend that these policies be distilled down to a short summary of bullet points, ideally not to exceed one page, to be distributed to taxpayers, EROs and tax practitioners. These bullet points can also serve as part of the message of an advertising campaign.

Priorities

Technical Infrastructure

CERCA supports the initiatives outlined in the report related to Technical Infrastructure. However we recommend the IRS Strategic Plan focus less on tactical issues and more on strategic technical issues, including ETA’s plans to:

• Coordinate its technical infrastructure with the IRS Modernization Blueprint and the efforts being undertaken in the IRS PRIME contract, charged with the modernizing the IRS overall,
• Enhance payment processes, such as integration with the FMS payment systems
• Address authentication issues on a strategic level
• Deal with federal and state return filings (e.g., state rejects and state only filing through IRS)

  Marketing Services

IRS e-file Awareness Campaign and Targeted Paid Promotions

We recommend the IRS work with industry to mutually exchange examples of marketing programs and promotions before they are launched. This could be done for both the IRS e-file awareness campaign and targeted paid promotions.

Exchange would allow industry groups to have input early on and help the IRS work with the private sector to leverage their efforts, experience, and successes. We also encourage IRS’s understanding of industry timeliness so that they can benefit from one another’s work products; e.g., the e-file logo or marketing messages regarding refund returns, credit card payments).

Business Marketing

To ensure the effectiveness of its efforts, the IRS should adopt a multi-tiered approach to its marketing services for the business community. Far from being a unified, homogeneous entity, the business community can generally be classified according to size (large, medium, and small) as well as status (existing vs. new business), with each category having particular characteristics with respect to electronic filing and payment. Given these differences among the various segments of the business community, it stands to reason that the IRS should apply its marketing efforts differently to each of these groups.

For their part, large businesses typically have arrangements with payroll service providers who file electronically, and because of their size are already required to use EFTPS to make tax payments. Given these circumstances, the IRS should not focus a substantial part of its marketing resources to address this segment. Its efforts would be better directed towards the other three groups, consisting of medium, small, and new businesses. The medium and new business segments represent the greatest opportunity for growth of electronic filing; the medium-sized businesses are more likely to have automation in their business, and new businesses are less likely to be tied to the current filing choices.

Furthermore, it is logical to concentrate marketing initiatives on medium, small and new businesses for the purpose of electronic payments. As the threshold for required use of EFTPS currently stands at $50,000, many medium and small businesses fall below this limit and are not compelled to make their tax payments electronically. Because new businesses have generally never filed or paid business taxes, they obviously have never used e-file or EFTPS either. If not already doing so, the IRS should engage this group of taxpayers from the onset, possibly by marketing electronic filing and payment at the point of receiving an EIN and through new/small business seminars.

Incentives

The use of incentives is a controversial issue that we recommend be explored further. To avoid unintended negative repercussions of this type of program, we recommend that the IRS work with all stakeholders before introducing any incentives.

Distribution Channel Management

We recommend the IRS conduct focus groups and customer surveys before implementing any of the programs outlined in this section. The IRS can work with private industry to enable these features, leveraging on the infrastructure investments already made in the commercial sector whenever possible and minimize government expenses. For example, many of the features made possible by the IRS building of an Extranet could be integrated into commercial software, resulting in a lower cost to the government and increased ease of use and integration for the tax practitioners.

  Account Management

CERCA applauds the strategy of public and private field-based account management and looks forward to hearing the details of how this might be accomplished. As with the distribution channel management, we recommend the IRS conduct focus groups and customer surveys before implementing any programs. CERCA also strongly encourages the IRS efforts to work with concentrators of volume.

Management Improvements

CERCA is in support of the notion of the IRS operating "more like the private sector" and the transformation of ETA into a business. We also praise pAISE PRAISEthe use of public/private partnership to enable proof-of-concept pilots and to flesh out programs before they are rolled out to the industry. We recommend the IRS restate its commitment not to provide any industry partner sustainable competitive advantage in the marketplace and to roll successful pilots out to industry as quickly as possible.

Electronic Information Services

We congratulate the IRS on the success of its Web site. In addition, we recommend the IRS:

• Track visits or unique hits to provide a more finite measure of success
• Reorganize the Web site to make it easier for taxpayers and businesses to find information
• Make available more critical information on the Web site

Innovative Products and Services

CERCA supports the use of innovate products and services as the IRS works towards its goals of over 40 million individual returns e-filed by calendar year 2003, and 80% of all returns e-filed by calendar year 2007. We appreciate the IRS’s commitment to rely heavily on the private sector to develop and promote these initiatives. In the spirit of Circular A76 and the mutual desire of the IRS and the private sector to work together, CERCA supports innovation but would discourage the IRS from providing products or services that compete with the private sector.

        Appendices:

Appendix B

While the methodology is described, it would be helpful for the industry to know both how the individual initiatives faired against each criterion and the final tally. Currently the Strategic Plan just includes the prioritized initiatives against a time line. It would be helpful if some more specific details would be included in another appendix.

Appendix E

While the projections electronically filed returns (for both individual and business returns) are included, it would be helpful to know the total (electronically and paper) projections . Once the projections are placed together with a definition of the population being measured, we will all have a better picture of how the IRS is doing against the 80% goal.

The seven key strategies outlined are commendable. However, there must be more than an overall strategic track of making people ‘like’ electronic filing and promoting it within the industry. As mentioned elsewhere in this response document, the industry has economic hurdles to face with the promotion of electronic filing. Additionally, simply building a better system does not mean taxpayers will actually use it.

The Service and Congress must also consider ways for creating disincentives to taxpayers to continue to use paper filing. This is an admittedly unpopular course for the government to take. And unless the economic barriers that keep many small practitioners from participating in the e-file system are properly addressed, it will not be acceptable to the industry at large. Some suggestions on creating such disincentives are:

• A line-item tax credit for e-filing
• Notices of the benefits of e-filing on the tax forms themselves near the signature line and at the top of the forms.
• A greater willingness to use Public Service Announcements and advertising by the Service to educate taxpayers regarding the higher incidence of errors, audits, and delayed refunds using paper returns versus e-filing.
• Elimination of the 1040EZ and 1040A in paper versions. CERCA recommends provision of these forms only as an e-file option.
• The concept of disincentives is distasteful to the Service, which naturally must ensure that taxpayer compliance with filing requirements is maintained. However, if the approach is to 'sell' the product, then the IRS and Congress must be willing to face the challenge. This must also be done in a manner that makes practical sense for the small practitioner to invest in the offering electronic filing to clients.

  Conclusion

The IRS has made significant progress, and CERCA would like to help the IRS achieve its Congressional mandate. We recommend ongoing dialogue, such as has been taking place through this strategic plan with outside stakeholders like CERCA. As previously stated, there are some broad recommendations that CERCA has made in this document:

• Further definition of the 80% goal
• Specification of more intermediate goals
• More emphasis on working with tax practitioners
• Attention to the IRS requirements for electronic fling that add costs to ERO operations
• More strategic attention to interfaces with other government organizations (federal payment systems, state governments, information providers), and
• Tighter coordination with the private-sector industry partners who support the filing process.

The bottom line is that the IRS is headed in the right direction; however, it must have measurable objectives. CERCA is pleased to submit these recommendations for IRS consideration, and we look forward to working with the IRS to implement these suggestions.

Working Group Members:

Margie Shattuck	ADP
Tony Tullo	ADP
Mike Mango	AmeriFile
Eric Reddel	Bank of America
Gene Goldenberg	Block Financial
Mike Cavanagh	CERCA
Atul Kapoor	Computer Sciences Corp.
Lee Ann White	Computer Sciences Corp.
Joe Sica	Household Internationa
Eddie Feinstein	H&R Block
Whitney MacDougall	Intuit
Joby Arandela	Jackson Hewitt
John Wingfield	Jackson Hewitt
George Hollendursky	Lockheed Martin
Jim Gander	Logicon
Phyllis Borghese	NATP
Lenny Holt	Nelco
Chuck McCabe	Peoples Income Tax
Steve Safigan	Universal Tax Systems
Terry Garber	South Carolina Dept. of Revenue