THE IRS WANTS YOUR PICTURE
But It Might Have to Wait a Bit Longer
About two months ago I was on the phone with an IRS Revenue Officer (RO) talking about a client’s situation. We got on the topic of the IRS’s backlog of unprocessed tax returns and the difficulty they are having working through the pile of mail that stacked up during COVID stay-at-home orders in 2020 (which are least in part, ongoing).
According to the National Taxpayer Advocate’s (NTA) 2021 Annual Report to Congress (December 2021), the IRS was backlogged almost 12 million tax returns left over from the 2020 filing season (tax year 2019 returns). It took the agency until June 2021 before all those returns were processed. Meanwhile, starting in March 2021 the IRS received another 17 million paper returns to process. Even worse, at the same time, the IRS had another 9.8 million returns in its error processing system. The protocol there requires that each return in that system be processed by hand.
According to the NTA, it is now taking the IRS about eight months to process paper tax returns.
During calendar year 2021, the IRS mailed millions of letters and notices to taxpayers covering all kinds of issues. Most letters carry a time deadline under which taxpayers must respond. If they do not, the IRS can take adverse action without further notice. For example, if the IRS mails a Final Notice of Intent to Levy and Notice of Your Right to a Hearing, the taxpayer must respond to the notice within 30 days. If he does, the case goes to the IRS’s Appeals Office without enforcement action. If not, the IRS can levy a pay check or bank account.
The problem is that it’s taking the IRS six months or longer to process incoming mail. In the case of a final notice, a taxpayer may well have filed his request for a hearing on time, but because of processing delays, the IRS would not know that for many months after the letter was physically received. In the meantime, the agency’s computer-driven Automated Collection System would have kicked in and potentially issued a wage or bank levy against the citizen.
All of this brings me back to the recent discussion I had with the RO. He insisted that much of the IRS’s problems were caused by its antiquated computer systems, what he referred to as “1960s technology.” He said without more money for updated computers, nothing will change.
That got me thinking. How can the IRS process over 260 million business and personal tax returns with its electronic filing system using 1960s technology? How can the agency process more than 3.8 billion information returns (Forms W-2 and 1099) received in machine-readable format using 1960s technology? Plus, the IRS has a web site on which taxpayers can make payments instantly through direct debits from their back accounts. And, by the way, how is it possible that the agency deployed facial recognition software using 1960s technology?
Let’s talk about that facial recognition software. The IRS began using the technology in a limited way in 2021. They intended to roll it out to all citizens in the summer of 2022. By then, if you wished to gain access to your IRS account online, you would have to jump through a few extra hoops. Under the auspices of combating identity theft, the IRS intended to add facial recognition as a new “security filter.”
Under the program, one was to create an account with ID.me, which advertises itself as a secure digital ID network designed to provide identify authentication and verification to users. According to the IRS’s website, the ID verification elements needed to access your account include your name, email address, SSN and a photo ID, such as a driver’s license or passport.
In addition, you would be required to provide—get this—“a selfie” taken from your cell phone or other device. The selfie is then digitally compared to the image on the photo ID to determine whether you are in fact the person attempting to access the account.
Make no mistake about it. This is not just about ID theft protection. The IRS document describing the program confirms that the system uses, among other things, GPS and biometrics technology “in the event of an investigation into a user.” PIA ID No. 6565, Approved November 1, 2021. Apparently there is no limit to the nature of an investigation in which the selfie could be used. Once the IRS has it, it’s theirs to use as they see fit.
Consider just this one possibility as an example. Imagine you are under a “routine” tax audit. Questions arise regarding the frequency, location and duration of the trips or vacations you might take. The auditor is probing into these areas because he’s testing the veracity of the income you claimed on the tax return in question. The auditor believes that trips and vacations might potentially suggest that you earned more income than reported. This is a common audit technique I discuss in my book How to Win Your Tax Audit.
Now suppose, like most Americans, you have an active social media presence, and you regularly post photos of your journeys and experiences. By the time the agent asks you about the frequency, location and duration of your vacations, he already used facial recognition software to scour the Internet for any evidence of your recreational and other activities. He has a pretty good idea of your lifestyle before he even asks you the first question.
As you might imagine, there has been quite a bit of push back over this idea once it came to light. Senators and Congressmen from both sides of the isle lodged objections. Republicans cried out about the invasion of privacy. Democrats complained that facial recognition software is—you guessed it—racist.
As a result of the flack, the IRS backed off on the idea—at least for now. On February 7, 2022, the agency released a statement saying it will “transition away” from using facial recognition for ID confirmation purposes. Commissioner Charles Rettig said “we are quickly pursuing short-term options that do not involve facial recognition.” See: IR-2022-27, February 7, 2022.
Circling back to the questions I asked earlier—about the IRS’s technological capabilities—the answers are clearly obvious. The IRS most certainly is not using 1960s technology. It has spent billions of dollars just since 2000 alone upgrading computers. Now those systems include the power to track you across the Internet with facial recognition software.
The agency is steadily working toward its goal of having real-time access to all the personal data of every American. And while the recent development is certainly positive, the IRS’s lust for data is never satiated. My guess is that over time, we will see this plan surface again.
This is one of the articles found in the latest Pilla Talks Taxes. Subscribers have access to the entire issue, including the following articles:
THE IRS WANTS YOUR PICTURE
But It Might Have to Wait a Bit Longer
IRS TO STOP SENDING CERTAIN COLLECTION NOTICES
Processing Backlog to Blame
PASSPORT CERTIFICATION LITIGATION
Challenges to Enforced Collection
By Charles R. Markham, MST, EA, USTCP
THE OTHER PROGRESSIVE INCOME TAX
How It Robs Seniors
Dr. Merrill Matthews, Ph.D.
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