Taxpayer advocate's call for more electronic filing could benefit munis

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“There is no reason that every form filed with respect to municipal bonds should not be eligible for electronic filing,” said Richard Moore, a tax partner at Orrick in San Francisco.

Municipal bond issuers and other public finance professionals could benefit from National Taxpayer Advocate Erin Collins’ suggestion that the Internal Revenue Service should increase its acceptance of electronic filing.

The COVID-19 pandemic has exposed shortcomings of the IRS’s reliance on paper documents, according to Collins, who serves at the IRS to provide an independent taxpayer perspective on its operations.

“As the IRS takes stock of lessons learned from this experience, one lesson is obvious: improvement of the technology capabilities of the IRS is critical,” Collins said in a statement posted on her official NTA blog. “It is not a small or inexpensive task, but it is imperative for proper tax administration. The country no longer has an option but to support appropriate funding for the IRS.”

National Association of Bond Lawyers President Richard Moore said that inclusion of the municipal bond community in such an initiative would have helped during the onset of the COVID-19 pandemic.

“There is no reason that every form filed with respect to municipal bonds should not be eligible for electronic filing,” said Moore, a tax partner at Orrick in San Francisco.

Moore highlighted as examples Form 8038-CP, which is filed to request a payment from the IRS on direct-pay bonds, and Forms 8038 and 8038-G, he said “are just the information reporting returns required to be filed in connection with each issuance of tax-exempt bonds.”

“There are a lot of these forms that are filed each quarter and the administrative burden of doing so would be eased if they could be filed electronically,” Moore said.

The paper filing requirement for Form 8038-CP was a particular problem early in the pandemic because IRS paper processing centers were shut down from mid-March until sometime in June. IRS payments to issuers on these direct-pay bonds were delayed as a result.

“Interest payments on the bonds, however, were not delayed, which put an unnecessary additional financial strain on state and local governments,” said Moore. “They were made whole once the IRS offices reopened but for issuers that had a debt service payment due on their direct pay bonds during the delay, that meant they needed to find a different source of money for that portion of the interest payment.”

The National Taxpayer Advocate said it is “incumbent upon Congress to fund the technological upgrades the IRS requires to provide an enhanced level of service and improve its overall operations. Modernizing its technology and increasing the use of digital communications and the electronic production of documents in a secure environment is no longer a luxury; rather, it is a required operational need.”

Collins also said the IRS already has been steering taxpayers toward digital self-help for years.

The 21st Century Integrated Digital Experience Act enacted by Congress in 2018 “requires the IRS to regularly review its public-facing services and make them available in a digital format, to the greatest extent practicable,” Collins said. “As a result, the IRS continually expands its offerings of digital service options in an effort to meet taxpayer demand as well as to provide more efficient service delivery methods.”

The Taxpayer First Act enacted in 2019 requires the IRS to submit to Congress a written comprehensive customer service strategy with a plan to provide assistance to taxpayers, including online services that are secure, designed to meet reasonable taxpayer expectations, and adopts appropriate best practices of customer service in the private sector.

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