A Better Way Forward For The Internal Revenue Service Audit System
Friction is the enemy of a good customer experience. Especially during the application and onboarding phase of a new financial relationship, putting a potential client through unnecessary obstacles or a slow and inefficient process is a sure way to lose a lead.
Now imagine that a consumer or small business owner applying for a loan online is asked to stop the application, go to a federal government agency website or download their app, create an account, validate their identity and approve the agency. to share specific information with their lender, all before the loan application can progress. Now imagine if the federal agency in question is the Internal Revenue Service.
It’s hard to imagine a worse customer experience.
Yet this is exactly what the IRS is proposing for its modernization of the Express Income Verification Service (IVES). A law of 2018 – the Taxpayer First Act – ordered the IRS to upgrade this system, which is used by financial institutions to verify income data of a consumer or small business loan applicant. . Congress called for a fully automated real-time capability that uses an application programming interface (API) to make the process transparent, fast, and unobtrusive for consumers. The existing IVES system is fax based and takes several days to provide responses to lenders.
If implemented as currently planned, the approach proposed by the IRS will ignore Congress’ intention to streamline and speed up the lending process for consumers and small business owners, and will succeed to an expensive system that will not be used by most private sector companies.
The IRS is pursuing this approach because it wants to control the identity verification process. In the existing IVES system, this function is the responsibility of the requesting entity in a “trusted third party” model. The IRS has not identified any shortcomings in this approach or provided a rationale for considering such a drastic and disruptive change. Despite this, the financial services industry calls for closer collaboration with the IRS, including on technical aspects of a future “eIVES” system.
Our businesses, and the many others who want the IRS to do it, are committed to upholding consumer privacy standards and ensuring that the person requesting a financial product is who they say they are. In fact, we and our partners are required to adhere to very strict financial rules and regulations. As such, a future “eIVES” system that maintains the existing “trusted third party” model for identity verification is particularly logical and efficient.
The IRS doesn’t have to look far to see how this can be accomplished successfully. In recent years, many players in the financial sector have worked closely with the Social Security Administration to plan and create the Electronic Consent Based Social Security Number Verification System (eCBSV). This system, which checks whether a first name, date of birth, and SSN on a financial app matches real-time SSA records through an API, relies on regulated financial institutions or their service providers logging into the system to :
- Obtain consumer consent
- Verify that the entity is authorized to use the system
- Maintain the security and confidentiality of consumer identity information, in accordance with established financial regulations
From the early days of eCBSV development – which also began in 2018 following a directive from Congress – SSA spoke to future users of the system to understand the operational and technical requirements necessary for success. of the system. Today, the eCBSV is in the second phase of its pilot project and has verified data from over 22 million consumer finance applications, preventing fraud. The eCBSV cost about $ 18 million, a significant discount from the nearly $ 80 million the IRS estimated it would cost to build similar API capacity.
It’s not too late for the IRS to reset, present its current thinking, and take a more open and collaborative approach to the SSA and eCBSV. This would be critical to starting from scratch in planning the technical capabilities of the system, including how best to maintain a model that places responsibility for identity verification on the users of the system. A break now is needed for the IRS to respond to Congress’ intent and ensure that the system that is being built provides a benefit to American consumers and small businesses.
Jason Kratovil is public policy and industrial relations manager for SentiLink, a provider of fraud and identity solutions. Ryan Metcalf is public policy and regulatory affairs manager for FundingCircle, a peer-to-peer lending marketplace for small and medium-sized businesses.