National Taxpayer Advocate Nina Olson wants the Internal Revenue Service to take more of a “taxpayer-centric” approach in its Future State plan and for Congress to focus on tax simplification in its tax reform efforts.
In her Taxpayer Advocate Service’s 2016 annual report to Congress, Olson recommended the IRS adopt a vastly different approach to tax administration. The IRS has traditionally viewed itself as an enforcement agency, and Olson expressed concern this “enforcement first” approach would predominate as the IRS developed its Future State plan.
Of the IRS’s current budget of $11.2 billion, she noted that 43 percent is allocated to enforcement, while less than 6 percent is dedicated to taxpayer outreach and education. The IRS budget request for FY 2017 asked for an increase in enforcement funding of 7.2 percent, compared to only 3.1 percent for taxpayer services.
Olson pointed out the IRS’s proposal to increase enforcement funding by more than taxpayer services funding came as the agency has come under criticism for its inability to meet basic taxpayer needs. The IRS receives more than 100 million telephone calls each year, but its telephone assistors were able to answer only 38 percent in fiscal year 2015 and 53 percent in FY 2016. Taxpayers who managed to reach a person at the IRS had to wait on hold for an average of 30 minutes and 18 minutes, respectively, those years.
“In an enforcement-oriented tax agency, if taxpayers don’t get the help they need to comply and they make a mistake, they are treated as if they are tax evaders,” said the report. “This treatment in turn breeds resentment and increases the risk that the taxpayer who was willing to comply is no longer willing to do so. In this way, the underlying assumption by the tax agency that taxpayers will evade tax becomes a self-fulfilling proposition. The agency ends up converting a compliant taxpayer into a noncompliant one.”
The report acknowledged the IRS shouldn’t simply ignore those who are actively evading taxes, but it argued the tax system should be designed around the taxpayers who are trying to comply, instead of those who are actively trying to avoid paying taxes.
The report also urged Congress to concentrate on tax simplification in its tax reform discussions. The Taxpayer Advocate noted that it has now been more than 30 years since Congress enacted the Tax Reform Act of 1986 to simplify the tax code, but since that time, the tax code has only grown more complex each year.
The Taxpayer Advocate Service estimates that individuals and businesses spend approximately six billion hours each year complying with the code’s filing requirements, on top of millions of extra hours spent answering IRS audits or notices.
“If tax compliance were an industry, it would be one of the largest in the United States,” said the report. “To consume six billion hours, the ‘tax industry’ requires the equivalent of three million full-time workers.”
IRS Commissioner John Koskinen responded to the report. “We will be reviewing the details of the National Taxpayer Advocate’s report,” he said in a statement Tuesday. “We agree with the Advocate that simplifying the nation’s tax code would be good for taxpayers and tax administration. In addition, we agree that providing adequate resources for the IRS is critical to serving the nation’s taxpayers. However, we disagree with suggestions that the IRS overlooks taxpayer service and reject inaccurate stereotypes that the IRS is just focused on tax enforcement. The reality is our employees across the nation take great pride in serving taxpayers. Tens of millions of taxpayers turn to us for information and assistance each year—on the phone, in person and on the web. We strongly believe that a balanced approach to taxpayer service and tax enforcement is critical to running a sound tax system. That view has been—and continues to be—strongly embraced by the IRS leadership and our employees.”