National Taxpayer Advocate Nina Olson urged the Internal Revenue Service to adopt a comprehensive Taxpayer Bill of Rights in her annual report to Congress in mid-January, saying it would increase trust in the agency and, more generally, strengthen the IRS's ability to serve taxpayers and collect tax. In addition, she recommended allowing voluntary certification of unenrolled tax preparers if the IRS fails to win an appeal of a court ruling invalidating its testing requirements for tax preparers.
Olson also expressed deep concern that the IRS is not adequately funded to serve taxpayers, pointing out that it annually receives more than 100 million telephone calls from taxpayers. In fiscal year 2013, she noted, the IRS could only answer 61 percent of the calls it received from taxpayers hoping to speak with an IRS customer service representative.
"Because of sequestration, the IRS's funding was substantially cut, which translated into a reduction in taxpayer service. Public trust in its fairness and impartiality was called into question because of reports that the IRS subjected certain applicants for tax-exempt status to greater review based on political-sounding names," Olson said in releasing her report. And because of the 16-day government shutdown, the agency could not complete preparations for the upcoming tax filing season on time, delaying the date on which taxpayers can first file returns and claim refunds. The report reiterates the longstanding recommendation of the Taxpayer Advocate Service for the IRS to adopt a Taxpayer Bill of Rights. In a prior report, Olson analyzed the IRS's processing of applications for tax-exempt status and concluded that its procedures violated eight of the 10 taxpayer rights she has proposed. The most recent report argues that the rationale for a Taxpayer Bill of Rights, or TBOR, is much broader.
"Taxpayer rights are central to voluntary compliance," the report stated. "If taxpayers believe they are treated, or can be treated, in an arbitrary and capricious manner, they will mistrust the tax system and be less likely to comply with the laws voluntarily. If taxpayers have confidence in the fairness and integrity of the system, they will be more likely to comply."
The report emphasizes that the U.S. tax system is built on voluntary compliance. Ninety-eight percent of all tax revenue collected by the IRS is paid on a timely basis and voluntarily. Only 2 percent results from IRS enforcement actions. For the taxpayer, voluntary compliance means not having to face IRS enforcement.
For the government, voluntary compliance is cheapest, because enforced compliance requires the IRS to devote resources to detecting and collecting amounts that are not voluntarily reported or paid.
While arguing that knowledge of taxpayer rights promotes voluntary compliance, the report cites a survey of U.S. taxpayers conducted for the TAS in 2012 that found less than half of respondents believed that they have rights before the IRS, and only 11 percent said they knew what those rights are.
"The Internal Revenue Code provides dozens of real, substantive taxpayer rights," the report stated. "However, these rights are scattered throughout the code and are not presented in a coherent way. Consequently, most taxpayers have no idea what their rights are and therefore often cannot take advantage of them."
The report calls on the IRS to take the taxpayer rights that already exist and group them into 10 broad categories, modeled after the U.S. Constitution's Bill of Rights. The report stated that the "simplicity and clarity" of a thematic, principle-based Taxpayer Bill of Rights would help taxpayers understand their rights in general terms.
"A Taxpayer Bill of Rights would serve as an organizing principle for tax administrators in establishing agency goals and performance measures, provide foundational principles to guide IRS employees in their dealings with taxpayers, and provide information to taxpayers to assist them in their dealings with the IRS," the report stated.
The 10 rights the advocate is proposing are detailed in the report. Olson has been in discussions with senior IRS officials about publishing a TBOR, and the TAS has just completed a series of focus groups with taxpayers and preparers to gauge reaction to, and comprehension of, the proposed list.
Olson said that the IRS has been open to publishing a proposed Taxpayer Bill of Rights, and she will continue to work with the IRS leadership to refine and publish a TBOR during the coming year.
