{"id":1347,"date":"2017-01-10T17:43:02","date_gmt":"2017-01-10T23:43:02","guid":{"rendered":"http:\/\/cookco.us\/news\/?p=1347"},"modified":"2017-01-10T17:43:02","modified_gmt":"2017-01-10T23:43:02","slug":"national-taxpayer-advocate-urges-irs-reform-and-tax-reform","status":"publish","type":"post","link":"https:\/\/cookco.us\/news\/national-taxpayer-advocate-urges-irs-reform-and-tax-reform\/","title":{"rendered":"National Taxpayer Advocate Urges IRS Reform and Tax Reform"},"content":{"rendered":"

Well, it is that time of year when you get my long-winded article on the Taxpayer Advocate’s Report to Congress.<\/h1>\n

National Taxpayer Advocate Nina E. Olson today released her 2016 annual report to Congress, recommending that the IRS revamp its \u201cFuture State\u201d plan to adopt a taxpayer-centric focus and urging Congress to emphasize simplification when it considers tax reform later this year.<\/p>\n

In assessing the compliance burdens of the current tax code, the Taxpayer Advocate Service (TAS) analyzed IRS data and determined that individuals and businesses spend about six billion hours a year complying with the code\u2019s filing requirements \u2013 not including the millions of additional hours spent responding to IRS audits or notices.\u00a0 \u201cIf tax compliance were an industry, it would be one of the largest in the United States,\u201d the report says.\u00a0 \u201cTo consume six billion hours, the \u2018tax industry\u2019 requires the equivalent of three million full-time workers.\u201d<\/p>\n

NATIONAL TAXPAYER ADVOCATE VISION FOR A TAXPAYER-CENTRIC 21ST CENTURY TAX ADMINISTRATION<\/h2>\n

\"ladyIn the National Taxpayer Advocate\u2019s 2015 report, Ms. Olson raised concerns about the IRS\u2019s development of a comprehensive Future State plan describing how the agency will operate and interact with taxpayers in five years and beyond.\u00a0 In particular, the report criticized the IRS for developing the plan without public consultations and for placing heavy emphasis on transitioning taxpayers from telephone to online services without considering significant evidence that taxpayers often need or prefer to speak with an IRS employee.<\/p>\n

In her new report, Ms. Olson says the IRS has been responsive to her concerns.\u00a0 It has made considerable information about its Future State plan available on IRS.gov, it has discussed details of the plan with stakeholder groups, and the Commissioner has personally provided public assurances that the IRS will continue to provide telephone and face-to-face services to taxpayers who prefer to interact with the IRS in those ways.\u00a0 In addition, the IRS has said the Future State is more an evolving approach than a static plan and will be modified over time.<\/p>\n

While the National Taxpayer Advocate is pleased with the steps the IRS has taken, she recommends the IRS adopt a fundamentally different approach to tax administration.\u00a0 Last year, Ms. Olson announced she would gather broader perspectives about taxpayer needs and preferences and then present her own recommendations for the IRS\u2019s future state.<\/p>\n

During 2016, she held 12 public forums around the country, most along with Members of Congress who have a strong interest in tax administration, to hear from taxpayers and other stakeholders.\u00a0 In addition, TAS held focus group interviews with practitioners and preparers at each of the five Nationwide Tax Forums, and commissioned a nationwide survey of taxpayers to collect statistically representative data.\u00a0 Based on this information, she presents a \u201cSpecial Focus\u201d in this year\u2019s report that sets out her own vision for the tax agency.\u00a0 \u201cThis is arguably the most important piece I have written about the IRS in my fifteen years serving as the National Taxpayer Advocate,\u201d M s. Olson wrote.<\/p>\n

Putting Taxpayers First<\/h2>\n

Ms. Olson presents a series of proposals to improve tax administration, placing particular emphasis on changing the culture of the IRS.\u00a0 \u201cTo create an environment that encourages taxpayer trust and confidence, the IRS must change its culture from one that is enforcement-oriented to one that is service-oriented,\u201d she says.<\/p>\n

Ms. Olson says the IRS for decades has viewed itself first and foremost as an enforcement agency, and she expresses concern that its \u201cenforcement first\u201d approach continues to predominate even as the agency is developing its Future State plan:<\/p>\n

    \n
  1. Of the IRS\u2019s current appropriated budget of $11.2 billion, 43 percent is allocated to enforcement, while less than six percent is allocated to taxpayer outreach and education activities.\u00a0 Despite this imbalance, the IRS budget request for FY 2017 sought an increase in enforcement funding of 7.2 percent, as compared with just 3.1 percent for taxpayer services.<\/li>\n
  2. The IRS\u2019s proposal to increase enforcement funding by more than taxpayer services funding was made against a backdrop in which the agency has been unable to meet basic taxpayer needs.\u00a0 Of particular note, the IRS annually receives more than 100 million telephone calls.\u00a0 Yet among calls routed to its telephone assistors, the IRS was able to answer only 38 percent in FY 2015 and 53 percent in FY 2016, and taxpayers who managed to get through were kept on hold for an average of 30 minutes and 18 minutes, respectively, in those years.<\/li>\n
  3. The IRS for more than a decade has published annual \u201cEnforcement and Service Results\u201d on its website.\u00a0 These consist of five pages of enforcement data (including audit rates for individuals and business entities, enforcement dollars assessed, enforcement dollars collected, liens filed, levies issued, and criminal indictments and convictions), as compared with one page of taxpayer service data at the end.\u00a0 The report points out that in a large organization, \u201cyou get what you measure.\u201d<\/li>\n
  4. Each of the IRS\u2019s four business operating divisions began by developing its own Future State plan and an accompanying \u201ctaxpayer vignette\u201d that the IRS has posted on its website to illustrate how its vision of the future state will work.\u00a0 Each vignette shows the IRS contacting a taxpayer to conduct an audit or otherwise challenge a taxpayer\u2019s return, and in every case, the vignette shows the taxpayer ultimately conceding the IRS is correct and consenting to the IRS\u2019s proposed adjustment \u2013 all in a digital environment.\u00a0 That all four operating divisions chose to illustrate their Future State by showing that they were right and the taxpayer was wrong is concerning, the report says.\u00a0 \u201cNowhere did [any] vignette demonstrate how the taxpayer could prevail in the system of the future,\u201d it adds.<\/li>\n
  5. In the IRS Restructuring and Reform Act of 1998, Congress directed the IRS to \u201crestate its mission to place a greater emphasis on serving the public and meeting taxpayers\u2019 needs.\u201d\u00a0 In response, the IRS adopted the following mission statement:\u00a0 \u201cProvide America\u2019s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.\u201d\u00a0 (Emphasis added.)\u00a0 In 2009, with no public discussion, the IRS quietly changed its mission statement to read: \u201cProvide America\u2019s taxpayers top quality service by helping them understand and meet their tax responsibilities and enforce the tax law with integrity and fairness to all.\u201d\u00a0 (Emphasis added.)\u00a0 \u201cThis shift in tone and emphasis, from \u2018apply\u2019 to \u2018enforce,\u2019 has significant consequences for taxpayers, and is closely related to the issue of agency culture,\u201d Ms. Olson wrote.<\/li>\n<\/ol>\n

    Service Emphasis and Trust Can Increase Tax Compliance<\/h3>\n

    \"ladyIf the IRS views its primary mission as \u201cenforcing\u201d the tax laws, it will design its procedures and apply its resources to \u201chunt down\u201d taxpayers whom it views as noncompliant, the report says.\u00a0 \u201cIn an enforcement-oriented tax agency, if taxpayers don\u2019t get the help they need to comply and they make a mistake, they are treated as if they are tax evaders.\u00a0 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.\u00a0 In this way, the underlying assumption by the tax agency that taxpayers will evade tax becomes a self-fulfilling proposition.\u00a0 The agency ends up converting a compliant taxpayer into a noncompliant one.\u201d<\/p>\n

    The report goes on to articulate an alternative vision:<\/p>\n

    \u201cWhat if the tax agency adopted a different approach toward taxpayers?\u00a0 What if it assumed that taxpayers, by and large, wanted to obey the law and that the primary mission of the tax agency was to facilitate that compliance by providing taxpayers with the assistance, education and clarity they need to meet their tax obligations?\u00a0 What if we started out accepting that taxpayers will make mistakes and, until proven otherwise, assume those mistakes are not attributable to a tax evasion motive?<\/em><\/p>\n

    Because, after all, tax noncompliance like all of human behavior is driven by a broad spectrum of factors, from just plain carelessness to ignorance to confusion to polemics to avarice.\u00a0 By focusing on the source or reasons for the taxpayer\u2019s noncompliance and not just on the end result of the taxpayer\u2019s behavior, we have a better chance of changing the taxpayer\u2019s behavior and improving tax compliance going forward.\u201d<\/em><\/p>\n

    \u201cThis is not to say we should ignore those who are actively evading tax.\u00a0 Rather, it is to say we should design our tax system around the taxpayers who are trying to comply, instead of those who are actively trying not to.\u201d\u00a0 This approach, Ms. Olson says, has the best chance to simultaneously meet taxpayers\u2019 needs and improve long-term tax compliance.<\/em><\/p>\n

    SIMPLIFICATION OF THE TAX CODE<\/h2>\n

    \"lady\u201cIt has now been more than 30 years since Congress enacted the Tax Reform Act of 1986 to substantially simplify the tax code,\u201d the report says, \u201cand since that time, the code has grown more complex by the year, as evidenced by the fact that Congress has made more than 5,900 changes to the code \u2013 an average of more than one a day \u2013 just since 2001.\u00a0 The compliance burdens the tax code imposes on taxpayers and the IRS alike are overwhelming, and we urge Congress to act this year to vastly simplify it.\u201d<\/em><\/p>\n

    The report says the tax code, which runs several million words, contains more than 200 tax deductions, credits, exclusions, and similar tax breaks, known collectively as \u201ctax expenditures.\u201d\u00a0 In combination, the Treasury Department has estimated that tax expenditures in FY 2016 came to $1.42 trillion \u2013 more than Congress appropriated to fund the entire federal government.<\/p>\n

    Complexity \u201crewards taxpayers who can afford expensive tax advice and discriminates against taxpayers who cannot,\u201d the report says.\u00a0 Given the number and complexity of tax expenditures, sophisticated taxpayers \u2013 or taxpayers who can afford to hire sophisticated tax advisors \u2013 are likely to claim most benefits for which they are eligible, while less sophisticated taxpayers often will miss them.<\/p>\n

    \u201cThe tax liability of an individual or a business should depend solely on how much is owed under the law \u2013 not on the taxpayer\u2019s or preparer\u2019s expertise in the law,\u201d the report says.\u00a0 \u201cA simpler tax code would go a long way toward solving this problem and ensuring that similarly situated taxpayers pay the same tax.\u201d<\/p>\n

    Policy Trade-Offs<\/h3>\n

    The report acknowledges that the most costly tax expenditures benefit large numbers of taxpayers, and simplifying the tax code requires difficult policy trade-offs.<\/p>\n

    For example, the employer exclusion for medical insurance premiums and medical care is designed to encourage employers to provide health insurance coverage for their employees.\u00a0 The various tax breaks for retirement plan contributions and earnings, such as Section 401(k) plans and Individual Retirement Accounts (IRAs), are designed to encourage retirement savings.\u00a0 The deduction for charitable contributions is designed to encourage greater financial support for nonprofit organizations.\u00a0 The deduction for mortgage interest is designed to encourage home ownership.\u00a0 The elimination of these benefits could have undesirable effects \u2013 less health insurance, less retirement savings, smaller charitable contributions, and less home ownership, the report says.<\/p>\n

    Zero-Based Budget Approach Recommended<\/h3>\n

    Despite the popularity of many tax expenditures, the report urges comprehensive tax simplification.\u00a0 \u201cWe believe that taxpayers will support tax reform by wide margins if they better understand the trade-offs involved and can be part of an informed dialogue,\u201d the report says.\u00a0 \u201cIf tax reform is enacted on a revenue-neutral basis, the average taxpayer\u2019s bill will not go up, and taxpayers will be much happier to have a simpler and more transparent system.\u00a0 They will understand how much tax they are paying, they will understand how their tax is computed, and many will save time and money because they no longer will have to pay fees to have their returns prepared.\u201d<\/p>\n

    Ms. Olson makes clear she is not recommending the elimination of all tax expenditures.\u00a0 Rather, the report recommends that Congress aim to simplify the tax code significantly and use a \u201czero-based budgeting\u201d approach.\u00a0 \u201cThe starting point for discussion would be a tax code without any exclusions or reductions in income or tax,\u201d the report says.\u00a0 \u201cA tax break or IRS-administered social program would be added back only if lawmakers decide, on balance, that the public policy benefits of running the provision or program through the tax code outweigh the tax complexity burden the provision creates for taxpayers and the IRS.\u00a0 At the end of the exercise, tax rates can be set at whatever level is required to raise the amount of revenue that Congress determines is appropriate.\u201d<\/p>\n

    The report highlights several areas of complexity that it recommends Congress address, either as part of comprehensive tax simplification or on a stand-alone basis.\u00a0 They include repealing the Alternative Minimum Tax for individuals, consolidating the family status provisions in the tax code, consolidating at least 12 incentives to save or spend for education, consolidating at least 15 incentives to save for retirement, simplifying worker classification determinations to minimize employee-versus-independent-contract disputes, eliminating or reducing procedural incentives to enact tax provisions that expire and require periodic renewal (sunsets), eliminating or reducing the gradual phase-out of tax benefits as income rises, and streamlining the more than 170 civil penalties contained in the tax code.<\/p>\n

    Restructuring Family Status Provisions to Reduce Taxpayer Burden and Increase Tax Compliance<\/h3>\n

    The report contains a separate section that proposes to simplify one of the most complex set of provisions in the tax code \u2013 the family status-related provisions.\u00a0 These provisions include filing status, personal and dependency exemptions, the child tax credit and additional child tax credit, the earned income tax credit, the child and dependent care credit, and the separated spouse rule under section 7703(b) of the tax code.<\/p>\n

    \u201cWhile literally every tax return involves at least two of the Family Status provisions, the IRS is hard-pressed to independently verify the accuracy of the status claimed,\u201d the report says.\u00a0 \u201cOver the years, it has used different government databases and developed \u2018rules\u2019 that assist it in identifying questionable claims of filing status or credits.\u00a0 But these rules fail to account for the fluid nature of household composition.\u201d<\/em><\/p><\/blockquote>\n

    To reduce taxpayer burden and increase tax compliance, the report recommends that Congress consolidate the existing family status-related provisions into two categories: (1) a Family Credit and (2) an Earned Income Tax Credit.\u00a0 The refundable Family Credit would reflect the costs of maintaining a household and raising a family, while the refundable Earned Income Tax Credit would provide a work incentive and subsidy for low income individuals.<\/p>\n

    OTHER KEY ISSUES ADDRESSED<\/h2>\n

    Federal law requires the Annual Report to Congress to identify at least 20 of the \u201cmost serious problems\u201d encountered by taxpayers and to make administrative and legislative recommendations to mitigate those problems.\u00a0 Overall, this year\u2019s report identifies 20 problems, makes dozens of recommendations for administrative change, makes 10 recommendations for legislative change, and analyzes the 10 tax issues most frequently litigated in the federal courts.<\/p>\n

    Taxpayer Bill of Rights.\u00a0 The report credits the IRS with adopting the Taxpayer Bill of Rights and conducting an extensive public outreach campaign to make the public aware of it.\u00a0 However, despite a directive in the Protecting Americans from Tax Hikes Act of 2015 that the Commissioner “ensure that employees of the Internal Revenue Service are familiar with and act in accord with\u201d the Taxpayer Bill of Rights, the report says the IRS has not done enough to educate its employees and incorporate the Taxpayer Bill of Rights into its operations.<\/p>\n

    Fraud Detection and Refund Delays<\/h3>\n

    The report credits the IRS with improving its detection of refund fraud and identity theft on submitted tax returns but expresses concern that the agency\u2019s fraud detection filters have a high degree of inaccuracy and thereby cause significant headaches and refund delays for hundreds of thousands of taxpayers who file accurate returns.\u00a0 During 2016, many of the filters and business rules the IRS used to detect bogus claims had false positive rates in excess of 50 percent, meaning that more than half the returns flagged were legitimate.\u00a0 One process had a false positive rate of about 91 percent.<\/p>\n

    Private Debt Collection<\/h3>\n

    The report describes the IRS\u2019s implementation of the private debt collection program mandated by Congress.\u00a0 It expresses concern that the IRS Office of Chief Counsel has provided questionable legal advice that may constitute \u201ca results-oriented end-run around the statute.\u201d<\/p>\n

    Specifically, section 6306 of the tax code authorizes the IRS to enter into qualified tax collection contracts in which private collection agencies may \u201crequest full payment\u201d from a taxpayer or, if the taxpayer cannot make full payment, \u201coffer the taxpayer an installment agreement providing for full payment . . . during a period not to exceed five years.\u201d\u00a0 Notwithstanding that this authority only authorizes private collection agencies to collect \u201cfull\u201d payments during a period \u201cnot to exceed five years,\u201d the Office of Chief Counsel has opined that private collection agencies may make repeated calls to taxpayers to request partial payments and may effectively offer installment agreements that exceed five years by obtaining \u201cIRS approval of a taxpayer\u2019s request.\u201d<\/p>\n

     <\/p>\n

     <\/p>\n

     <\/p>\n","protected":false},"excerpt":{"rendered":"

    Well, it is that time of year when you get my long-winded article on the Taxpayer Advocate’s Report to Congress. National Taxpayer Advocate Nina E. Olson today released her 2016 annual report to Congress, recommending that the IRS revamp its \u201cFuture State\u201d plan to adopt a taxpayer-centric focus and urging Congress to emphasize simplification when […]<\/p>\n","protected":false},"author":1,"featured_media":1350,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"apple_news_api_created_at":"2017-01-10T23:43:34Z","apple_news_api_id":"36c4ceda-c115-47dc-9032-3389c0c736d7","apple_news_api_modified_at":"2017-01-10T23:43:34Z","apple_news_api_revision":"AAAAAAAAAAD\/\/\/\/\/\/\/\/\/\/w==","apple_news_api_share_url":"https:\/\/apple.news\/ANsTO2sEVR9yQMjOJwMc21w","apple_news_cover_media_provider":"image","apple_news_coverimage":0,"apple_news_coverimage_caption":"","apple_news_cover_video_id":0,"apple_news_cover_video_url":"","apple_news_cover_embedwebvideo_url":"","apple_news_is_hidden":"","apple_news_is_paid":"","apple_news_is_preview":"","apple_news_is_sponsored":"","apple_news_maturity_rating":"","apple_news_metadata":"\"\"","apple_news_pullquote":"","apple_news_pullquote_position":"middle","apple_news_slug":"","apple_news_sections":["https:\/\/u48r14.digitalhub.com\/sections\/74d71b26-dfe2-3cf6-9b79-55911f8259f1"],"apple_news_suppress_video_url":false,"apple_news_use_image_component":false,"footnotes":""},"categories":[1],"tags":[6],"class_list":["post-1347","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","tag-tax"],"apple_news_notices":[],"_links":{"self":[{"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/posts\/1347","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/comments?post=1347"}],"version-history":[{"count":0,"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/posts\/1347\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/media\/1350"}],"wp:attachment":[{"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/media?parent=1347"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/categories?post=1347"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/tags?post=1347"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}