National Taxpayer Advocate calls for taxpayer-centric IRS

National Taxpayer Advocate Nina Olson, in a recent report to Congress, urged the IRS to change its culture from one that is enforcement-oriented to one that is service-oriented. Such a change, Olson provided, would create an environment that encourages taxpayer trust and confidence. In the report, Olson also highlighted key areas for tax simplification and the top-10 most litigated tax issues.

2017 filing season

During the 2017 filing season, like recent past filing seasons, the IRS will face challenges related to budgetary pressures. Each year the IRS must deliver a filing season in which it processes some 150 million individual tax returns and issues over 115 million refunds while guarding against identity theft and refund fraud, Olson told lawmakers. “At the same time, the IRS must incorporate new legislative changes — almost 5,900 since 2001, an average of more than one a day— and major new programs like the Affordable Care Act (ACA) and the Foreign Account Tax Compliance Act (FATCA),” Olson said.

Olson told lawmakers that the IRS focuses on what it considers its major obligations — the filing season, new legislation, and the area of information technology and cybersecurity. “The consequences of this ‘big item’ focus are that smaller, important, taxpayer-facing service is reduced or eliminated.”

Enforcement

Olson criticized the IRS’s current enforcement-oriented regime, citing the major problem with such an approach is that it undermines the willingness of taxpayer to comply by expending most resources on those who are not willing to comply. “If a tax agency views its primary mission as ‘enforcing’ the tax laws, it will design its procedures and apply its resources to ‘hunt down’ those taxpayers it views as noncompliant,” Olson told lawmakers. Accordingly, those who are willing to comply are left without adequate support, Olson said.

Although Olson stated that the IRS should not ignore those taxpayers who are actively evading tax, the IRS should design the tax system around those who are trying to comply. As such, Olson recommended that the IRS publish an annual report card on comprehensive measures that not only show traditional enforcement measures but disclose how the agency performed in providing assistance and service in meeting taxpayer needs and preferences, as well as increasing voluntary compliance over time.

These measures, in turn, should form the basis for executive performance commitments and assessments, Olson predicted.

Challenges facing the IRS

In the report to Congress, Olson identified seven challenges confronting the IRS. The challenges are as follows:

IRS budget and oversight. To fairly, effectively, and efficiently administer the tax system, the IRS must receive increased funding, but such funding should be tied to additional congressional oversight of IRS strategic and operational plans.
IRS culture. To 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.
IRS mission statement. To ensure the IRS recruits, hires, and trains employees with the appropriate skill sets, the IRS must revise its mission statement to explicitly acknowledge the IRS’s dual mission of collecting revenue and disbursing benefits, as well as the foundational role of the Taxpayer Bill of Rights.
Understanding taxpayer needs and preferences. To ensure that the IRS designs its current and Future State initiatives based on actual taxpayer needs and preferences, the IRS must actively and directly engage with the taxpayer populations it serves as well as undertake a robust research agenda that furthers an understanding of taxpayer compliance behavior.
Taxpayer rights. To ensure that taxpayer rights, and the Taxpayer Bill of Rights specifically, are the foundation for tax administration the IRS should undertake a comprehensive review of key taxpayer rights provisions in the IRC and issue proposed guidance for public comment, updating these provisions to protect taxpayer rights in the digital environment envisioned by the IRS Future State.
Technology and infrastructure. To enable the IRS to meet the major technology improvements required for a 21st century tax administration, even as it fulfills current operational technology demands, the IRS must articulate a clear strategy that will reassure Congress and taxpayers the funding will be well-spent.
Taxpayer Advocate Service. To protect taxpayer rights and ensure a fair and just tax system, Congress should take steps to strengthen the Taxpayer Advocate Service.

Tax simplification

Olson stressed that tax simplification is overdue. “To achieve comprehensive simplification, tax expenditures would be pared back substantially and the additional revenue would be used to substantially reduce tax rates, leaving the average taxpayer with about the same tax bill he or she has now — but with the ability to compute it much more simply and accurately,” Olson told lawmakers.

In the report, Olson identified nine areas for tax simplification to include repealing the alternative minimum tax (AMT) for individuals and reducing income phase-outs, which affect roughly half of all returns each year and add considerable complexity to tax computations.

Written by

Steve Moss, CPA is a partner at Holden Moss CPAs and loves helping businesses and their owners grow to be the very best they can be. Our other offices include Raleigh, Oxford and Warrenton. We are a little different at Holden Moss CPAs. While we still provide traditional tax and accounting services, years ago we realized many clients wanted help in running their businesses and were hungry for ideas, solutions, strategy, and execution. In response, we expanded our skill set and joined Ran One, a global network of business consulting firms. Our membership with Ran One gives us access to proprietary resources and analytical software to help our clients grow, become more profitable and valuable, and have the lifestyle they desire. Now, blended into the fabric of our normal tax and accounting needs, we are focused on our clients’ businesses in a very different way. While our approach is not right for everyone, for those whom it is, incredible results may be obtained. Whether you have a new, or established, business, or for those in transition of selling or retiring, or for those who simply need to develop an exit strategy or succession plan, our unique approach to client service may be the edge you need.

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