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MSP #9: COMPLEXITY

The IRS Does Not Report on Tax Complexity as Required by Law

TAS Recommendations and IRS Responses

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1.

TAS RECOMMENDATION #9-1

Analyze and report to Congress each year on the sources of complexity in tax administration and on ways to reduce it, as required by law.

IRS RESPONSE TO RECOMMENDATION: ​​​Based on continuing collaboration with Treasury, Congressional staff, taxpayer representatives and behavioral-economics experts, an authoritative analysis of the sources of complexity has been completed and published, and a program, including behavioral modeling, has been put in place and is now producing and documenting IRS estimates and statistics on complexity.  After 2002, the year the last complexity report was issued, resources gradually were transferred to focus on innovative analytics and away from the reports and more and more of the statistics reported in the complexity were made available in other ways, for example, on the IRS web-site and through other media.

In addition, a new program to determine the roots of taxpayer compliance, including the effects of complexity–named the National Research Program–was instituted.  That program addressed the RRA98 concerns related to the report that gaining such information via an earlier program had been burdensome and intrusive for taxpayers.

Both the taxpayer burden research program and the National Research Program on compliance issue periodic reports that provide the information sought for the earlier complexity report, and provide that in more focused, effective and efficient ways.
Therefore, the objectives and reporting role of the complexity reports have been superseded by two newly-established analytical programs that meet and exceed the  scope of the reports, provide ongoing information on complexity, and bring best practices in research, analytics, and econometric modeling on complexity and taxpayer behavior to IRS operations.  Updated information is continuously provided to those programs via new ongoing surveys on taxpayer burden and annual compliance-related studies of taxpayer records.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS’s response indicates it addressed Congress’s concerns following the 2002 complexity report by publishing more statistics and establishing the National Research Program (NRP) and a vaguely-described taxpayer burden program, but these items are not reported to Congress and do not include recommendations for simplification.  The response later indicates unidentified testimony or reports from other entities identify areas of complexity for Congress.  All these items (or their predecessors) existed when Congress enacted legislation requiring the IRS to provide it with a complexity report, which shows Congress wanted something more.  Thus, none of this information fulfills the IRS’s statutory mandate to analyze and report to Congress each year on the sources of complexity in tax administration and on ways to reduce it.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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2.

TAS RECOMMENDATION #9-2

Issue a report addressing the complexity faced by a different taxpayer segment each year over a rolling multi-year period so that these reports address the complexity faced by taxpayers throughout the tax system.

IRS RESPONSE TO RECOMMENDATION: ​​​​​RAS has developed a robust model to address the complexity faced by different taxpayer segments in meeting their taxpayer filing requirements.  RAS periodically surveys various taxpayer segments to improve and update its model and consults with Treasury’s Office of Taxpayer Analysis and Office Managment and Budget.  The results of the model are used to enable the Service to assess taxpayer burden providing insights and better understanding of how complexity drives costs and affects behavior.  RAS provides this information when needed by and useful to various programs and functions. RAS believes this agile method is the most  efficient use of its limited resources at this juncture.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS response indicates RAS has a “model to address the complexity faced by different taxpayer segments in meeting their taxpayer filing requirement,” which it updates periodically.  However, it does not specifically identify or disclose any such model.  As a result, neither TAS nor Congress can evaluate the extent to which it addresses the complexity faced by a different taxpayer segment each year over a rolling multi-year period, as recommended.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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3.

TAS RECOMMENDATION #9-3

Include in the complexity report all of the data suggested by Congress, including areas where employees make frequent errors interpreting or applying the law (e.g., the errors collection employees make in applying taxpayer protection provisions).

IRS RESPONSE TO RECOMMENDATION: ​​​​RAS is surveying taxpayer behavior and modeling  taxpayer post-filing burden with an aim to better understand the compliance experience of the taxpayer and the factors contributing to it.  Additionally, both Treasury and IRS officials testify frequently before Congress on the complexity of the tax laws and the need to reform the tax code.  This testimony generally includes specific examples of provisions of the tax code that presents issues for taxpayers, their representatives or IRS employees.  The legislative proposals annually included in the General Explanations of the Administration’s Fiscal Year Revenue Proposals in many instances are responses to complexity of the current tax code. GAO and TIGTA also have issued reports on the complexity of the tax code and TIGTA is required to review several IRS programs annually and report on errors it finds in the IRS’s administration of those programs.   In the annual Taxpayer Assistance Blueprint, the IRS, working with the NTA and the IRS Oversight Board, identifies areas of service shortcomings, some of which are related to the complexity of the tax code and the improvements the IRS makes to taxpayer service in these areas once they are identified.  Thus, the sources of complexity in the agency’s administration of the tax code are well known and publicly available.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS response cites a RAS survey of taxpayer behavior and modeling, unspecified testimony before Congress, unspecified TIGTA and GAO reports, and a decade-old analysis of gaps in the IRS’s service offerings, in apparently suggesting Congress may not actually need all of the data it requested in connection with the complexity report.  However, these items do not fill all of the gaps in data that Congress identified, such as areas where employees make frequent errors interpreting or applying the law (e.g., the errors Collection employees make in applying taxpayer protection provisions).  The IRS has unilaterally decided complexity reports, as required by Congress, are no longer necessary.  Thus, it is violating the law and making its job more difficult by withholding from Congress and the public vital information and recommendations that could improve tax administration.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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