Over the last few months, the Internal Revenue Service has been the center of public attention for several reasons, most notably its scrutiny of politically active social welfare organizations seeking recognition as tax-exempt entities. The public attention to these recent events has in many ways reinforced many taxpayers’ preconceived perceptions of the IRS as an agency that treats taxpayers unfairly. While all this is grievous enough and in fact calamitous for public respect for and compliance with the tax laws (because once lost, trust takes a very long time to be regained), these events are symptoms of broader problems festering at the IRS.
There is much that is good about the IRS – indeed, the National Taxpayer Advocate (NTA) has the deepest respect for the agency and its workforce, even when she vigorously disagrees with the IRS’s actions or policies. But today, the IRS is an institution in crisis. In the NTA’s view, however, the real crisis is not the one generating headlines. The real crisis facing the IRS – and therefore taxpayers – is a radically transformed mission coupled with inadequate funding to accomplish that mission. As a consequence of this crisis, the IRS gives limited consideration to taxpayer rights or fundamental tax administration principles as it struggles to get its job done.
In this year’s report, I attempt to make the case for four major points:
First, the budget environment of the last five years has brought about a devastating erosion of taxpayer service, harming taxpayers individually and collectively;
Second, the lack of effective administrative and congressional oversight, in conjunction with the failure to pass Taxpayer Rights legislation, has eroded taxpayer protections enacted 16 or more years ago;
Third, the combined effect of these trends is reshaping U.S. tax administration in ways that are not positive for future tax compliance or for public trust in the fairness of the tax system; and
Fourth, this downward slide can be addressed if Congress makes an investment in the IRS and holds it accountable for how it applies that investment.
Moreover, I believe we need fundamental tax reform, sooner rather than later, so the entire system does not implode. Although this year’s report does not focus on tax reform, I have recommended tax reform in my reports and congressional testimony for many years
“To promote voluntary compliance with the tax laws, the IRS must be impartial both in fact and in appearance. The revelation that the IRS used’tea party’ and similar labels to select tax-exemption applicants for further review, even if intended solely as a workload management tool, has created the appearance that the IRS was not impartial. It is imperative the IRS move quickly to regain the public’s trust and take steps to prevent this kind of incident from happening again.”