National Taxpayer Advocate Nina E. Olson recently released her 2016 Annual Report to Congress recommending that the IRS revamp its “Future State” plan to adopt a taxpayer-centric focus, and urging Congress to emphasize simplification when it considers tax reform later this year.
In this report, the National Taxpayer Advocate details her vision for a taxpayer-centric 21st century tax administration that focuses on putting the taxpayer first and encouraging compliance through increased service and building trust. Last year, the National Taxpayer Advocate announced she would gather broader perspectives about taxpayer needs and preferences and then present her own recommendations for the IRS’s Future State. 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. 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. Based on this information, she presents a “Special Focus” in this year’s report that sets out her own vision for the tax agency. She identifies challenges and presents a series of proposals to support her discussion of a taxpayer-centric 21st century tax administration. The report says that significant cuts to the IRS budget since FY 2010 have limited the IRS’s ability to meet taxpayers’ needs and improve its technology systems. It recommends that Congress provide the IRS with additional funding along with oversight so it can be assured the funding is well spent. The Special Focus discussion can be accessed here: https://www.taxpayeradvocate.irs.gov/reports/2016-annual-report-to-congress/special-focus.
In assessing the compliance burdens of the current tax code, the Taxpayer Advocate Service analyzed IRS data and determined that individuals and businesses spend about six billion hours a year complying with the code’s filing requirements – not including the millions of additional hours spent responding to IRS audits or notices. “If tax compliance were an industry, it would be one of the largest in the United States,” the report says. “To consume six billion hours, the ‘tax industry’ requires the equivalent of three million full-time workers.”
“It has now been more than 30 years since Congress enacted the Tax Reform Act of 1986 to substantially simplify the tax code,” the report says, “and 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 – an average of more than one a day – just since 2001. 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.”
The full report discusses 20 of the most serious problems encountered by taxpayers during 2016, makes 10 legislative recommendations, summarizes the 10 tax issues most frequently litigated in court during the preceding year, and includes five new research studies.
Some headline issues from the “most serious problems” section of this year’s report include: insufficient Taxpayer Bill of Rights education for IRS employees; inaccurate fraud detection filters that cause significant headaches and refund delays; and concerns over the private debt collection program implementation.
Volume 2 of the report contains five new research studies, including a study examining the effect of IRS service delivery choices on different demographic groups; a study of the subsequent filing behavior of taxpayers who claimed the Earned Income Tax Credit, apparently in error, and were then sent an educational letter from the National Taxpayer Advocate; and the importance of IRS financial analysis when placing taxpayers into installment agreements to minimize the likelihood of defaults and future noncompliance.
For the first time, Ms. Olson’s report also contains a third volume that presents literature reviews on seven tax administration topics that reflect information gathered from related fields, such as psychology, organizational theory, network theory, and marketing. The literature reviews present information on taxpayer service in other countries, incorporation of taxpayer rights in tax administration, behavioral science lessons for tax compliance, geographic considerations for tax administration, customer considerations for online accounts, options for alternative dispute resolution, and reductions of “false positive” determinations in fraud detection.