Refund delayed? Our ability to help may be limited.
As we enter the New Year, with the IRS facing the daunting challenge of interpreting and implementing major new tax legislation, this year’s report is both a Baedaker of the current problems facing the IRS and taxpayers, and a roadmap to a better way of doing business. We have identified 21 Most Serious Problems affecting taxpayers, made 11 Legislative Recommendations, discussed the ten Most Litigated Issues and significant stand-alone decisions, and published a Volume Two containing seven Research Studies.
We are also introducing a new publication with this Report — the National Taxpayer Advocate “Purple Book.” Over the last two years, the House Ways and Means Committee has expressed interest in developing “IRS reform” legislation. The Purple Book is designed to assist the committee by presenting a concise summary of 50 legislative recommendations that we believe will strengthen taxpayer rights and improve tax administration. Most of these recommendations have been made in detail in our prior Annual Reports to Congress, but others are presented here for the first time.
In recent weeks, there has been considerable discussion about how the IRS has been beaten down by continuing funding cuts and about concerns the agency is stretched so thin it will not be able to properly implement tax reform. I cede to no one in my advocacy for increased IRS funding. As the National Taxpayer Advocate, I see daily the consequences of reduced funding of the IRS and the choices made by the agency in the face of these funding constraints. These impacts are real and affect everything the IRS does. Funding cuts have rendered the IRS unable to provide acceptable levels of taxpayer service, unable to upgrade its technology to improve its efficiency and effectiveness, and unable to maintain compliance programs that both promote compliance and protect taxpayer rights. “Shortcuts” have become the norm, and “shortcuts” are incompatible with high-quality tax administration. There is no doubt that the IRS needs more funding.
At the same time, limited resources cannot be used as an all-purpose excuse for mediocrity. There is not a day that goes by inside the agency when someone proposes a good idea only to be told, “We don’t have the resources.” In the private and nonprofit sectors, saying “we don’t have the resources” is the beginning of the discussion, not the end. Yet with the IRS, lack of resources often has become a reflexive excuse for not doing something, or worse, for doing things “to save resources” that harm taxpayers, foster noncompliance, and undermine taxpayer and employee morale.
In this report, even as we catalog the consequences of reduced IRS funding on taxpayers and the tax system, we propose reasonable and actionable steps that can reverse this decline. If the IRS were to take these steps, many of which require no extra infusion of cash, taxpayers would receive better service, compliance efforts would be better focused, and concrete evidence would be placed before Congress that additional investments in the IRS would yield positive and meaningful results.
In my opinion, the discussion about IRS funding has largely proceeded based on false choices — either “you can’t trust the IRS to administer the tax system so don’t fund it” or “because the IRS doesn’t have enough funding, it can’t do the things it needs to do to administer the tax system.” The truth lies somewhere in between. The IRS absolutely needs more funding. It cannot answer the phone calls it currently receives, much less the phone calls it can expect to receive in light of tax reform, without adequate funding. But within the budget it currently has, there are plenty of opportunities for the IRS to demonstrate that it can do a better job of using creativity and innovation to provide taxpayer service, encourage compliance, and address noncompliance.
What would it take for the IRS to provide 21st century customer service? First, it must acknowledge what the private sector clearly knows: If you don’t serve customers in the way they want and need to be served, they will look somewhere else. Of course, the IRS, as the only federal tax agency in the United States, has a monopoly on tax administration. On the surface, it appears “customers” (taxpayers) don’t have a choice about seeking another tax agency to work with – there are no competitors to which they can move their “business.” In fact, there is a competitor –the lure of noncompliance.
If the IRS isn’t going to provide you the assistance you need in the manner you need it, then why bother complying with the tax laws? Yes, taxpayers know there may be consequences for blatant noncompliance, but if and when the opportunity presents itself for a taxpayer not to comply in subtle ways that are hard to detect (e.g., failing to report cash-economy income), the taxpayer may be more likely to take the opportunity, because there is no “brand loyalty” to the IRS and tax compliance.
Taxpayers of the United States deserve a better functioning IRS that understands and meets their needs, even as it ensures that all taxpayers comply with the tax laws.