National Taxpayer Advocate Stresses Protection of Taxpayer Services and Taxpayer Rights

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National Taxpayer Advocate Nina E. Olson released her 2014 annual report to Congress, which highlights declining taxpayer service as one of the most serious problems facing American taxpayers today and recommends that Congress enact a Taxpayer Bill of Rights and provide sufficient funding to make the “Right to Quality Service” a reality. The report says the combination of the IRS’s increasing workload and the sharp reduction in IRS funding has created a “perfect storm” of trouble for tax administration and taxpayers.

One of the Most Serious Problems Facing Taxpayers: Taxpayer Service is Poor and Getting Worse

One of the Most Serious Problems Facing Taxpayers: Taxpayer Service is Poor and Getting Worse

Taxpayers who need help are not getting it, and tax compliance is likely to suffer over the longer term if these problems are not quickly and decisively addressed.

National Taxpayer Advocate (NTA) Nina E. Olson today released her 2014 Annual Report to Congress, which expresses concern that taxpayers this year are likely to receive the worst levels of taxpayer service since at least 2001 when the IRS implemented its current performance measures. The report recommends that Congress enact a principles-based Taxpayer Bill of Rights, adopt additional safeguards to make those rights meaningful, and provide sufficient IRS funding to make the “Right to Quality Service” a reality.

In the preface to the report, Olson emphasizes four 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.”

“Taxpayers who need help are not getting it, and tax compliance is likely to suffer over the longer term if these problems are not quickly and decisively addressed,” Olson wrote.

TAXPAYER SERVICE LEVELS EXPECTED TO FALL TO NEW LOWS

The report describes the decline in taxpayer services in detail and attributes the decline to a combination of more work and fewer IRS resources.

Scope of Taxpayer Service Needs – Nearly 200 million Americans interact with the IRS each year, more than three times as many as any other federal agency. (Individuals file nearly 150 million tax returns, including about 50 million joint returns.) Because of the complexity of the tax code, large numbers of taxpayers turn to the IRS for assistance. The IRS typically receives more than 5 million visits, 10 million letters and 100 million telephone calls from taxpayers each year.

Decline in Taxpayer Service Levels – IRS taxpayer service reached its high point in fiscal year (FY) 2004. In that period, the IRS answered 87 percent of calls from taxpayers seeking to speak with an assistor, and hold times averaged 2.5 minutes. The IRS also prepared nearly 500,000 tax returns for taxpayers who requested help (particularly low income, elderly, and disabled taxpayers), and maintained a robust outreach and education program that touched an estimated 72 million taxpayers.

By comparison, the IRS’s diminished service expectations for FY 2015 are:

  •     The IRS is unlikely to answer even half of the telephone calls it receives, and levels may average as low as 43 percent.
  •     Taxpayers who manage to get through are expected to wait on hold for an average of 30 minutes and considerably longer at peak times.
  •     The IRS will answer far fewer tax-law questions than in the past. During the filing season, it will not answer any tax-law questions except “basic” ones. After the filing season, it will not answer any tax-law questions at all, leaving the roughly 15 million taxpayers who file later in the year unable to get answers to their questions by calling or visiting IRS offices.
  •     Tax return preparation assistance has been eliminated.

More Work, Less Funding – On the workload side, the IRS is receiving 11 percent more tax returns from individuals, 18 percent more tax returns from businesses and 70 percent more telephone calls (through FY 2013) than a decade ago. During the upcoming filing season, implementation of the Patient Protection and Affordable Care Act and the Foreign Account Tax Compliance Act are both expected to add a considerable amount of new work.

On the funding side, the IRS’s budget has been reduced by about 17 percent in inflation-adjusted terms just since FY 2010, forcing the IRS to reduce its workforce by nearly 12,000 employees, with projections for further reductions during FY 2015. In addition, the IRS has reduced the amount it spends on employee training since FY 2010 by 83 percent. These cutbacks leave the IRS with a shrinking workforce whose employees are less equipped to do their jobs.

TAXPAYER BILL OF RIGHTS, SPECIFIC TAXPAYER PROTECTIONS, AND JOINT CONGRESSIONAL OVERSIGHT HEARINGS RECOMMENDED

Since 2007, the NTA has been recommending that Congress enact a Taxpayer Bill of Rights, a list of 10 taxpayer rights based on principles and modeled on the U.S. Constitution’s Bill of Rights. In 2013, the House passed legislation to implement this recommendation, but the Senate did not act. In 2014, the IRS adopted the Taxpayer Bill of Rights administratively, a step Olson praised. However, Olson continues to recommend that Congress enact the provisions by statute to assure taxpayers that the rights will become “a permanent part of our tax system.”

“Taxpayer rights are central to voluntary compliance,” the report says. “If taxpayers believe they are being treated, or can be treated, in an arbitrary and capricious manner, they will mistrust the system and be less likely to comply of their own volition. By contrast, taxpayers will be more likely to comply if they have confidence in the fairness and integrity of the system.”

Noting that the principle-based taxpayer rights are “only as effective as the specific statutory rights that give [them] effect,” the report recommends that Congress enact specific taxpayer rights that the NTA has proposed in this and prior-year reports and that relate to each of the 10 conceptual rights. Almost every issue discussed in the NTA’s report identifies one or more of the rights in the Taxpayer Bill of Rights that the IRS can do a better job of protecting.

“The National Taxpayer Advocate believes the time is right for taxpayer rights legislation,” the report says. “The passage of time has shown where new protections are needed. Without providing these specific taxpayer protections, the [Taxpayer Bill of Rights] becomes merely a statement of principles, without any teeth to ensure that these fundamental rights are protected on a daily basis, and that taxpayers have remedies and the IRS is held accountable for any violations of these rights.”

The report says that funding and oversight are essential to protect taxpayer rights. Noting that the “Right to Quality Service” and other rights can only be honored if the IRS has enough resources, the report says “[t]he IRS will be severely hampered in its ability to implement new policies, procedures, and systems for protecting taxpayer rights if it does not receive adequate funding.”

The report also suggests that regular congressional oversight hearings on the “nuts and bolts” of tax administration would go a long way toward educating Members of Congress about the important work of the IRS, including its successes and challenges, foster a shared sense of purpose in tackling the challenges, and allow Members to see more closely how funding levels and performance levels interrelate.

OTHER KEY ISSUES ADDRESSED
Federal law requires the Annual Report to Congress to identify at least 20 of the “most serious problems” encountered by taxpayers and to make administrative and legislative recommendations to mitigate those problems. Overall, this year’s report identifies 23 problems, makes dozens of recommendations for administrative change, makes 19 recommendations for legislative change, and analyzes the 10 tax issues most frequently litigated in the federal courts.

Among the “most serious problems” addressed are the following:

  •     Lack of Clear Rationale for Taxpayer Service Resource Allocation Decisions.
  •     Lack of a Functional IRS Presence in Many Areas.
  •     Potential Patient Protection and Affordable Care Act (ACA) Burdens.
  •     Offshore Voluntary Disclosure (OVD) Program Inequities.

New TAS Research Studies – Volume 2 of the report contains three new research studies, including an important study on the needs of low income taxpayers. The NTA’s office commissioned a survey of more than 1,100 low income individuals to better understand their circumstances and service needs, particularly related to Low Income Taxpayer Clinics but also more generally. The survey findings show that technology use varied across incomes, education levels and age groups.

Please visit http://www.TaxpayerAdvocate.irs.gov/2014AnnualReport for more information about this report, including an Executive Summary and downloadable graphics on key report features.

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About the Taxpayer Advocate Service
The Taxpayer Advocate Service (TAS) is an independent organization within the Internal Revenue Service (IRS) that helps taxpayers and protects taxpayer rights. Your local advocate’s number is in your local directory and at taxpayeradvocate.irs.gov. You can also call 1–877–777–4778. TAS can help if you need assistance resolving an IRS problem, if your problem is causing financial difficulty, or if you believe an IRS system or procedure isn’t working as it should. And our service is free. For more information about TAS and your rights under the Taxpayer Bill of Rights, go to taxpayeradvocate.irs.gov.

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Ken Drexler
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