National Taxpayer Advocate Delivers Annual Report to Congress; Urges IRS Reform and Tax Reform

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National Taxpayer Advocate Nina E. Olson 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 simplify the tax code. Olson presents a series of proposals to improve tax administration, emphasizing changing the culture of the IRS from one that is enforcement-oriented to one that is service-oriented.

This is arguably the most important piece I have written about the IRS in my fifteen years serving as the National Taxpayer Advocate.

National Taxpayer Advocate Nina E. Olson 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 simplify the tax code.

The report presents a series of proposals to improve tax administration, placing particular emphasis on changing the culture of the IRS. Olson explains that “to create an environment that encourages taxpayer trust and confidence, the IRS must change its culture from one that is enforcement-oriented to one that is service-oriented.”

Last year, Olson gathered broad perspectives about taxpayer needs and preferences through 12 public forums around the country, most held along with Members of Congress. In addition, the Taxpayer Advocate Service (TAS) held focus group interviews with practitioners and preparers at five Nationwide Tax Forums and commissions a nationwide survey of taxpayers to collect statistically representative data. Based upon this information, Olson presents a “Special Focus” in this year’s report that sets out her own vision for the tax agency. “This is arguably the most important piece I have written about the IRS in my fifteen years serving as the National Taxpayer Advocate,” Olson wrote.

The report addresses the following key topics:

  • Service Emphasis and Trust Can Increase Tax Compliance: The report notes that “if taxpayers don’t get the help they need to comply and they make a mistake, they are treated as if they are tax evaders. This breeds resentment and increases the risk that the taxpayer who was willing to comply is no longer willing to do so. By focusing on the source or reasons for the taxpayer’s noncompliance and not just on the end result of the taxpayer’s behavior, we have a better chance of changing the taxpayer’s behavior and improving tax compliance going forward. This is not to say we should ignore those who are actively evading tax. Rather, it is to say we should design our tax system around the taxpayers who are trying to comply, instead of those who are actively trying not to.”
  • “Tax Expenditures” Harm Unsophisticated Taxpayers: The 200 tax deductions, credits, exclusions and similar tax breaks found in the several million words of U.S. tax code are known collectively as “tax expenditures.” Given the number and complexity of tax expenditures, sophisticated taxpayers are likely to claim most benefits for which they are eligible, while less sophisticated taxpayers often will miss them.
  • Zero-Based Budget Approach: Despite the popularity of many tax expenditures, the report urges comprehensive tax simplification. Olson makes clear she is not recommending the elimination of all tax expenditures, but recommends that Congress aim to simplify the tax code and use a “zero-based budgeting” approach.
  • Restructuring Family Status Provisions to Reduce Taxpayer Burden and Increase Tax Compliance: The report contains a separate section that proposes to simplify one of the most complex set of provisions in the tax code – the family status-related provisions.

The full Special Focus discussion can be accessed here: https://taxpayeradvocate.irs.gov/reports/2016-annual-report-to-congress/special-focus

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 20 problems, makes dozens of recommendations for administrative change, 10 recommendations for legislative change, and analyzes 10 tax issues most frequently litigated in the federal courts. Among the problems addressed are: compliance with the Taxpayer Bill of Rights by IRS employees; the high false positive rate of IRS fraud detection filters; and questionable impacts of the Congressionally-mandated private debt collection program.

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.

For the first time, the report contains a third volume that presents literature reviews on seven tax administration topics that reflect information gathered from related fields.

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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 TAS toll-free at 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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Maryclaire Ramsey, Director, TAS Communications
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