National Taxpayer Advocate Expresses Worry About "Enforcement First" Mentality of IRS
in her latest report to Congress
“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,” she said in the report.
She noted that 43 percent of the IRS's current budget of $11.2 billion is devoted to enforcement measures, while less than 6 percent is allocated to taxpayer outreach and education, a gulf that could widen even further given the IRS's 2017 budget request: the service is requesting a further 7.2 percent increase in enforcement funding, versus a 3.1 percent increase for taxpayer services. This comes at a time when the agency has been increasingly unable to meet taxpayer needs, pointing in particular to its recent difficulties with answering phone calls. She said only 38 percent of phone calls were answered in FY 2015 and only 53 percent in FY 2016, and those who did manage to get through were still kept on hold for an average of 30 and 18 minutes respectively.
Her urging for the IRS to change its mindset was not simply an appeal to be nicer: she said that shifting its focus to service would increase taxpayer compliance and therefore grow government revenues. With its current enforcement culture, Olson said that those who don't get the help they need and make mistakes are treated as if they are tax evaders, which breeds resentment and increases the risk that someone who had previously been willing to voluntarily comply will no longer do so. In this sense, she said that the IRS is creating a self-fulfilling prophesy.
Instead, she asked, what if the IRS assumed that taxpayers by and large wanted to comply with the law and that the agency saw its primary mission as helping facilitate that compliance by providing assistance, education and clarity. This would mean understanding that sometimes taxpayers make mistakes and that until otherwise proven it should be assumed that those mistakes are not attributable to a tax evasion motive.
She noted that 43 percent of the IRS's current budget of $11.2 billion is devoted to enforcement measures, while less than 6 percent is allocated to taxpayer outreach and education, a gulf that could widen even further given the IRS's 2017 budget request: the service is requesting a further 7.2 percent increase in enforcement funding, versus a 3.1 percent increase for taxpayer services. This comes at a time when the agency has been increasingly unable to meet taxpayer needs, pointing in particular to its recent difficulties with answering phone calls. She said only 38 percent of phone calls were answered in FY 2015 and only 53 percent in FY 2016, and those who did manage to get through were still kept on hold for an average of 30 and 18 minutes respectively.
This is not the first time Olson has critiqued IRS enforcement methodologies in her annual report. In last year's report, for example, she said the IRS has "one size fits all" service and enforcement policies for each category of taxpayer, and that centralization of IRS offices means that local needs and contexts aren't properly taken into account. She also criticized the gulf between enforcement and service funding in the IRS budget in her report from two years ago, saying that the service needs to shift its priorities to encourage voluntary compliance. In that report she said that IRS employees develop a mindset that says enforcement is what counts, and that service is secondary.
This year's report, however, puts this critique at the forefront with this call for a fundamental change in IRS culture, away from an enforcement-first mindset and towards a service-first one.
This year's report, however, puts this critique at the forefront with this call for a fundamental change in IRS culture, away from an enforcement-first mindset and towards a service-first one.
Instead, she asked, what if the IRS assumed that taxpayers by and large wanted to comply with the law and that the agency saw its primary mission as helping facilitate that compliance by providing assistance, education and clarity. This would mean understanding that sometimes taxpayers make mistakes and that until otherwise proven it should be assumed that those mistakes are not attributable to a tax evasion motive.
“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," said Olson.
Part of the solution, she said, would be to create more service-oriented measurements. The IRS, she said, has a culture very focused on metrics, and most of the metrics that the agency tracks are centered around enforcement. She said that, currently, the IRS does not track things like abatements from improper assessments, or how many Taxpayer Advocate Service cases resulted in full or partial relief, or how many outreach and education events were held.
"If we want IRS employees to focus on increasing taxpayer confidence and trust in the tax system, if we want taxpayers to feel engaged in the tax system they are all a part of, then we need to find ways to encourage and reward the IRS workforce for engaging with the population and viewing the taxpayer as a partner in trying to achieve or maintain voluntary compliance," she said.
She recommended that the IRS publish an annual report card on comprehensive measures that show not only traditional enforcement measures but the how the IRS performed in providing assistance and service in meeting taxpayer needs and preferences, as well as increasing voluntary compliance over time. These measures, in turn, should form the basis for executive performance commitments and assessments.
Olson also called for tax simplification, saying that individuals and businesses spend about 6 billion hours a year collectively complying with the tax code, a figure that does not include the additional time spent responding to IRS notices and audits.
Part of the solution, she said, would be to create more service-oriented measurements. The IRS, she said, has a culture very focused on metrics, and most of the metrics that the agency tracks are centered around enforcement. She said that, currently, the IRS does not track things like abatements from improper assessments, or how many Taxpayer Advocate Service cases resulted in full or partial relief, or how many outreach and education events were held.
"If we want IRS employees to focus on increasing taxpayer confidence and trust in the tax system, if we want taxpayers to feel engaged in the tax system they are all a part of, then we need to find ways to encourage and reward the IRS workforce for engaging with the population and viewing the taxpayer as a partner in trying to achieve or maintain voluntary compliance," she said.
She recommended that the IRS publish an annual report card on comprehensive measures that show not only traditional enforcement measures but the how the IRS performed in providing assistance and service in meeting taxpayer needs and preferences, as well as increasing voluntary compliance over time. These measures, in turn, should form the basis for executive performance commitments and assessments.
Olson also called for tax simplification, saying that individuals and businesses spend about 6 billion hours a year collectively complying with the tax code, a figure that does not include the additional time spent responding to IRS notices and audits.
"A Code consisting of four million words and requiring six billion hours of taxpayer time when meeting their filing requirements is simply too complex to administer well," she said.
A big part of this comes from the myriad deductions, credits, exclusions and similar tax breaks that collectively are called "tax expenditures." She said that, combined, all of these tax expenditures cost the treasury $1.42 trillion in FY 2016, more than Congress appropriated to fund the entire federal government. This complexity, she said, rewards those who can afford expensive tax guidance but disadvantages those who cannot. Rather than getting rid of them all, though, she instead recommended that Congress use a "zero based budgeting" approach, where all expenses must be justified each new period, to tax expenditures.
She also called for the IRS budget to be increased, but also for its funding to be subject to additional congressional oversight of strategic and operational plans. A big part of this comes from the myriad deductions, credits, exclusions and similar tax breaks that collectively are called "tax expenditures." She said that, combined, all of these tax expenditures cost the treasury $1.42 trillion in FY 2016, more than Congress appropriated to fund the entire federal government. This complexity, she said, rewards those who can afford expensive tax guidance but disadvantages those who cannot. Rather than getting rid of them all, though, she instead recommended that Congress use a "zero based budgeting" approach, where all expenses must be justified each new period, to tax expenditures.
“The starting point for discussion would be a tax code without any exclusions or reductions in income or tax. A tax break or IRS-administered social program would be added back only if lawmakers decide, on balance, that the public policy benefits of running the provision or program through the tax code outweigh the tax complexity burden the provision creates for taxpayers and the IRS. At the end of the exercise, tax rates can be set at whatever level is required to raise the amount of revenue that Congress determines is appropriate,” she said.