The House Ways and Means Oversight Subcommittee held a hearing Friday featuring National Taxpayer Advocate Nina Olson to discuss how to improve operations at the Internal Revenue Service as Congress works on overhauling the tax code.
“It has been nearly two decades since Congress last reviewed and updated the laws governing IRS operations,” Olson said in her opening statement. “A lot has changed during that time, and tax administration would benefit from a fresh review of those laws.”
She argued that reforms to IRS operations would be most successful if Congress consults widely on its proposals, engages IRS employees and external stakeholders, and provides the IRS with adequate funding to succeed.
“Sound tax administration should be predicated on foundational principles, and the most important principle is respect for taxpayer rights,” said Olson. “Not only is respecting the rights of the taxpayers who pay our nation’s bills the right thing to do, but there is significant empirical data that suggests building trust with taxpayers, which requires respecting their rights, enhances voluntary compliance as well.”
She noted that in 2015, Congress codified the provisions of the Taxpayer Bill of Rights. Olson called for incorporating the bill of rights into the business practices of the IRS and for Congress to make it a freestanding provision of the tax code.
She also wants the IRS to place greater emphasis on taxpayer service. “In my view, there is no conflict whatsoever between providing high-quality taxpayer service and taking actions to ensure tax compliance, particularly on the part of persons actively seeking to evade tax,” said Olson. “It should not be an either/or proposition. But 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. Of the IRS’s current appropriated budget of $11.2 billion, 43 percent is allocated to enforcement, while only 4 percent is allocated to taxpayer outreach and education activities.”
She pointed to IRS data indicating the agency has only 98 employees who are dedicated to outreach and education for roughly 62 million Small Business and Self-Employed taxpayers, and only 376 employees to conduct outreach and education to the 125 million Wage and Investment taxpayers. Meanwhile, she noted, the IRS has more than 3,000 revenue officers involved with Field Collection activity and over 8,800 revenue agents who conduct field audits. She complained that the IRS changed its mission statement in 2009 to placing greater emphasis on enforcement than on taxpayer service, without any public notice and without consulting Congress or her office. In conjunction with the hearing, her office released a report on the National Taxpayer Advocate's vision for a taxpayer-centric 21st century tax administration for the IRS's Future State initiative.
House Ways and Means Oversight Subcommittee chairman Vern Buchanan, R-Fla., noted in his opening statement that it has been nearly 20 years since Congress seriously considered reforms to the IRS. “I think it is important to emphasize that our efforts to reform the IRS should not be seen as a punishment or a criticism of the average agency employee,” he added. “Instead they are a recognition that the IRS mission is important. Every government entity, just like private companies, can benefit from a thorough review and some thoughtful long-term planning. And that is what we are trying to do here.”
Rep. John Lewis, D-Ga., the ranking Democrat on the subcommittee, emphasized the importance of taking great care in the matter of reforming and improving the IRS and doing it on a bipartisan basis. “We must remain focused on doing what is right and what is just for the interests of every American taxpayer,” he said. “If we stay on a bipartisan path, together we help the IRS become a model of success for constituent services. The IRS is a large and complex organization that has suffered from a lack of resources for many years. Congress cut the agency’s budget by almost $1 billion since 2010. These cuts harm taxpayer services and tax compliance, and the IRS needs technology, infrastructure, and employees to provide secure, quality, customer service. For these reasons, responsible reform must include strong, robust funding.”
The National Treasury Employees Union called on Congress to restore funding for the IRS. It pointed out the IRS has lost nearly 18,000 permanent employees in the past six years, so there are fewer tax professionals answering phones and meeting with taxpayers in person at Taxpayer Assistance Centers. “The latest copy of the IRS Data Book shows that IRS employees are processing more returns with fewer people and conducting fewer audits of those returns,” said NTEU national president Tony Reardon in a statement. “We agree with the National Taxpayer Advocate that customer service is a key mission of the IRS, and that service suffers when budgets are slashed.”
In response to a question from Rep. Jackie Walorski, R-Ind., about the IRS’s failings in protecting taxpayers from fraud, Olson noted that identity theft and refund fraud have been the top two types of cases received by the Taxpayer Advocate Service for the past five years. “It’s devastating,” she said. “This affects people who are low income, high income, it doesn’t matter. People are having to get their preparers to call and people often submit documentation multiple times. There is no one person assigned to their case so every time they call they have to tell their story to a different person. These are all recommendations we’ve made.”
Rep. Diane Black, R-Tenn., questioned how the IRS provides tax guidance on its website and why there isn’t more of a public comment process. Olson sees advantages and disadvantages to the way the IRS provides guidance.
“Rather than going through what it views as the cumbersome regulatory process, which would require notice and comment, it does stuff to get guidance out faster,” she said. “They are moving more toward FAQs, which are great in the sense that you get things up quickly, but you cannot tell when a change has been made unless you print out the FAQ every single day and track it word for word. And they’re not reliable … As that gets done more, you’re really leaving the taxpayer in a vulnerable situation.”
Subcommittee chairman Buchanan observed that small businesses need a better way to resolve disputes with the IRS. Olson believes the IRS’s Appeals office could provide more assistance. “We should take a look at the Appeals function and see how we really make it work as the safety valve that it was intended to be,” she said.