Acting National Taxpayer Advocate Bridget Roberts released her 2019 Annual Report to Congress. Key challenges highlighted in the report include implementation of the Taxpayer First Act, inadequate taxpayer service, and limited funding of the agency. Roberts also released the third edition of the National Taxpayer Advocate’s “Purple Book,” which presents 58 legislative recommendations designed to strengthen taxpayer rights and improve tax administration.
The report highlights that the Taxpayer First Act, effective July 1, 2019, has made the most comprehensive revisions to IRS procedures since the IRS Restructuring and Reform Act of 1998, including some 23 provisions previously recommended by the National Taxpayer Advocate. The Taxpayer First Act also requires the IRS to develop four strategic plans: (i) a comprehensive taxpayer service strategy (due to Congress by July 1, 2020); (ii) a comprehensive plan to redesign the IRS’s organizational structure (due to Congress by September 30, 2020); (iii) a comprehensive employee training strategy that includes taxpayer rights training (due to Congress by July 1, 2020); and (iv) a multi-year plan to meet IRS information technology (IT) needs. Highlights of the report are summarized below.
The IRS is struggling to accomplish its mission
According to its mission statement, the IRS aims to “provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.” The report says the IRS is struggling to meet both of those goals. The IRS has been found to be among the lowest performing federal agencies in providing a positive customer experience.
The report says the IRS is also struggling to enforce the law with “fairness to all.” The IRS recently estimated it was unable to collect an annual average of about $381 billion in unpaid tax attributable to legal-source income for tax years 2011-2013. With approximately 122 million U.S. households in 2013, this suggests each U.S. household is effectively paying an average annual “surtax” of more than $3,000 to subsidize noncompliance by others.
The IRS does not receive enough funding to meet taxpayer needs
Since FY 2010, the IRS budget has been reduced by approximately 20% after adjusting for inflation, and the number of full-time equivalent employees has declined by about 22%. The report points out that answering 100 million telephone calls, conducting audits, and taking enforcement actions require adequate staffing, and the IRS cannot substantially improve its performance without additional resources.
The IRS should use the Taxpayer First Act as an opportunity to identify taxpayer needs and preferences and develop initiatives to meet them
Despite the IRS’s significant funding limitations, the report urges the IRS to utilize the Taxpayer First Act requirements – to develop plans to revamp its taxpayer service strategy, organizational structure, employee training strategy, and technology priorities – as a roadmap for a once-in-a-generation reassessment of its objectives and operations. Noting that the IRS often has developed strategies in a vacuum without soliciting taxpayer feedback and taking into account taxpayer needs and preferences, the report urges a full-scale “cultural shift.”
Other Major Issues Addressed
The National Taxpayer Advocate’s 2019 annual report has been consolidated and differs from prior reports in two ways. First, the Taxpayer First Act reduced the number of “most serious problems” the National Taxpayer Advocate must identify from at least 20 to 10. Second, the National Taxpayer Advocate initiated the Purple Book two years ago as a supplement to more detailed legislative recommendations proposed in the main volume of the report. This year, all legislative recommendations have been consolidated into the Purple Book, and the longer-form recommendations have been eliminated.
Overall, this year’s report identifies ten “most serious problems,” provides status updates on two problems identified in previous reports, makes dozens of recommendations for administrative change, makes 58 recommendations for legislative change, analyzes the ten tax issues most frequently litigated in the federal courts, and presents four research studies.
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