National Taxpayer Advocate Issues Annual Report to Congress
The Report
In the Report, Olson stated that she attempted to make the case for four major points including:
- The budget environment of the last five years has brought about a devastating erosion of taxpayer service, harming taxpayers individually and collectively;
- 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;
- 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
- This downward slide can be addressed if Congress makes an investment in the IRS and holds it accountable for how it applies that investment.
Olson went on to say “Moreover, I believe we need fundamental tax reform, sooner rather than later, so the entire system does not implode.”
With the IRS having had to implement large portions of the ACA and the Foreign Account Tax Compliance Act during 2015, the Report states the IRS “ran a generally successful filing season.” However, Olson stated “For the segment of taxpayers who required help from the IRS, the filing season was by far the worst in memory.”
The Report notes, for example, that the IRS answered only 37% of taxpayer calls routed to customer service representatives overall in 2015 compared to 71% in 2014. The average hold time for taxpayers who got through averaged 23 minutes in 2015 compared to 14 minutes in 2014. Moreover, the number of “courtesy disconnects” received by taxpayers calling the IRS skyrocketed from about 544,000 in 2014 to about 8.8 million during the 2015 filing season. The term “courtesy disconnect” is used when the IRS essentially hangs up on a taxpayer because its switchboard is overloaded and cannot handle additional calls.
With the decline in taxpayer service, Olson noted this may lead to increased compliance burdens on taxpayers and eventually to erosion of taxpayer trust. Olson wrote “for a tax system that relies on voluntary self-assessment by its taxpayers, none of this bodes well. In fact, there is a real risk that the inability of taxpayers to obtain assistance from the government, and their consequent frustration, will lead to less voluntary compliance and more enforced compliance.”
As outlined earlier, long-term strategic planning of the IRS, tax-related identity theft and administration of the ACA are among the top priorities identified in the Report.
Long-Term IRS Strategic Planning
Olson attributes the decline in taxpayer service levels to the 17% reduction in IRS funding (since FY2010) and reiterates the NTA’s longstanding view that the IRS requires additional funding to meet taxpayer service needs. The IRS has developed a new concept of operations which aims to establish a vision of where the IRS should be in five years. Olson feels that the IRS continues to view itself primarily as an enforcement agency and not one focusing more on taxpayer service. As Olson stated, this decline in taxpayer service by the IRS could result in a decrease in voluntary compliance.
Assisting Victims of Identity Theft-Related Refund Fraud
Identity theft has become an increasingly serious issue over recent years for taxpayers and the IRS. The IRS has become very aggressive in combating identity theft and helping legitimate taxpayers avoid being the victims of lost identities. The IRS received approximately 730,000 identity theft cases with taxpayer impact in both calendar years 2013 and 2014. Over the last three fiscal years, TAS has received an average of about 52,000 identity theft cases per year. The Report indicates that a primary focus for TAS during the upcoming year will be to recommend improvements and alternative approaches to reduce the time it takes to achieve complete and accurate resolution of identity theft cases from the victim’s perspective.
Affordable Care Act
The IRS faced significant challenges during the 2015 tax return filing season with the implementation of two central provisions of the ACA; the premium tax credit and the individual shared responsibility. By the end of April 2015, taxpayers had filed approximately 2.6 million individual income tax returns with Form 8962, Premium Tax Credit. Form 8962 is required to be filed by individual taxpayers if they are taking a premium tax credit, if they, or another member of their tax family, was paid an advanced premium tax credit or an advanced premium tax credit was paid for an individual (including the taxpayer) for whom the taxpayer told a state health insurance marketplace they would claim a personal exemption and neither the taxpayer nor anyone else claimed a personal exemption for that individual
In addition, taxpayers filed about 6.6 million individual income tax returns reporting an individual shared responsibility payment. Moreover, approximately 800,000 taxpayers that had purchased health insurance from a health insurance marketplace were issued an erroneous Form 1095-A, Health Insurance Marketplace Statement. Although there were significant glitches that had occurred during the filing season, the Report states the IRS did a commendable job implementing those provisions.
Conclusion
The 806-page Report identifies 23 “Most Serious Problems”, 19 “Legislative Recommendations” and the 10 “Most Litigated Issues”. The recommendations made by the NTA in the Report and the IRS’ responses to the administrative recommendations are contained in Volume 2 of the Report. The IRS says it has implemented, is implementing, or will implement 45 of the 93 administrative recommendations made in the Report.
Nina E. Olson of the NTA reported that the IRS ran a generally successful filing season under difficult circumstances. Most of the recommendations included in the Report are contingent on resources being allocated to the IRS.
Related Resource
2014 National Taxpayer Advocate Annual Report to Congress
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