Special Focus

IRS Future State: The National Taxpayer Advocate's Vision for a Taxpayer-Centric 21st Century Tax Administration

In the 2015 Annual Report to Congress (ARC), the National Taxpayer Advocate identified the IRS’s plans for its “Future State” as the number one most serious problem facing taxpayers. Among other things, she cited concerns about the IRS’s lack of transparency with taxpayers and Congress about the plans; the move away from person-to-person assistance and compliance contacts in favor of impersonal electronic “self-service;” and the reliance on private third parties to provide for-fee assistance for core tax administration services previously provided by the IRS for free, thereby increasing taxpayer costs for the “privilege” of paying their taxes.

The IRS has partially addressed the National Taxpayer Advocate’s concerns. For example, almost immediately after the issuance of the Annual Report to Congress, the IRS created a webpage on irs.gov dedicated to the “Future State” and uploaded numerous documents. The IRS Commissioner also made clear in congressional testimony and elsewhere that the IRS did not intend to eliminate phone or in-person assistance. Moreover, during the Nationwide Tax Forums this summer, the IRS held a presentation on the “Future State,” attended by over 2,200 practitioners and preparers, and also sponsored a suggestion booth.

These steps, however commendable, have not fully addressed the core of the National Taxpayer Advocate’s concerns, namely, that the IRS has failed to adequately study and incorporate into its “Future State” plans the needs and preferences of United States taxpayers — an incredibly diverse and complex population. In a budget environment in which the IRS has seen its annual appropriation decreased by about 19 percent on an inflation-adjusted basis, it is tempting and even understandable for the IRS to try to move taxpayers to less costly methods of communication, or channels, including digital self-service options. But as tax administrators throughout the world have learned, and as the National Taxpayer Advocate discusses in this annual report, many of these shifts are only superficially less costly. This is so because even the best-designed digital environment cannot accommodate the sheer complexity of the tax code and the limitless variety of taxpayer’s lives and circumstances. This constrained communication, coupled with automated impersonal and often harmful IRS actions, can alienate the taxpayer population and over time may undermine compliance. Even if there is no negative compliance impact (which the National Taxpayer Advocate does not believe), it is not a recipe for good government if a large portion of U.S. taxpayers are alienated from and distrustful of the one government agency they interact with at least annually throughout their adult lives. For these reasons, and given her statutory role as “an independent voice for the taxpayer within the IRS”, in this Special Focus, the National Taxpayer Advocate has attempted to identify and make recommendations to address the challenges the IRS faces to become a 21st century, taxpayer-centric tax administrator.

Read the full special focus

Related Content of the Report:

Most Serious Problem: VOLUNTARY COMPLIANCE: The IRS Can Increase Voluntary Compliance Using Behavioral Science Insights, But Is Overly Focused on So-Called “Enforcement” Revenue and Productivity

Most Serious Problem: WORLDWIDE TAXPAYER SERVICE: The IRS Has Not Adopted “Best-in-Class” Taxpayer Service Despite Facing Many of the Same Challenges As Other Tax Administrations

Most Serious Problem: IRS STRUCTURE: The IRS’s Functional Structure Is Not Well-Suited for Identifying and Addressing What Different Types of Taxpayers Need to Comply

Most Serious Problem: GEOGRAPHIC FOCUS: The IRS Lacks an Adequate Local Presence in Communities, Thereby Limiting Its Ability to Meet the Needs of Specific Taxpayer Populations and Improve Voluntary Compliance

Most Serious Problem: TAXPAYER BILL OF RIGHTS (TBOR): The IRS Must Do More to Incorporate the TBOR Into Its Operations

Most Serious Problem: APPEALS: The Office of Appeals’ Approach to Case Resolution Is Neither Collaborative Nor Taxpayer Friendly and Its “Future Vision” Should Incorporate Those Values

Most Serious Problem: ONLINE ACCOUNTS: Research Into Taxpayer and Practitioner Needs and Preferences Is Critical As the IRS Develops an Online Taxpayer Account System

Most Serious Problem: ENTERPRISE CASE MANAGEMENT (ECM): The IRS’s ECM Project Lacks Strategic Planning and Has Overlooked the Largely Completed Taxpayer Advocate Service Integrated System (TASIS) As a Quick Deliverable and Building Block for the Larger ECM Project

Most Serious Problem: FRAUD DETECTION: The IRS’s Failure to Establish Goals to Reduce High False Positive Rates for Its Fraud Detection Programs Increases Taxpayer Burden and Compromises Taxpayer Rights

Legislative Recommendation: TAX REFORM: Simplify the Internal Revenue Code Now                                       

Legislative Recommendation: OUTSIDE RESEARCH: Expand Opportunities for the IRS to Collaborate With Outside Researchers

Volume 2: Taxpayers' Varying Abilities and Attitudes toward IRS Taxpayer Service: The Effect of IRS Service Delivery Choices on Different Demographic Groups

Volume 2: Study of Subsequent Filing Behavior of Taxpayers Who Claimed Earned Income Tax Credits (EITC) Apparently in Error and Were Sent an Educational Letter from the National Taxpayer Advocate                            

Volume 3: Taxpayer Service in Other Countries

Volume 3: Incorporating Taxpayer Rights into Tax Administration

Volume 3: Behavioral Science Lessons for Taxpayer Compliance

Volume 3: Geographic Considerations for Tax Administration

Volume 3: Customer Considerations for Tax Administration

Volume 3: Reducing "False Positive" Determinations in Fraud Detection

Public Forums: Comments about IRS Future State

What if the tax agency adopted a different approach toward taxpayers? What if it assumed that taxpayers, by and large, wanted to obey the law and that the primary mission of the tax agency was to facilitate that compliance by providing taxpayers with the assistance, education and clarity they need to meet their tax obligations? What if we started out accepting that taxpayers will make mistakes and, until proven otherwise, assume those mistakes are not attributable to a tax evasion motive? Because, after all, tax noncompliance like all of human behavior is driven by a broad spectrum of factors, from just plain carelessness to ignorance to confusion to polemics to avarice. By focusing on the source or reasons for the taxpayer’s noncompliance and not just on the end result of their behavior, we have a better chance of changing their 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.

Read the full 2016 Annual Report to Congress