The National Taxpayer Advocate has released its ?Purple Book,? a compilation of legislative recommendations to strengthen taxpayer rights and improve tax administration.
The NTA advocates that a ?taxpayer bill of rights? be adopted as a freestanding provision in the Internal Revenue code. Under present law, the Internal Revenue Code requires the commissioner to ?ensure that employees of the Internal Revenue Service are familiar with and act in accord with taxpayer rights as afforded by other provisions of this title [the Internal Revenue Code], including ?
(A) the right to be informed,
(B) the right to quality service,
(C) the right to pay no more than the correct amount of tax,
(D) the right to challenge the position of the Internal Revenue Service and be heard,
(E) the right to appeal a decision of the Internal Revenue Service in an independent forum,
(F) the right to finality,
(G) the right to privacy,
(H) the right to confidentiality,
(I) the right to retain representation, and
(J) the right to a fair and just tax system.?
This provision was enacted as part of the Protecting Americans from Tax Hikes (PATH) Act in 2015. Previously, the National Taxpayer Advocate had recommended that Congress enact a Taxpayer Bill of Rights
(TBOR) containing these 10 provisions, and the IRS itself adopted these rights as the ?Taxpayer Bill of Rights? in June 2014.
Reasons for change
Notwithstanding widespread use of the phrase ?Taxpayer Bill of Rights,? it is not clear whether the 2015 legislation provided these rights to taxpayers. Some observers believe the statutory requirement that the Commissioner must ensure IRS employees ?act in accord with? the TBOR necessarily implies that a failure of an IRS employee to act in accord with taxpayer rights constitutes a violation of a taxpayer?s legal protections.
Other observers believe the fact that the statutory language focuses on the Commissioner?s responsibilities means taxpayers do not themselves possess these rights.
?Congress should clarify that U.S. taxpayers possess these 10 rights, because taxpayer rights should serve as the foundation for the U.S. tax system. While the IRS possesses significant enforcement authority, our system relies on taxpayers to file tax returns on which they self-declare their income (much of which is not reported to the IRS and is therefore difficult for the IRS to discover in the absence of self-reporting) and to pay the required tax,? the NTA said in a statement. ?Clarifying that taxpayers possess these rights is not only the right thing to do, but TAS research suggests that when taxpayers have confidence the tax system is fair, they are more likely to comply voluntarily, which should translate into enhanced revenue collection. For these reasons, we believe the TBOR should be the first provision in the IRC.?
Rights training to employees
The NTA recommends giving IRS employees training in respecting taxpayer rights. Current code requires the commissioner of Internal Revenue to ?ensure that employees of the Internal Revenue Service are familiar with and act in accord with taxpayer rights? that are provided by the IRC and that include the ten fundamental taxpayer rights adopted by the IRS as the Taxpayer Bill of Rights.
Reasons for change
?Notwithstanding the requirement imposed by the code, IRS training materials incorporate taxpayer rights information inconsistently and insufficiently,? the NTA said. ?The Taxpayer Advocate Service reviewed IRS training courses and found that some courses covered topics related to taxpayer rights but made no reference to the fundamental rights adopted by the IRS, other courses sent mixed messages to employees about when taxpayer rights apply, and still other courses failed to include any taxpayer rights information at all. The IRS currently requires all employees to take annual trainings, known as Mandatory Briefings, on topics such as ethics, unauthorized access of taxpayer accounts, and anti-discrimination laws. Although the Taxpayer Advocate Service prepared materials to be used in a Mandatory Briefing on the Taxpayer Bill of Rights, the IRS has declined to provide a Mandatory Briefing on the topic.
?Requiring all IRS employees to take annual training on taxpayer rights will assist the IRS in complying with [the code], which requires that the Commissioner of Internal Revenue ensure that IRS employees are familiar with and act in accord with taxpayer rights.?
Codify the IRS mission statement
The IRS Restructuring and Reform Act of 1998 directed the IRS to revise its mission statement ?to place a greater emphasis on serving the public and meeting taxpayers? needs.?
In response, the IRS adopted the following mission statement: ?Provide America?s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.?
In 2009, with no public discussion, the IRS quietly made a profound change to its mission statement, which now reads: ?Provide America?s taxpayers top quality service by helping them understand and meet their tax responsibilities and enforce the tax law with integrity and fairness to all.?
Reasons for change
There are three shortcomings inherent in the current IRS mission statement, according to the NTA. First, the shift in tone and emphasis, from ?apply? to ?enforce,? has significant consequences.
If a tax agency views its primary mission as ?enforcing? the tax laws, it is likely to design its procedures and focus its resources on taking action against the relatively small number of taxpayers it views as noncompliant. By so doing, it may neglect to provide sufficient service and support to maintain and strengthen voluntary compliance among the overwhelming majority of taxpayers who are fully or substantially compliant, and thereby risk lower levels of compliance on their part. Even focusing solely on the small noncompliant taxpayer population, a mix of enforcement and education is likely to be most effective in improving compliance. The phrase ?applying the tax law? is broad enough to encompass enforcement while also encompassing non-coercive compliance strategies.
?Second, the current mission statement does not acknowledge that the IRS today has two lines of business ? collector of revenue and administrator of benefits,? said the NTA.
In recent decades, the tax code has been increasingly used to promote various social and economic policies through the mechanism of tax credits and other tax expenditures.
Taking an enforcement-oriented approach toward these inherently complex provisions, instead of one based on taxpayer service and education supplemented by problem identification and understanding of the root causes of noncompliance, can deter eligible taxpayers from claiming benefits to which they are legally entitled and prevent ineligible taxpayers from understanding what they did wrong. An agency?s strategies and goals are established to further the agency?s mission, so a more nuanced and accurate mission statement is likely to lead to better outcomes.
Third, the IRS adopted the Taxpayer Bill of Rights in 2014, and Congress enacted its provisions into law in 2015.
Accordingly, the mission statement should similarly be updated to make clear that taxpayer rights serve as the foundation for effective tax administration.
The NTA recommends codifying the IRS mission statement to make clear that (1) the mission of the IRS is to provide U.S. taxpayers with top quality service to help them understand and meet their tax responsibilities and to apply the tax law with integrity and fairness to all; (2) the IRS is both the tax collector and a benefits administrator; and (3) the Taxpayer Bill of Rights (or taxpayer rights more generally) serve as the guiding principles for effective tax administration.