Transcript Advisory/Advocacy Organizations

OVERSIGHT MECHANISMS AND
ADMINISTRATIVE RESPONSES TO
TAX COMPLEXITY IN THE U.S.
John Hasseldine
Professor of Accounting and Taxation
Paul College of Business & Economics
University of New Hampshire
OVERVIEW
• Why worry about Complexity?
• IRS Organization, Funding (and inescapable politics!)
(1) The ‘Tea Party Scandal’
(2) The Medical Device Excise Tax
• Internal Administrative Oversight
• External Administrative Oversight
• Concluding remarks
“CRACKING THE U.S. TAX CODE”
WHY WORRY ABOUT COMPLEXITY?
Congress has made more than 5,000
changes to the Tax Code. The Tax
Code is now about four million words,
nearly as long as seven versions of
War and Peace and just under four
times the number of words in all of the
Harry Potter books put together.
National Taxpayer Advocate (2010):
• Current Code imposes huge compliance burden on
individual taxpayers and businesses
• The U.S. Code is rife with complexity and special tax
breaks
• Complexity obscures understanding and creates a sense
of distance between taxpayers and the government
• The Code is so complex that the IRS has difficulty in
administering it
This has many consequences …….
• How to measure compliance costs?
• What effect does complexity have on taxpayer
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compliance?
Do taxpayers know how much tax they pay and why?
What role do tax preparers play in enforcing / exploiting
the Code?
Should the U.S. tax system be reformed? If so, piecemeal
or large scale reform?
How does the Code affect other areas? For example,
financial reporting? or banking practices given FATCA?
How should IRS performance be evaluated?
What should IRS do, given budget constraints?
Tax laws and disputes
Legislative process for tax bills
Judicial sources of tax law
House Committee on Ways & Means
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Committee Leader
• Chairman: Dave Camp
Subcommittee Categories
• Trade
• Social Security
• IRS Oversight
• Health
• Human Resources
• Specific Revenue
Measures
● Jurisdiction
○ Customs Revenue
○ Collection Districts
○ Reciprocal trade
agreements
○ U.S. bonds
○ Deposits of public money
○ Transportation of dutiable
goods
○ Tax Exempt foundations
○ Charitable Trusts
○ National Social Security
Senate Committee on Finance
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Committee leaders
o Chairman: Ron Wyden
o Ranking Member: Orrin G. Hatch
Subcommittee categories
o Health care
o International trade
o Customs & global competitiveness
o Energy, natural resources, and infrastructure
o Social Security, pensions, and family policy
o Taxation and IRS oversight
o Fiscal responsibility and economic growth
IRS ORGANIZATION AND FUNDING
…AND INESCAPABLE POLITICS
“Funding is the real Internal Revenue
Service scandal”
New York Times, July 2014
“The IRS doesn’t have many friends on a
good day”
Tax Foundation, May 10, 2013
IRS National Organization
IRS Funding History, FY2002-2015
Funding (in millions)
$15,000
$13,590
$13,342
$13,034 $13,074
$13,284
$12,761 $12,861
$12,476
$12,000
$11,817
$11,290
$11,198
Board Recommended Budget
President’s Request
Appropriated by Congress
$9,000
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
Budget issues …….
• FY 2015 IRS budget is $10.95 billion – a cut of $341mn.
below the fiscal year 2014 enacted level and $1.5 billion
below the President’s budget request.
• Takes funding below 2010 level
• Effects include:
- IRS has had to reduce its workforce
- scale back staff training (budget down 87%)
- delay IT upgrades
- inability to tackle pressing issues (eg identity theft)
• Consequential compliance effects with every $1 spent on
enforcement giving a yield of $6 additional revenue
INTERNAL ADMINISTRATIVE OVERSIGHT
• Taxpayer Communications initiatives
• IRS Research Conferences
• Measurement of Compliance Costs
• Internal Committees
(1) IRS Advisory Council
(2) ETAAC
(3) IRPAC
Taxpayer Communications Taskgroup
• 1000 different types of notices
• 120 different ‘notice authors’
• 200 million pieces of correspondence from 40 different
systems
• Result:
- variability in content
- problems in style, format, content led to:
taxpayer confusion and unnecessary burden
• Example: ‘Underreporter Notice’ aka CP2000 requires
taxpayers to work through 42 steps on the 10 page Notice
CP2000 Notice – new cure for insomnia?
IRS Research Conferences
• The IRS Research Conference, highlights research on tax
compliance and administration, and facilitates dialogue
among IRS researchers, IRS and state tax administrators,
tax experts from other countries, academic researchers,
Federal agencies, and private sector experts.
• Papers published in IRS Research Bulletin
• Papers are on the IRS Website
• Next conference: June 18, 2015 Urban-Brookings TPC
Measurement of Compliance Costs
• Stream of work in IRS Office of Research has look at
burden and compliance costs.
• Includes work on influence of complexity on voluntary
compliance (Contos et al. 2012)
+ other research also.
Internal Revenue Service Advisory
Council (IRSAC)
• 24 members, diverse backgrounds
• Purpose: Provide a public forum for senior IRS executives
and representatives of the public to discuss tax
administration issues
• 2013 Public Report
• Sufficient funding from Congress in order to operate efficiently
• Expand voluntary correction programs to enforce noncompliance of
previous years
Electronic Tax Administration Advisory
Committee (ETAAC)
• 14 members, various individuals, three year term
• Created in 1998 in response to the IRS Restructuring and
Reform Act (RRA ‘98)
• Purpose: Provide a public forum for discussion about any
issues related to electronic filing
• E-filing is preferred method and rate is an IRS performance metric
• 2013 Recommendations
• Security, privacy, accuracy
and reliability
• Maintain electronic filing
success
• Maintain state of the art tax
administration tools
• Look at private sector for
collaboration
• Evaluate the current e-file
systems
Information Reporting Program Advisory
Committee (IRPAC)
• Established in 1991
• Meet in Washington, D.C. five times a year
• Members have a 3 year term
• Purpose: Provide a public forum for the IRS and the
private sector to discuss information reporting issues
• Respond to draft
regulations and notices
through comment letters
• Issue a public report and
propose improvements
to the Commissioner
• Need to bring taxpayers
into compliance with
existing requirements
and new complex tax
laws
EXTERNAL ADMINISTRATIVE OVERSIGHT
• Taxpayer Advocate Service
• IRS Oversight Board
• Government Accountability Office
• Treasury Inspector General for Tax Administration
• “Unofficial oversight” – professional associations,
lobbyists, academics
Taxpayer Advocate Service
• Began life as Office of the Taxpayer Ombudsman.
• Following RRA 98 local TA’s in each state and a NTA.
• Current NTA is Nina Olson (in post since 2001).
• Two reports are made to Congress annually
(1) Forward looking Objectives report (goals of TAS)
(2) Report of 20 of the Most Serious Problems facing IRS. A
second volume now includes TAS research and related
studies
• Reports are independent of Treasury and top IRS
management
• Extracts from 2010 and 2012 Reports on Complexity
TAS Taxpayer Advocacy Panel
• 75-100 citizen volunteers, offer free services, composed of
regular taxpayers
• At least one member from each state, District of Columbia and
Puerto Rico
• Purpose: Listen to taxpayers, identify their issues, and make
suggestions for improving IRS service and customer
satisfaction
• Conduct outreach to get ideas from citizens == they are
charged with making recommendations to improve taxpayer
service to individuals and small business taxpayers. NTA views
this as a very important mechanism for fairness and
responsiveness in the tax system
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Established in 1998
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Oversees the IRS
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Ensures correct application of laws
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Improve integrity, efficiency, and effectiveness of tax
administration
IRS Oversight Board Annual Report
Typical Annual Report includes:
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Roles and Responsibilities
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Message from the Board
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Tax Administration Accomplishments
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Innovative Approaches to Tax Administration
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Challenges and Risks
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IRS Oversight Board Activities
Also has an Appendix of Performance Measures both
actual and planned.
Challenges and Risks
● Budget uncertainty
○ IRS’ FY2012 budget was $330 million less than the FY2011 budget
○ Saved over $166.3 million in past two years
○ Closed 43 offices, saving $40 million
○ Customer service
● Refund Fraud
○ Fraudulent claims of refundable tax credits
○ Unclear how large the problem is
○ New processes stopped $19.3 billion in fraudulent returns in 2012
○ Identified 1,245,000 identity theft incidents
Tax Administration Accomplishments
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Implemented Customer Account Data Engine 2
o Issued 26% more refunds within seven days
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Processed over 115 million returns through e-File
Deployed a new system for over 800,000 preparers to
renewing their PTIN.
Received clean financial statement audit opinion from
the Government Accountability Office.
U.S. Government Accountability Office
Support congressional oversight by:
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Auditing
Investigating
Reporting
Performing
Issuing
Small staff numbers. Most reports are
‘commissioned’ by Congress
Treasury Inspector General for Tax
Administration
Has a statutory mandate (after RRA 98)
Functions independently.
Provides:
- Audit
- Investigative
- Inspections and evaluations
Promotes economy, efficiency and integrity in tax
administration
TITGA REPORT
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“Our report on the IRS’s use of inappropriate criteria to
review applications for tax-exempt status stands out for
having drawn the most attention to internal IRS
procedures of any reports published during my tenure
as Inspector-General” (p. 3).
J. Russell George IG
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Resulted in “Tea Party Scandal”
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Fall-out continues today. For example Lois Lerner’s
emails. She “plead the fifth”
CONCLUDING REMARKS
• Paper is a ‘macro’ view of IRS oversight and how tax
complexity is addressed
• IRS finds itself “between a rock and a hard place”
• There are some internal and external initiatives to try and
address tax complexity
• There is no separate “Office of Tax Simplification” as in
UK