Don't Mess With Taxes

All you long-time tax geeks, remember the bad old IRS days? Back when the tax collector went after us with unchecked abandon?

As the Journal of Accountancy's Tax Adviser recalls, in the '90s some taxpayers lost their homes and livelihoods to the IRS because of its aggressive collection efforts. Such instances turned public sentiment against the agency, and 10 years ago Congress demanded, via the IRS Restructuring and Reform Act of 1998, a "kinder, gentler" tax agency.

Now, with the Treasury deficit and tax gap a constant concern, some are longing for the old days, at least a bit. The IRS has responded, ramping up its collection efforts (as blogged about here).

But like everyone, folks at the IRS want their cake and to eat it, too. So the agency is trying to negotiate a middle ground.

And to help the agency accomplish that, the head of the IRS wants to get his folks involved earlier in the tax law process.

A look at a decade of the new IRS: Such insights came last week at the Tax Analysts conference on the 10-Year anniversary of the IRS Restructuring and Reform Act of 1998, when IRS Commissioner Douglas Shulman talked about where the agency was, is and hopes to go.

The new commissioner's perspective is particularly interesting since 12 years ago he worked on the Restructuring Commission that laid the groundwork for the 1998 law.

The Act, Shulman acknowledged, "was a landmark in the history of the IRS," setting a fundamental new direction for the agency. A major part of that shift was the enumeration of 71 new taxpayer rights. 

"One of the clear mandates of the Act was for IRS to dramatically improve service to taxpayers. No one can argue that this was not the right thing to do," said Shulman, noting that in the 1990s, service at the IRS fell to unacceptable levels. That's changed, according to the Commissioner, thanks in large part to new technologies.

Today, the IRS' toll-free line has given way to its Web page, which taxpayers are using with increasing frequency. Last year, Shulman said, there were 215 million visits to IRS.gov; that was more than double what it was only five years earlier. And new interactive features should help drive usage higher.

Collection considerations: But while the IRS has improved its service (how much so still is a debatable issue, depending on how much help you need and when you need it), the Restructuring Act also led to marked declines in enforcement, especially in the years just after it took effect.

"I think there are many reasons for this," Shulman told the conference. "But more importantly, I believe that the IRS has now appropriately refocused on its enforcement efforts. I think that the IRS has worked hard to ensure that there is balance between service and enforcement. Maintaining that balance between service and enforcement is, in my mind, critical. It isn’t an either/or proposition. We need to do both."

The commissioner also told conference attendees, "we cannot audit our way to full compliance. We need to drive greater innovation in our enforcement endeavors. We need to supplement our efforts with new tools, such as more information reporting, soft notices and self-correction options for taxpayers."

Tackling the tax law process: One reason there is and always will be a need for enforcement and education efforts is that folks not only try to slip things past the IRS, but they also simply make mistakes. And a lot of those errors are the result of incomprehensible tax laws.

In that regard, Shulman noted that one provision of the 1998 law has been given short shrift.

"The Act also recognized that tax law complexity makes it difficult for taxpayers to comply and difficult for the IRS to administer. The legislation proposed that the IRS have a seat at the table as tax legislation is drafted to offer their view on the administrability of the legislation," said the Commissioner. 

"While I understand that, upon request from the Joint Committee, we currently provide a complexity analysis of proposed legislation, I think there is more we could and should do to ensure that the policy goals of legislation are administrable," Shulman said.

IRS on Capitol Hill: Great point, Mr. Commissioner. You keep the pressure on Congress.

While the IRS is a favorite scapegoat for taxpayers and politicians alike, and the agency certainly isn't perfect, the biggest problem we face is the laws themselves.

And those, often overly complicated and requiring convoluted steps to administer and comply with, come from Capitol Hill.

Essentially, the IRS too often finds itself in the unenviable position that you and I as employees face. The boss tells a client "no problem." Of course it's no problem for those in charge; it's a problem for the folks on the line who actually have to make sure the boss' promise is met.

By getting IRS personnel more involved in the tax law creation process, some of the unintended consequences that we often encounter when trying to comply with those laws could be eliminated.

You can read Shulman's full remarks to the conference in HTML format here, or the PDF version here.