April 20th, 2012 by Stephanie Erickson
Several key members of the tax community testified at a hearing before the House Committee on Oversight and Government Reform about the burdening tax gap this week. Notable speakers included Steven Miller, Deputy Commission of the IRS; Nina Olson, National Taxpayer Advocate; Honorable J. Russell George, the Treasury Inspector General for Tax Administration; and James White, Director of Strategic Issues for U.S. Government Accountability Office. All of these individuals put forth suggested strategies for the IRS (and the House) to consider in efforts to increase compliance.
Steven Miller spoke first - about the tax gap, and specifically its largest contributor – individual taxpayers who underreport income, accounting for $122 billion of the $348 billion net tax gap. Although he stated that investments in tax enforcements will indeed help to improve compliance, it’s unrealistic to believe the resulting revenues will close the tax gap. For fiscal year 2011, those revenues amounted to $55.2 billion, a substantial amount, but nowhere near the total tax gap figure. Miller covered four principles the IRS follows to improve both the tax gap and compliance; first, it involves addressing both unintentional taxpayer errors and intentional taxpayer evasion. Second, sources of noncompliance should be targeted with specificity (such as individual taxpayers). Third, enforcement activities should be combined with a commitment to taxpayer service – which will pose a challenge considering IRS budget cuts this year. And lastly, an appropriate balance should be maintained between enforcement and taxpayer burden.
Nina Olson obviously focused more on the perspective of the individual taxpayer and what would help them to become more compliant. She also addressed four major points, which included suggestions for minimizing the tax gap. Her first point echoed Miller’s last: enhanced information reporting should not impose unnecessary burdens onto taxpayers. She would also like to see the IRS make it easier for taxpayers to estimate their tax payments, in hope that they’ll be able to plan and then comply. Additionally, enforcement initiatives should include a service component to better assist taxpayers. And lastly, the IRS should be funded at a level for which they can effectively communicate with taxpayers to help educate them. She mentioned that currently, the IRS is increasing its use of automated enforcement which makes this point difficult.
To address TIGTA’s perspective, the Honorable J. Russell George pointed out several weaknesses the IRS currently faces, which if given attention, could improve the tax gap. He claimed that incomplete compliance research doesn’t allow the IRS to identify all sources of noncompliance. In turn, this poses a challenge to use IRS resources efficiently in targeting these sources. This led to his next point, stating that the IRS does not always address the areas of highest risk for noncompliance. George also stated that third party data for all sectors of taxpayers and all returns is not always reliable, which results in incomplete document matching programs.
The last speaker before the House was James White, representing the Government Accountability Office and their study conducted in January of this year. Resulting from the study’s findings, he presented several strategies for the IRS to address the multiple causes of the tax gap. As J. Russell George pointed out, there needs to be enhanced information reporting by third parties which could increase voluntary compliance. Reiterating Nina Olson’s points, White agreed the IRS needs to ensure high quality service to taxpayers to help them understand their obligations. Additionally, he added that the IRS should match information returns to tax returns during the filing season (before refund checks are issued). He ended with the idea of simplifying the tax code, which much of the tax community would probably agree upon, but seems difficult in the midst of efforts to increase compliance.
A video of the prepared remarks can be found here.
Convey provides tax information reporting services and software to businesses to make IRS compliance clear and uncomplicated. U.S. federal tax advice contained in this web site is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained in this document. (iii) The taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.