National Taxpayer Advocate Nina E. Olson released her 2016 Annual Report to Congress, recommending that the IRS revamp its “Future State” plan to adopt a taxpayer-centric focus and urging Congress to simplify the tax code. The report presents a series of proposals to improve tax administration, placing particular emphasis on changing the culture of the IRS. Olson explains that “to create an environment that encourages taxpayer trust and confidence, the IRS must change its culture from one that is enforcement-oriented to one that is service-oriented.”

—“Tax Expenditures” Harm Unsophisticated Taxpayers: The 200 tax deductions, credits, exclusions and similar tax breaks found in the several million words of U.S. tax code are known collectively as “tax expenditures.” Given the number and complexity of tax expenditures, sophisticated taxpayers are likely to claim most benefits for which they are eligible, while less sophisticated taxpayers often will miss them.

—Service Emphasis and Trust Can Increase Tax Compliance: The report notes that “if taxpayers don’t get the help they need to comply and they make a mistake, they are treated as if they are tax evaders. This breeds resentment and increases the risk that the taxpayer who was willing to comply is no longer willing to do so.” By focusing on the source or reasons for the taxpayer’s noncompliance and not just on the end result of the taxpayer’s behavior, we have a better chance of changing the taxpayer’s 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.”

—Zero-Based Budget Approach: Despite the popularity of many tax expenditures, the report urges comprehensive tax simplification. Olson makes clear she is not recommending the elimination of all tax expenditures, but recommends that Congress aim to simplify the tax code and use a “zero-based budgeting” approach.

—Restructuring Family Status Provisions to Reduce Taxpayer Burden and Increase Tax Compliance: The report contains a separate section that proposes to simplify one of the most complex set of provisions in the tax code – the family status-related provisions.

Report Sections:

The full Special Focus discussion can be accessed here.

Volume 2 of the report contains five new research studies, including a study examining the effect of IRS service delivery choices on different demographic groups.

For the first time, report contains a third volume that presents literature reviews on seven tax administration topics that reflect information gathered from related fields.