(Washington, DC) The IRS Oversight Board held its annual public meeting on March 7th at the Department of the Treasury to discuss with tax professionals ways they can help to reduce the tax gap—the difference between what taxpayers legally owe and what is collected, now estimated, based on 2001 tax returns, at $290 billion annually on a net basis. Representatives from 14 organizations in the tax community participated, as did J. Russell George, Treasury Inspector General for Tax Administration, and James R. White, Director of Tax Issues at the Government Accountability Office.
“The observations of participating stakeholders demonstrate the importance of bringing together the tax community to explore different approaches to closing the tax gap. The tax gap is not simply a problem for the IRS. Rather, closing the tax gap is a responsibility for all of us—taxpayers, tax preparers, business owners, and policy-makers. Everyone must make a contribution to help reduce the tax gap,” said IRS Oversight Board Chairman Paul B. Jones.
Themes that emerged from the discussions included:
Complexity is the enemy of voluntary compliance: All participants agreed that the tax code’s complexity contributes to the tax gap by imposing an enormous burden on taxpayers. The American Bar Association referred to the 54,000 page tax code as “the elephant in the room” and encouraged Congress to consider the burdens associated with changes to the code
Taxpayer education is essential to improve voluntary compliance: The more people understand and meet their tax obligations, the easier it will be to reduce the tax gap. The tax system in the United States is complex; education can be a powerful tool. The National Society of Tax Professionals is developing material about tax compliance for middle and high school students. It is also sharing informational material on compliance with English as a Second Language classes nationwide.
Small business competitiveness helps grow the economy: Minimizing taxpayer burden must be top of mind as gap-closing proposals are developed. It was also agreed thatunderstanding and meeting tax obligations are an essential element in small business growth. Tax compliance and good record-keeping ultimately help companies prove their creditworthiness so they the can expand their businesses, compete in the marketplace, and contribute more to the economy.
Goal-setting drives results: Participants discussed the importance of goal-setting in achieving desired results.
Tax preparers have an important role in helping taxpayers be compliant: From setting professional standards to educating and encouraging ethical behavior from their clients, tax professionals can actively promote voluntary compliance. Partnerships between professional organizations and with the IRS can also be beneficial. For example, the National Council for Taxpayer Advocacy presented a proposed set of principles and best practices that could further define how the IRS and tax professionals should interact with one another.
More timely research will lead to more effective action: As more timely and accurate information on the tax gap is developed, more effective and targeted responses by the IRS, the Administration, Congress, and stakeholders could be planned and implemented. The Tax Executives Institute encouraged more timely research and more timely pre-filing season information-sharing by the IRS on where the problems lie to enable practitioners to be more aware of specific tax reporting problems as returns are prepared.
IRS human capital is critical: As one participant noted, knowing that effective enforcement of the tax code exists is a necessary component to compliance. The National Treasury Employees’ Union pointed out that the reduction in the number of revenue officers and revenue agents in the past decade undermines efforts to close the tax gap, and called for adequate staffing at the IRS. The American Institute of Certified Public Accountants also said that a fully-funded IRS is a critical component to any tax gap strategy.
(To read all written statements submitted, go to http://www.treasury.gov/irsob/meetings/03072007.aspx).
Oversight Board Approves Long-Term Goals for IRS
At its March 6th meeting, the Board acted on an IRS request to approve five proposed long-term goals. The Board has received stakeholder comments on the proposed goals that helped guide the Board’s decision-making. The five goals approved by the Board, along with relevant discussion, are summarized below:
- Attain an electronic filing rate of 80 percent for major tax returns filed by individuals, businesses and tax-exempt entities by the year 2012. The Board recommended in its annual e-file report to Congress that the current goal of 80 percent e-filing by 2007 be modified to match this goal.
- Attain an American Customer Satisfaction Index (ACSI) score of 69 for all individual tax filers by 2009. In approving this goal, the Board asked the IRS to identify two additional measures to supplement it: one to assess customer satisfaction with IRS taxpayer service programs and another to assess taxpayer satisfaction with IRS enforcement operations.
- Attain an overall IRS employee engagement score of 4.0, on a 5-point scale, by 2009. Since the IRS will be using a new employee satisfaction survey starting in 2007, the Board asked the IRS to recalibrate an appropriate target score under the new survey instrument what would equate to 4.0 score under the prior system.
- Attain a voluntary compliance rate of 86 percent by tax year 2009. The Board also requested the IRS examine ways to improve its compliance estimates, including the timeliness of delivering this measure, recognizing that compliance data will always be delayed by several years.
- Attain a “non-revenue activity index score” of 137.6—which would reflect a 10 percent increase over the value recorded in 2005. This particular measure is a gauge of IRS success for diverse operations focused on the tax exempt community and Bank Secrecy Act provisions.
In addition to the above goals, the Board also asked the IRS to develop a specific measure to assess its progress in modernizing its technology systems.
Board Welcomes Two New Members
On March 6th, Paul Cherecwich, Jr. and Deborah L. Wince-Smith were sworn in as IRS Oversight Board members.
Paul Cherecwich had a successful career as a tax counsel. Employed by three fortune 500 corporations, he retired in 2000 from Cordant Technologies, Inc. as Vice President of Tax and Tax Counsel. He subsequently joined the law firm of Miller & Chevalier Chartered as “Of Counsel,” from where he retired at the end of 2004. He was selected by his peers to be the 1997-1998 International President of the Tax Executives Institute, the preeminent association of corporate tax executives in North America.
Deborah Wince-Smith is president of the Council on Competitiveness. She is an internationally recognized expert on innovation strategy, science and technology policy, regional economic development and global competition. She serves on the Board of Directors of the NASDAQ Stock Market and a number of other boards and committees.
The next Board meeting will be held in Washington, DC on May 1-2, 2007.