Securing Taxpayer Rights through Tax Reform

Complying with taxes costs more than money: it also consumes a massive amount of time. In our recent report, NTUF discovered  taxpayers spent nearly 7 billion hours complying with Internal Revenue Service forms and record-keeping requirements in 2015. A new path is needed. Fortunately, the tax reform plans that have been offered in the House of Representatives and from the White House would go a long way toward simplifying the Code. This would make it easier for filers to understand the tax law, thus easing the distressing time burden costs of filing their taxes.

Beyond easing tax rates, reducing the number of tax brackets, and eliminating certain deductions and loopholes, there are steps that should be considered to prevent complexity from creeping back into the Code, and to lock in protections for taxpayer rights. National Taxpayers Union organized the first legislative coalition on behalf of a Taxpayer Bill of Rights in 1988. The National Taxpayer Advocate (an independent watchdog office within the IRS) also helped lay the foundation for the reforms that were finally codified into law in 2015. These include the right to a fair and just tax system, quality service, pay the correct amount of tax, and to appeal decisions of the IRS. This declaration of rights will require more deeds to back them up.

First, there should be an improved effort to fill in the gaps in reporting on the sources of complexity within the tax law. For example, NTUF noted that there has not been an adequate accounting of the time burdens associated with complying with the Alternative Minimum Tax, a part of the tax law that requires many filers to calculate their taxes a second time under a completely different set of rules regarding deductions. The IRS should be made to comply with a 1998 law to regularly report to Congress on sources of complexity in the administration of the system. The Taxpayer Advocate reported that the IRS issued just two annual reports (the last one was in 2002) compliant with the 1998 statute, and in both instances, “Congress adopted legislation to address each area of complexity referenced in the reports, and the IRS addressed the administrative problems they uncovered. Thus, the IRS’s decision to discontinue the reports has likely contributed to tax complexity.”

Second, while drafting laws, the tax-writing committees should make sure to consult the front-line technical experts in the IRS regarding the potential administrative impact on compliance, with changes being considered to the code. In its final report, the National Commission on Restructuring the IRS found that the tax agency’s experts are rarely brought into the legislative process regarding the administrability of tax proposals. Making sure that their consultation is sought could improve the oversight of tax laws, lead to budgetary savings to the IRS, and reduce private-sector compliance costs.

Third, every four years there should be an active effort to review the tax code line-by-line. Drawing on the experience of tax administrators and private-sector experts, this Quadrennial Commission’s findings would be brought before Congress for an up or down vote, reducing the likelihood that we’d ever have to wait 30 years again for the next comprehensive overhaul of the tax code.

Fourth, lawmakers or the chief executive should reconstitute the IRS Oversight Board, created by law nearly 20 years ago. Owing to disputes between the Senate and the Obama administration over nominees, this valuable board has gone dormant for the past two years due to lack of a quorum.

Implementing and fulfilling these recommendations would ensure protections for taxpayers, while emphasizing the goal of “service” in the tax collection agency’s name.