Watchdog urges customer-service focus for IRS

The IRS’s in-house watchdog on Tuesday called for making the agency more customer-service focused and simplifying the tax code.

House Republicans are working on a bill that is based off a tax-reform blueprint they released in June. That plan proposes revamping the IRS so that it is streamlined and “dedicated to delivering world-class customer service.”

Olson’s recommendations align with the goals of IRS reform in the blueprint.

In her annual report to Congress, she said that the IRS should shift from having an enforcement-focused culture to a service-focused culture.

The IRS has allocated 43 percent of its budget to enforcement and less than 6 percent to taxpayer outreach and education, according to the report.

An enforcement-oriented agency treats taxpayers who made mistakes like tax evaders, but the agency could have a better chance of improving tax compliance if focuses on the reasons why taxpayers were not compliant, the report said.

“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,” Olson wrote.

She suggested that the IRS publish an annual report card that measures the IRS’s performance on helping customers as well as on enforcement, revise its mission statement to be less focused on enforcement and “undertake a comprehensive study of taxpayer needs”

Olson also recommended that the IRS receive increased funding but also receive increased oversight from Congress.

“Congressional oversight is necessary to ensure that the IRS appropriately allocates and applies that funding, and that taxpayer needs — not just the agency’s internal needs — are met,” the report argues.

Additionally, Olson advocated for tax reform that simplifies the code.

“Simply put, the IRS cannot achieve a transition to a 21st century tax administration if it is encumbered by a 20th century tax code,” she wrote.

Her office found that individuals and businesses spend about six billion hours a year on complying with tax-filing requirement. Because tax compliance can be difficult and expensive, the current tax code “rewards taxpayers who can afford expensive tax advice and discriminates against taxpayers who cannot,” the report argues.

Olson recommended a “zero-based budgeting” approach to tax reform. Under this approach, lawmakers would start with a code with no tax breaks and would only add preferences back if they decide that their public policy benefits outweigh the increased complexity they would bring to the tax code.

IRS Commissioner John Koskinen said he agrees that simplifying the tax code would be beneficial. But he said he disagrees “with suggestions that the IRS overlooks taxpayer service” and “inaccurate stereotypes that the IRS is just focused on tax enforcement.”

“The reality is our employees across the nation take great pride in serving taxpayers,” Koskinen said in a statement. “Tens of millions of taxpayers turn to us for information and assistance each year — on the phone, in person and on the web. We strongly believe that a balanced approach to taxpayer service and tax enforcement is critical to running a sound tax system.”

– updated at 3:38 p.m.