A Lesson in Accountability and IRS Enforcement

The IRS, a branch of the U.S. Department of Treasury, is the nation’s tax agency and administers the Internal Revenue Code enacted by Congress, having a Mission: “… to provide America’s taxpayers with top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.” It is unequivocally the absolute best administrative tax agency in the world. Increased information reporting and expedited information exchanges with state and foreign governments can have a significant impact on the federal and state versions of the tax gap. As a result of various electronic matching programs, the government can better identify taxpayers who have underreported or not reported income or have otherwise failed to file returns. Hunting for under-reporters and non-filers has significantly improved as we move further into the electronic age, to some extent lessening the historical need for “in person” audits tax returns. Appropriate resources and the appropriate management of resources received are essential for the IRS to be able to improve compliance and to hopefully reduce the annual tax gap. The IRS continues to be resource-challenged — significant, ongoing reductions to the IRS budget since 2010 have impacted tax enforcement efforts. Together, Congress and the IRS must determine an appropriate level of tax enforcement resources taking into account the balance between taxpayer service and enforcement activities and competing federal priorities. The perception of fairness (or unfairness) and complexity of our current tax system also contribute to the tax gap — fundamental tax simplification is necessary to achieve significant reductions in the overall tax gap. IRS management must continually focus on earning the respect and confidence of U.S. taxpayers and those who represent such taxpayers. Our system of taxation depends upon voluntary compliance with our tax laws. Voluntary compliance is inherently enhanced when the taxpayer and tax professional communities respect the agency enforcing the tax laws of our country. Remember, among its various responsibilities, the IRS is also the “accounts receivable department” for the U.S. government. A proper level of tax enforcement efforts focused on areas of non-compliance can impact voluntary compliance with our tax laws. Public perceptions regarding the fairness of what must be a non-political agency can impact voluntary compliance with our tax laws as much as parking an empty police car at the appropriate intersection. Practitioners roundly support the IRS efforts with respect to responsible enforcement and efficient tax administration. Without question, tax enforcement is vital to the nation. Without question, Congress should be heard by the IRS when legislators raise concerns about the tax gap, and the IRS should be heard by Congress when seeking resources to appropriately address the tax gap. In that mix, however, the rights and interests of taxpayers should never be overlooked. It is also vital to tax enforcement that the issues of each taxpayer be given individual consideration and the rights of each taxpayer are forever safeguarded. Few other countries can boast of a tax compliance rate of over 80%. However, all agree that a non-compliance rate approximating 20% — amounting to several hundred billion dollars per year — is clearly unacceptable in our self-assessment tax system. Consider that a one-percent increase in voluntary compliance will increase tax receipts by about $30 billion in tax receipts. Appropriate funding and appropriately managing limited tax enforcement efforts can significantly impact the tax gap… ultimately, we are all accountable to ensure the fairness of our system of tax administration.