The 2008 report from the IRS Advisory Council (IRSAC) is now available on the IRS website. It contains 70 recommendations, on everything from compliance and the income tax gap to transparency and worker classification issues. The IRSAC is made up of accountants, lawyers, academics and others who comment on tax administration issues of concern to the public.
Many of the report's recommendations and suggestions are noncontroversial and would be welcome additions to the IRS administrative support for taxpayers. For instance, the introductory statement urges the IRS to focus on improving communication, recommending that the official IRS website be made even more accessible (it has already gotten 2 billion hits in 2008) by adding a "whatif" section that answers many common questions that taxpayers may have (e.g., what if I claim bankruptcy? what if I need to draw on my retirement savings?). It also suggests creating a database of all paid tax return preparers and developing appropriate monitoring mechanisms. the Treasury Inspector General for Tax reports that 61% of a sample of tax returns prepared by unlicensed paid return preparers contained errors resulting in significant understatement of the tax liability, so addressing this issue could also address the tax gap. There are, too, a number of recommendations to help make the earned income tax credit information more accessible to the group eligible for the credit. These are all good ideas. Similarly, the ideas about improving tax return preparers' awareness of, and compliance with, rules on disclosure of information from tax returns are worthy of adoption.
Others, however, seem to stretch the role of the IRS beyond what it should be doing as the arm of the executive charged with collecting taxes and ensuring that all taxpayers have paid the taxes they owe. For example, the report in the introductory statement suggests that the IRS should "position itself (institutionally) as a tool to promote economic development and establish programs to educate taxpayers on the impact of taxes on a new business." In the large-and-mid-sized-business section of the report, there is a specific recommendation that the IRS should "acquire[] a greater 'commercial awareness', with the added comment that "[i]f the IRS became more 'connected' to the businesses it examines, it would gain a better understanding of matters from both a commercial and a tax perspective."
What? It's not as though we don't already have extremely well-funded private organizations whose aim is to have taxpayers think of the government's collection of taxes as the primary action that might prevent their new business for succeeding--that is a huge part of the corporatist agenda and it is one that is avidly taken on by Grover Norquist's Americans for Tax Reform and every single one of the groups that is promoting the "lower taxes so we can be competitive" mantra. The IRS does not need to be in that business. And the IRS should not be in that business.
Furthermore, the IRS is not a "tool to promote economic development". The Congress too frequently claims that the tax laws it is passing are intended to further economic development, but that again is often a mere facade for the anti-government, corporatist agenda that often favors the interests of capital owners over the public good. That is not a proper role for the IRS to play--there are insufficient resources, so that the collection and enforcement role will be sacrificed for this "tool of economic development" role; and it is important for the IRS to treat revenue collection for the federal government as its primary task. We have seen the potential problems that result when the IRS suddenly becomes just another tool in the belt of a bailout mentality--Notice 2008-83, in which Treasury unilaterally decided not to enforce an anti-abuse provision of the Code in the case of banks purchasing banks with losses. Not the right thing for the Treasury and IRS to be doing.
Moreover, having the IRS feel more "connected" to the businesses from whom it is attempting to collect taxes and whose compliance it should be questioning more, not less, often would have the effect of encouraging "capture" of the agency by commercial interests--furthering the corporatist agenda often criticized here as harmful to democratic egalitarianism. It is the Congress that is supposed to take into consideration the many conflicting or overlapping policy issues in developing the tax laws. We don't need an IRS that thinks first about the taxpayer's commercial business perspective and only as an afterthought about enforcing the laws.
Finally, there are a number of issues of concern in the report's transparency discussions. The IRSAC recommends that the IRS continue its "policy of restraint" on requesting tax accrual workpapers (none will be requested unless the audit involves a listed transaction). I remain unconvinced that the workpapers should not automatically be included in information accessible to the IRS and hope that the courts ultimately conclude that they are generally not protected by attorney-client privilege or workproduct protection, since they are rarely undertaken in preparation of litigation but rather are done for business purposes. The report also recommends that the IRS agree to limited waivers, so that taxpayers can pick and choose among items to be disclosed. The Council's idea is that this will encourage taxpayers to disclose more to the IRS. The problem, however, is that such selective disclosure is unfair--if the taxpayer wants to use a document that advantages it, the taxpayer should also be required to reveal all other documents on that subject that may even be disadvantageous to it. That is the essence of subject matter waiver, and I believe the Council is wrong in recommending the limitation.
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