Taxpayer Assistance, Compliance, and IRS Administration

On this page: Taxation

Background

Taxpayer assistance for older Americans—through the Tax Counseling for the Elderly program, the Internal Revenue Service (IRS) provides grants to nonprofit organizations whose volunteers offer free tax counseling to older people and help them prepare basic income tax returns. The IRS has also developed the Tax Guide for Seniors (Publication 554), which gives an overview of the tax laws and highlights certain provisions that give special treatment to older Americans. In addition, large-print tax forms are made available for easier reading, which helps older and visually impaired Americans prepare their returns. Meanwhile, the IRS has reduced the availability of tax forms and publications in public libraries and other easily accessible places, limiting the ability of some taxpayers to meet their tax filing obligations.

Compliance—the tax gap is the amount of taxes owed but not paid; it results from both intentional and unintentional noncompliance. The most recent estimate from the IRS showed an average annual tax gap of $458 billion for tax years 2008–2010. According to the agency about $52 billion of that amount eventually was recovered through compliance activities.

The tax gap for individual income taxpayers was estimated to be close to $319 billion a year in 2008–2010, with by far the largest share of it due to income underreporting. Noncompliance is more prevalent among unincorporated small businesses and high-income taxpayers. The IRS estimated the corporate tax gap at $44 billion per year in 2008–2010. Corporations continue to engage in complex and aggressive transactions that have little or no economic purpose other than to reduce tax liability. The other major source of the tax gap is underreporting of self-employment income for employment taxes, which accounted for $65 billion per year.

Administration—IRS budget cuts and staff reductions have hindered operations. These declines in funding took place against the backdrop of increased costs due to government shutdown or major new tax laws routinely being adopted at the critical time just before the start of the filing season. In addition, implementation of the Affordable Care Act and several other complex tax laws also uses additional IRS resources.

Despite these complications, in recent years the IRS has improved in certain performance areas. For example, in 2013 electronic filing grew to about 83 percent of returns. Electronic filing and other such changes have created both opportunities and challenges.

Taxpayer Assistance, Compliance, and IRS Administration: Policy

General taxpayer assistance

In this policy: FederalStateTaxationtaxpayer assistance

The IRS and the states should increase support for taxpayer assistance programs such as the Tax Counseling for the Elderly and the Volunteer Income Tax Assistance programs, including their counselor training components.

States should help fund the Tax Counseling for the Elderly program, because it often helps taxpayers calculate and pay state income taxes.

Access to forms

In this policy: FederalStateTaxationaccess to formsforms access

The IRS and state revenue departments should increase their efforts to make tax forms—including electronic forms, publications, and correspondence—more accessible and comprehensible. The forms should be written in a manner taxpayers will understand. If necessary the printing budget of these departments should be increased to pay for large-type forms for vision-impaired taxpayers. Forms and publications should be widely available in public places such as libraries, and individual taxpayers should not be charged for forms or assistance.

Reducing the need to file

In this policy: FederalTaxationsimplicity

The government should explore ways to simplify the recovery of money withheld each year and reduce the need for older individuals who do not owe income tax to file tax returns.

Electronic filing

In this policy: FederalTaxation

The IRS should continue encouraging taxpayers to file electronically but maintain the option of paper filing without penalty.

Compliance and curbing tax shelters

In this policy: FederalStateTaxationcompliancetaxpayer assistance

Tax laws should be vigorously enforced to protect revenue and ensure fairness. Enforcement measures should be applied equitably across income classes and types of taxpayers.

The IRS should improve its taxpayer assistance programs, increase its audit rate, and raise penalties for noncompliance, yet preserve individual privacy and scrupulously protect the rights of taxpayers.

The IRS and the states should increase support for taxpayer assistance programs such as the Tax Counseling for the Elderly and the Volunteer Income Tax Assistance programs, including their counselor training components.

AARP supports the adoption of measures that would curb the use of corporate tax shelters and tax havens. Such provisions can include:

  • requiring increased disclosure of corporate tax shelter activity,
  • increasing the penalties related to understatements of income attributable to undisclosed transactions,
  • imposing penalties on all parties associated with an illegal corporate tax shelter, and
  • disallowing the use of tax benefits generated by a corporate tax shelter.