Background
Taxes are complicated. Compliance often poses challenges. The dual pressure of insufficient funding and increased demands for its services have undermined the basic customer service and revenue-raising functions of the Internal Revenue Service (IRS). Older adults sometimes need assistance to understand complicated tax laws. Through the Tax Counseling for the Elderly program, the IRS provides grants to nonprofit organizations to offer free tax services.
The administrative burden on taxpayers can be substantial. Some people need to file tax returns even though they do not owe taxes and simply need to recover the amount of taxes that had been withheld from their paycheck over the course of a year.
Federal policymakers authorized an additional $80 billion investment in the IRS in 2022 to address concerns with declining customer service and enforcement capacities. This major 10-year infusion of funding should improve customer service, increase audits of high-income taxpayers and businesses, and modernize the agency's technology and facilities, including a possible IRS-run electronic tax filing system. IRS' improved functioning is estimated to raise over $200 billion, resulting in approximately $120 billion net revenue gain while saving millions for taxpayers in lower monetary and nonmonetary compliance costs.
TAXPAYER ASSISTANCE, COMPLIANCE, AND THE INTERNAL REVENUE SERVICE: Policy
TAXPAYER ASSISTANCE, COMPLIANCE, AND THE INTERNAL REVENUE SERVICE: Policy
General taxpayer assistance
The Internal Revenue Service (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. This should include their counselor training components.
Access to forms
The IRS and state revenue departments should increase their efforts to make tax forms—including electronic forms, publications, and correspondence—more accessible and understandable.
Tax forms should be written in a manner taxpayers will understand and should be available in a variety of accessible formats and should be free of charge.
Reducing the need to file
The government should 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
The IRS should continue encouraging taxpayers to file electronically but maintain the option of paper filing without penalty.
Compliance and curbing tax shelters
Enforcement measures should be applied equitably across income classes and types of taxpayers.
The IRS should increase its audit rate and raise penalties for noncompliance.
Individual privacy must be preserved in audits. The IRS must scrupulously protect the rights of taxpayers.
Policymakers should adopt 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.