It is tempting to characterize the IRS as the enemy and its employees as agents of the dark side, zealots in pursuit of taxpayers’ hard-earned dollars. The reality may differ. The National Taxpayer Advocate Service (NTAS) has just produced its Annual Report to Congress. The NTAS is an independent body within the IRS that exists to help taxpayers resolve difficulties with their taxes. It consists of 1,800 employees, 1,400 of whom are caseworkers.
There is obviously work to be done: the report weighs in at just over 1,000 pages, over sixty percent longer than the Tax Cuts and Jobs Act 2017. The report is well written – at least the portions read by this author – and contains a mass of fascinating information.
The report advocates for more funding for the IRS. The money – approximately $500m – is needed to enable to IRS to implement the Tax Cut and Jobs Act (new forms; new regulations) and to provide the service taxpayers will need to assist them with compliance.
Is It Helpful?
The information provided by the report, though fascinating, may not be useful. The volume of information is the first but not the only problem. Shane Snow wrote a brilliant article for Contently.com in 2015. Its focus was reading levels and their impact on readability.
Typically, when a piece of writing is run through a spell check in Microsoft Word, the result is a pop-up box showing information about the document – the number of words, characters etc. – and the readability score. Readability score assesses the grade level at which one must be able to read to comprehend the document.
Snow found an inverse correlation between the grade level at which an author writes and their readability. Or, put differently, the more difficult a book is to read, the less popular it is. The first sentence of this paragraph earned an “F”, with college-level reading skill required. The second sentence earned an “A” with a reading level of just below seventh grade. The NTAS report requires a post-graduate reading level. Although well written, as Snow points out, more than ninety percent of the population is not reading at this level. How helpful can it really be to taxpayers?
The Sharing Economy
Presumably, the target audience for this report is less the average taxpayer than it is the leadership of the IRS and the politicians that approve its funding. Small government ideology is inevitably constrained by the need to collect funds to drive the programs it does approve. Ironically, the party of supposed ‘small government’ – the Republican Party – has just passed tax reform that will increase the deficit over the next ten years by $1.5trn and will, therefore, require even more heavy lifting by the IRS.
The “sharing” economy (also known as the gig economy) can be described as “collaborative consumption” or a “peer-to-peer market” that links a willing provider to a consumer of goods or services (coordinated through a community-based online service).
The problem highlighted is that those involved in this economy – the service providers and the platform operators – are not consistently aware of their tax obligations. Some platforms clearly are: Uber and Lyft provide their drivers with a very user-friendly service that many prefer to the alternative of managing their own accounting. Others, apparently, are less efficient.
The issue is not minor. NTAS estimates growth in revenue from this sector of the economy from $15bn in 2013 to $355bn by 2025. It is aware that many of the platforms have set up online forums for discussing tax problems and recognizes that the anonymous nature of these forums contributes to their usefulness. The concern is that advice given may be incorrect per se or because of different taxpayer circumstances and NTAS notes that:
“anti-government/anti-IRS sentiment may skew the forum discussion, to the point where high-risk tax avoidance techniques may be accepted as norms.”
The other significant risk for service providers is that, while they may receive timely and accurate information about revenue collected through the platform on Form 1099, they may not have made appropriate estimated tax payments or saved sufficient cash to pay their taxes when due.
NTAS clearly shows the friendliest face of the IRS. Advocacy for the taxpayer is it mission after all. It notes, however, that the IRS manages to answer only 6 of 10 taxpayer phone calls during the filing season; and only 4 of 10 outside that season. A sizeable number of tax queries go unanswered and may be assumed to lead to incorrect filing.
For those who do get through, the result can be helpful: IRS officials default setting is not to be obstructive, but rather to assist in compliance. NTAS is somewhat creative in seeking to address the problems. One of the recommendations is that its representatives should participate in platforms such as Reddit.
NTAS notes that, while the IRS has been responsive in developing a specific website devoted to the sharing economy, more could be done in terms of providing check-lists or wizards to assist taxpayers. Branding firm Siegel & Gale, whose core principle is to keep things simple, lists the IRS as one of its clients. Evidently, the IRS recognizes the challenge.
It remains to be seen how forthcoming Congress is in authorizing the $500m requested to comply with the obligations imposed by tax reform. More taxpayer confusion is the likely result – but don’t be too quick to blame the IRS!
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