National Taxpayer Advocate Nina Olson has promoted taxpayer rights during her nearly 15-year career at the IRS, culminating with IRS Commissioner John Koskinen inaugurating the Service's own Taxpayer Bill of Rights in June of 2014.
Olson recently spoke with Tax Analysts' William Hoffman about the differences between taxpayer rights and remedies, embedding taxpayer rights in the Internal Revenue Manual, and why Sweden's idea of taxpayer rights would never work in the United States.
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Tax Analysts: Why are we talking about international taxpayer rights when we don't even have taxpayer rights here at home?
Nina Olson: That's a loaded question, and I disagree with the premise. We do have taxpayer rights at home. That's part of what we've been saying all these years -- that the United States actually has a tremendous number of statutory rights and a fair amount of administrative protections, but nobody knows about them. Our survey showed 11 percent of U.S. taxpayers know what their rights are. That's a miserable percentage. That's why I wanted the TBOR, so that it could be an organizing principle so people could understand underlying principles and begin to learn about their statutory protections.
My organization has created a website that contains a list of statutory rights under each of the 10 thematic rights that are contained in the TBOR. So the taxpayer can go and look on our website and say, "Well, OK, you say I have a right to appeal. What does that mean?" You can see the statutory and the administrative provisions in plain English and their source of authority -- the actual part of the code -- so you know it's a law.
There are remedies under our rights, although there are certainly some rights that don't have remedies. That's what we've been working on: identifying those and thinking about what an appropriate remedy would be to give those particular rights some teeth.
Some countries have a grand statement of rights but no specific remedies. Some countries derive their rights from a convention of human rights. The question is, how much of those human rights apply in the tax context? Is tax something different that you don't have these human rights protections? Do you need something else? Or, what are the remedies under these human rights conventions as applied to the tax world?
At the conference, we're going to try to learn from what other countries are doing. At the same time, they can come and see what we're doing.
That's what the first panel is about. It will set a foundation from which people can understand the theories of taxpayer rights and the conventions or principles from which they derive. One speaker, Joe Thorndike, will talk about the United States' progression through all of our TBORs. That progression was statutory, and it used a reactive approach to counter abuses or perceived abuses. The United States didn't have an overarching principle. That's was what was missing.
Another speaker will talk about Italy -- it has a charter of rights, but it doesn't have a lot of statutory protections. What do you need to do to create remedies?
TA: Which countries do a better job than the United States of protecting taxpayer rights and remedies?
Olson: That's a hard one. I think the United States does very well with their rights and remedies, but I think the problem is that it doesn't have remedies for certain rights, for example, for poor taxpayer service. The number two right in our TBOR is the right to quality service. My organization took the rights to focus groups and asked, "What do you think of them?" Everybody, whether they were preparers or taxpayers, laughed us out of the room about the right to quality service.
What's the remedy if you don't get quality service? The United Kingdom and Australia have apology payments for putting the taxpayer through a lot of burden. They're symbolic; they're not compensatory. You're not going to be able to say, "I spent this many hours on the phone."
For the tax administration to say, "I'm sorry. Here's some recognition of what we made you go through," is a remarkable trust-building thing for that taxpayer. It might tip that taxpayer to continue to be compliant, rather than having such a bad experience that he says, "I'm not going to be compliant. Come and find me."
I wasn't able to get a representative from Chile at this conference, but a few years ago, Chile had just enacted a TBOR and a tax court. You can go to the tax court if any of those rights were violated, including the right to professional service.
TA: The fourth panel covers challenges in "operationalizing" taxpayer rights. Can you define operationalizing? What are some of the specific challenges to operationalizing taxpayer rights on an international scale?
Olson: When you've got a great document and a list of statutory rights, how do you embed those things into the culture of the organization?
We've talked about how you let taxpayers know about rights -- that's partly what the TBOR is. But what do you do inside the organization? One of the people on this panel is my attorney-adviser, who has been working with me on the TBOR. She's going to talk about trying to embed the TBOR and the principles into the IRM.
Can you say, in some section that's discussing issuing levies, for example, that you need to think about whether issuing the levy is going to create an economic hardship before you issue the levy? Because one of the protections of the law is that you have to release it if it creates an economic hardship.
Why would you issue a levy if you're going to have to release it? Couldn't you do a little thinking in advance? We're trying to tie the economic hardship issue to the right to a fair and just tax system. That would mean that you have to think about the taxpayer's circumstances.
Put that language in the IRM and then think about it when you're considering issuing the levy. Having that language in the IRM gets people thinking about the principles. Moreover, if the IRM is tied back to a general principle, when you have a taxpayer that doesn't fit into the four corners of an IRM provision, maybe you could deal with that.
We have a CEO from South Africa and he's going to talk about what it's like to establish an office there, his relationship with the tax authority, and that authority's role in a country that is facing a lot of challenges and has a different taxpayer base than the individual income tax that we have.
The third speaker on that panel is an attorney and adjunct professor from Greece. She's going to talk about what taxpayers might do in a country that's well known for challenges to tax compliance and a profound lack of trust among taxpayers, and the role that taxpayer rights can play in trying to move the dial a little bit on compliance.
We wanted to take a few areas where you were weren't necessarily working with mature countries -- the kind of country like the United States, where as much as taxpayers grumble about taxes, they truly comply with the laws -- and then look at some of the other countries and some of the challenges that they have.
TA: At what point do taxpayer rights conflict with efficient tax administration, and how would you propose resolving those conflicts, especially when you're dealing with it on an international scale?
Olson: I don't think that there's a conflict, if you think of efficiency as including effectiveness. As I've said in everything I've written about the TBOR, it is the roadmap to effective tax administration. If you have effective tax administration, it will be as efficient as it can be, as opposed to the most efficient. The most efficient is not asking anybody anything and just telling them, "you owe money and I'm going to collect it." There are no rights involved.
The minute you start thinking about due process, procedural justice, or human rights, you bring in an element of inefficiency because you look at people's facts and circumstances. But if you don't look at their facts and circumstances, you have an ineffective tax system and, ultimately, an inefficient one, because you are going to have to start using more and more brute force to make people comply, and that is expensive.
There's a balance. In all the rights there's always a point of cutoff. There's the right to finality. It works for both the government and the taxpayer. There's a period in which you can ask for a refund. There's also a period in which the government can collect. That finality brings some efficiency into the system.
There's a right to an appeal, but there are limits to it. None of these rights prevent the government from putting limitations like that on. But on the other hand, they do protect the government from cutting them off prematurely or just refusing to hear from the taxpayer. That right to challenge the IRS's position and be heard is an incredibly important right.
In every focus group the participants said they didn't know they had the right to challenge the IRS or be heard by the IRS. That right includes an obligation on the part of the IRS: that it has to listen to the taxpayer, too. It doesn't mean you have to keep listening to them over and over. There's some point where you can say, "OK, we've had the dialogue. Here's where I am."
But that process -- procedural justice -- is important to people's willingness to comply with decisions of the government and to continue to engage the government. There's a lot of research in areas other than tax that shows that where there are processes in place that respect the rights of people, people are more willing to live with an adverse decision because they felt that they were listened to. And they got the explanation because they had the right to be informed. They understand, even if they don't like it, how the decision was arrived at.
That means they'll continue to be engaged instead of us inefficiently having to go out and find them and enforce the law against them. Over the long term, a TBOR is the roadmap to both an effective and an efficient tax administration.
TA: Some in the tax community object that the Foreign Account Tax Compliance Act is a violation of taxpayer rights on an international scale. Do you agree?
Olson: I don't know how it could be a violation of rights on an international scale since every community has its own set of rights. That's part of the problem. To me, I think the jury is still out on what it is like under various European conventions and provisions. We just have to wait and see how it's thought about.
The problem with FATCA is that it imposes burdens on taxpayers at all sorts of levels, and it's not clear what benefits we're really going to get from it or what we'll be able to do.
My attention has been more on the foreign bank and financial account report and on the offshore voluntary disclosure arrangements. I could make a strong case that those violate many of our rights.
For example, under that disclosure initiative, there is a secret committee that reviews recommendations for what would be the settlement in a particular case. Taxpayers are not allowed to talk to anyone on that committee. They don't receive a detailed explanation of the decisions that the committee made. I can't say it's a violation because this is not a law, but it impairs the taxpayer's right to be informed and, ultimately, the sense that he is part of a fair and just tax system.
TA: Are there legislative proposals that you would expect to come out of this conference? Something that needs to get through Congress to be implemented?
Olson: We've made in our annual reports, and particularly in the most recent one, the number one legislative recommendation was taking all the legislative recommendations we've made in the past and fitting them under the 10 rights, and saying, "Congress, here's something that you could do that would fill in gaps or update some of the past protections for the current administrative environment."
Part of doing an international conference is to hear what other people are working on, and I would expect that I would get some recommendations from it. I always learn from other countries.
TA: How do you plan to get legislative recommendations through a Congress that revolts at the idea that Denmark might do something better than the United States?
Olson: I don't know that if you phrase it in a way that says, here's a good idea and whether it came from Denmark, Mexico, or Louisiana, why wouldn't I do that? I visit state tax administrators and get very good ideas from them.
There's a panel that involves two representatives of governments, Steve Vesperman, the deputy commissioner for small business and individuals for the Australian Tax Office, and Lennart Wittberg, who is the strategist for the Swedish Tax Agency. Steve is going to talk about something interesting that Australia is doing. They have a new commissioner, and their new commissioner challenged them to design a tax administration around the 95 percent of taxpayers who are willing to comply with the tax laws. That's it. In the process of doing that, they should avoid creating rules and procedures -- and FATCA could come to mind there -- that impose excessive burden on the 95 percent of taxpayers who are willing to comply.
Significantly, they didn't talk about taxpayers who are actually "in compliance," but rather taxpayers who are "willing to comply." The commissioner challenged them to design the tax administration as if they were looking at the 95 percent; in doing so, you would still have in place the same laws you need to go after the 5 percent. I thought that was brilliant. I haven't been able to think through what starting from that point would mean for the United States, but that's in my mind as I look at programs now. Is this the tail wagging the dog? And I will be interested to hear how they are dealing with it in their tax administrations.
TA: What would be the ideal outcome from this conference for you?
Olson: There'd be two things. One is that I would get good ideas about what I could recommend to Congress or the IRS. There will be IRS officials there. There will be Treasury people. There will be people from the private sector. We have representatives from about 14 countries coming to talk. I hope that people in the United States will feel more comfortable that taxpayer rights are a universal part of tax administration, and that they will not view them as something you have to check the box on.
The other thing that I would like to see is the beginning of a body of thoughtful work on taxpayer rights in tax administrations, whether it's research, academic or practice articles, or discussions.
Every country is different. So the taxpayer rights that have been created in the United States are different from Sweden's approach to taxpayer rights. That's where maybe I am in line with members of Congress. I've spent at least two weeks meeting with Swedish tax officials over the years, and I think that many of the things that they talk about are great ideas, but they will never fly in the United States, because I know U.S. taxpayers and they look at things differently.
TA: Give me an example.
Olson: Sweden's tax rate is unbelievably high, but its tax agency is the most respected government agency. Taxpayers see a direct connection between the things that they get and the tax agency. The tax agency is the entity that makes sure they get those things.
Right there you have an extraordinary difference. In the United States, people are talking about the IRS commissioner being impeached and how the tax agency is distrusted. Since our founding, we have not so much distrusted taxes as the way the tax laws are applied and who's applying them, who's imposing them on us, and how are they being collected.
So the U.S. environment is almost an adversary environment. I showed Lennart Wittberg a video that we had created to educate taxpayers on taxpayer rights. I'm very proud of that video. It's on our website. It ends with, "Your rights. Know them. Use them." Lennart's reaction was, "Well, that's assuming that the agency wouldn't respect your rights. That's very adversarial." And I never would have thought about that. From the Swedish perspective, of course the tax agency would try to respect your rights.
What they're going to need is something very different from what we need. From what South Africa needs. From what Italy or Greece needs, or France or Germany. Or Asia. Or Mexico.
TA: We are coming up on the halfway point of Commissioner Koskinen's term. How do you grade his performance?
Olson: I have a very good relationship with him. He's one of the few commissioners I've worked for who really understands the role of the Taxpayer Advocate Service, and he is very much a supporter of my office and my work.
He listens to me, and I've never found his door not open. I have engaged him in discussions about tax administration and the future of tax administration. He has acted on not all my recommendations, but some of them, and on particularly difficult issues. I have a great deal of respect for him.
TA: What do you think of the talk in Congress about impeaching him?
Olson: I think it's inappropriate. I'm not sure why they are focusing on him. It's hard for me about the 501(c)(4) issue because I think it was a very serious issue. But at this point, there are more serious issues that are going on with the IRS that I wish Congress would look at and conduct oversight on. That's what I really want Congress to do. Talking about impeaching the commissioner gets in the way of that oversight, and it becomes personal in a way that it should never be.
TA: You've spoken out about how Congress's budget cuts of the IRS are hurting its efforts during filing season, but last filing season went well in many respects. The Treasury Inspector General for Tax Administration reported that Affordable Care Act implementation went relatively smoothly. Back-end systems seemed to work well. Do you run the risk of being perceived as crying wolf when the IRS still manages, despite all obstacles, to pull off a successful filing season?
Olson: I'm not crying wolf. Yesterday I had a conversation with a senior official in the New York State tax administration, and they said, "The IRS used to be viewed as the shining example for all of us, and it's not anymore."
You talk to the people and practitioners who are trying to get through on the phone. That they can't get through for an hour. That on the phone line people are getting notices for balance-due returns. And the level of service on that phone line is 37 percent.
Almost two-thirds of the taxpayers calling to pay us money and make payment arrangements cannot get through. If they can't get through, the next step that's going to happen to them, because the IRS doesn't know they're trying to get to us, is that a machine will reach out and garnish their paycheck, or seize their bank account, or file a lien against them. And the taxpayer is sitting out there saying, "But I've been calling you. I've been trying to get through."
I think that's abysmal. It's the worst I've ever seen. Yes, the IRS delivered the ACA, but at what cost? Millions of taxpayers who had issues and needed to talk to the IRS weren't able to do that.
In our June report's filing season write-up, we said it was like A Tale of Two Cities: "It was the best of times, it was the worst of times."
So for those of you who are lucky enough not to have a problem with the IRS, things went well. But if you had the slightest issue with the IRS, it was disastrous. The reason why the ACA worked is because the money that was traditionally put into taxpayer service was moved to it and FATCA.
It's a difficult choice. I understand why they did it. But look at the taxpayers who are harmed. This is not right, and it will undermine compliance in the future.
I don't think anyone would say that I'm crying wolf. It's not going to get better unless the IRS gets more funding for taxpayer service, or it gets funding for the ACA and FATCA and it can move money back to taxpayer service.
You can only undermine taxpayer service for so long and then you get distrust of the system and alienation and you increase that confrontational and adversarial component. Then that starts showing up in people's actions, like, "Come and get me."
Dealing with someone in an enforcement environment is so much more expensive than dealing with someone on the taxpayer service side. If the taxpayer was calling to say, "I can't afford to pay this. I have economic hardship," under the TBOR, you're not allowed to issue a levy. You have to release the levy if the taxpayer proves the economic hardship. When levies are automatic, we don't hear from the taxpayer. So then we issue the levy. Or they get to the Taxpayer Advocate Service and now you have two employees working the case, my employee and the IRS employee, so it costs twice as much. Plus, you have to undo the action you did. And by the way, we'd make you return the levy proceeds that you shouldn't have taken in the first place. If only you'd picked up the phone you would have known that the levy wasn't proper.
You can see how that costs the system more than just funding the phone call in the first place.
TA: On October 20 the IRS conducted a press conference about its Security Summit process. How do you feel that summit process is going?
Olson: I'm watching it closely. I'm glad that they're holding it, that they've elevated it to a summit level. I'm sorry that it took a breach to get everybody together and go, "Oops." I think we've now got the other parts of the government paying attention to the IRS. The IRS has an incredible asset of the United States: the personal financial information of every taxpayer of the United States, and it must be protected.
Getting the most creative minds on the security side to put their minds to it will be better for everyone. It turns out that there are things that they're doing in the private sector that would help us. There are some things that we were thinking about that the private sector could adopt. I think having folks who are well informed about security protocols of other government entities is also helpful because that would bring some shared knowledge there.
The difficult balance is, as you're trying to protect the filing of tax returns, and as you go into the future of having an online account, how hard do you make it for taxpayers to access their accounts?
There's a point where your concern about security actually makes the system unusable, or at least usable only by an elite group, and there's a whole group of people who can't get through legitimately because it's either too complex or it's asking for information that they don't have.
I don't know where that balance is, but I'm heartened to know that the IRS is thinking about it.
TA: Is there another balance, though, that should be struck between the needs of the IRS on the one hand, and the capabilities and the requirements of their private sector counterparts helping them in this work? Where is that balance struck to protect taxpayer information and privacy?
Olson: In the past you had a choice. You could either have the IRS imposing things on the private sector and then they would scream and yell -- some of them -- "We can't do this!" Or you wouldn't have the IRS imposing something and you'd have very great disparity between some entities doing this and some entities doing that, and the states were requiring some things, but those requirements weren't carried up to the federal government. And that's why it's good in the summit to have the states involved as well.
The point of the summit is to have all these players at the table and to reach a consensus about what we can do. What burden they can bear, what they can deliver, and in what time frame. What are the states saying and imposing, because maybe we could pick up some of that. Can the IRS pick up some of these things that the states have been requiring? Can it be built into our system?
TA: TIGTA found in September that the IRS is not adequately managing its mail correspondence with U.S. taxpayers living abroad. In its response to TIGTA, the IRS said, "There are too few foreign U.S. taxpayers to justify fixing this given the agency's resource constraints. Congress should fund a secure online portal for them instead." Is this really an appropriate response even given the budget crunch? Doesn't that say to U.S. taxpayers living abroad, "You're on your own when it comes to your tax obligations"? How might this situation affect your hopes for implementing taxpayer rights for U.S. taxpayers in foreign lands?
Olson: The first thing is that the IRS has done a lot of surveys of international individual taxpayers, and it's clear that they want an online account. They want to communicate with the IRS by e-mail.
I think that that is a long-term solution, but communicating with the IRS by e-mail doesn't require an online account. You could do a demonstration project, and I think the IRS is looking at that. A few years ago, we were able to convince some at the IRS to have a toll-free line for individual international taxpayers. But when it was floated up they didn't allow it because they said it was too expensive.
I'm tired of hearing "too expensive." The example that I gave of not picking up the phone to hear about economic hardship is just multiplied by the international taxpayers.
The other thing is that at the same time that you're imposing FATCA and all these other things on international taxpayers, you're closing your four attachés, the only places where there was help -- London, Beijing, I think it was Frankfurt, and Paris.
At least in those places you had a core group of people from inside the IRS that knew the problems of international taxpayers. Not only could they help the international taxpayers navigate some of these things, but they did outreach and education and worked with embassies to help the U.S. taxpayers in different countries. They could bring information back to the United States and say that these are the challenges that they are facing so we can better address their needs. We've cut off that dialogue except for the dialogue that happens between international taxpayers and the Taxpayer Advocate Service.
I'm still trying to get my offices over there. If the IRS is closing the attachés, is there a way for me to get a local taxpayer advocate over four parts of the world, so that we could at least be in that community and identify their needs?
We'd work the cases back home, but we'd have somebody that was there, a skeletal staff with someone to advocate for that group of taxpayers. I think that would protect taxpayer rights.
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