Oversight Board Report Commends IRS, But Urges More Action on Tax Gap

by Mike Godfrey, Tax-News.com, Washington

29 January 2007

The IRS made steady progress last year towards transforming itself into a modern institution that provides efficient and effective tax administration services to America’s taxpayers, according to the IRS Oversight Board’s 2006 Annual Report.

However, Board Chairman Paul Jones commented upon the release of the report to the President and Congress that: “The IRS must still meet a number of challenges before it can achieve the vision of a 21st Century tax administration agency described in the IRS Restructuring and Reform Act of 1998."

The Board found that the IRS is pressing forward to meet its strategic goals, and credited the agency for delivering some noteworthy gains in the past year, such as an increase in enforcement activity and stable customer service levels. A survey commissioned by the Board in 2006 found that taxpayers also increasingly recognize that the IRS provides good quality service through a variety of channels, such as its web site, toll-free telephone lines and Taxpayer Assistance Centers.

While commending the IRS for these "hard-won gains", the Oversight Board’s stressed that its foremost concern remains the tax gap – the difference between what taxpayers legally owe and what is actually collected. The IRS’s most recent estimate for the annual net tax gap is $290 billion, based on 2001 tax returns.

“The tax gap is an injustice to honest taxpayers who ultimately bear the burden of tax cheating. It deprives the government of much needed revenue for important programs. And it undermines confidence in the fairness of our tax administration system and contributes to non-compliance,” observed Jones.

The Oversight Board, Congress, the Administration, and others in the greater tax administration community are seeking an overall strategy to address the tax gap. However, in 2006, the Board examined the many different and complementary recommendations to reduce the tax gap, and concluded that there was no one “silver bullet” that will solve the problem.

In its 2006 report, the Board expressed the belief that reducing the tax gap requires "a comprehensive set of broad strategies" that balance prevention and correction – from a simpler tax code and more complete information reporting to more IRS audit and collection personnel and quality customer service. The IRS must also address information technology modernization and human capital challenges as it continues to modernize itself, the report said.

“The Board is convinced that the Administration, Congress and other stakeholders can find a common ground and work together to reduce the tax gap in a meaningful way that gets real results. However, this will require the efforts and cooperation of everyone involved in tax administration – from the Executive Branch to Congress to the larger tax community. But it is an effort that is clearly in the Nation’s best interest," concluded Jones.

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