Commissioner Koskinen's Speech before the International Taxpayer Rights Conference
Nov. 18, 2015
I’m delighted to be here today, and I appreciate the opportunity to join this first international conference on taxpayer rights. All of us are still in shock at the tragic events that occurred last week in Paris and our thoughts and prayers are with the people of France in their time of sorrow.
I’m especially encouraged that so many of you from so far away are here in our nation’s capital. You’re visiting Washington at a wonderful time of year, so I hope you’re able to take advantage of all the city has to offer.
I’d also like to recognize Nina Olson: my hat’s off to her for organizing this conference, and for spanning the globe to recruit such an impressive and diverse group from so many different countries and revenue agencies.
I have been thinking more about the international aspects of taxation since I’ll be traveling in a couple weeks for a meeting of the Bureau of the Forum on Tax Administration. This Forum, operating under the aegis of the OECD, is comprised of the tax commissioners from 46 large countries. The Bureau, comprised of tax commissioners from 13 of those countries, oversees Forum activities between general meetings. So at that meeting, I will be reporting to them about this conference and the shared perspectives on the importance of taxpayer rights.
In recent years we’ve seen major reforms in the public sector. And notably, establishing rights and remedies for taxpayers has been a part of those reforms. By now just about every revenue agency has some version of taxpayer rights, by statute or decree. No matter the approach, the bottom line is that more and more countries are focused on this issue.
Which brings me to the subject at hand: how we in the United States have approached the issue of taxpayer rights. Historically, this has been a unifying issue for our lawmakers. In fact, taxpayer rights has been one of those rare issues to attract bipartisan support. And as you discussed earlier, we now have a variety of laws describing what taxpayers have the right to expect when dealing with the IRS.
Today, I’d like to focus on what we did as an agency because last year, we took an important additional step. We adopted a Taxpayer Bill of Rights – modeled after the Bill of Rights in the U.S. Constitution. And I’m happy to report that it’s been a tremendously positive development.
We have 85,000 employees in more than 500 offices around the country. When I first became Commissioner, I emphasized my belief that if you really want to learn what’s going on at the organization…if you really want to know more about the challenges and opportunities…then it’s important to talk with, and listen to, front line employees. So I spent a great deal of time traveling to various offices, meeting and talking with employees. And I was pleasantly surprised to learn that a major focus of the agency, and our employees, is helping taxpayers and by extension, protecting their rights.
I was delighted to learn how much time and effort we spend helping taxpayers. And apparently I’m not the only one. An interesting aspect of being Commissioner is that you get letters from taxpayers. Some have legitimate complaints and concerns, which we work to resolve…but many letters are sent because the taxpayer feels compelled to compliment an employee who had worked with them to resolve a tax issue.
One letter I received was from a woman whose elderly parents became victims of identity theft. This is a challenging problem we have in the United States that many other countries have been fortunate to avoid.
In her letter, she explained how her parents were struggling. After their identities were stolen and the criminals filed fraudulent returns in her parents’ names, they were overwhelmed, confused, and facing stiff tax penalties. These taxpayers – like all taxpayers – had the right to pay no more than what they owe. They had the right to be informed. They had the right to quality service. And with the persistence and expertise of one of our many outstanding employees at the IRS, this family was able to fully resolve their issues.
Every time a taxpayer writes me to commend an employee for doing good work, we thank the taxpayer for writing. We tell them that every person has a right to the kind of service they got from that particular employee. We also write a letter to the employee – thanking them for a job well done and reinforcing our appreciation for their level of dedication and expertise. These small victories are crucial, especially in a difficult operating environment. It’s the small victories that build momentum and morale among employees. And ultimately, it helps reinforce the taxpayer rights that support everything we do as tax administrators.
Another way to look at it: When we respect taxpayer rights, it pays dividends in terms of public confidence.
Despite hearing many positive stories and small victories from the front lines – last year I came to believe that we, as an institution, needed to do more to explain these rights to the public. Nina had been encouraging the agency for many years to do just that. She and I agreed that we needed to do more to show taxpayers how deeply we respect their rights.
Much of what we have done has relevance for taxpayers – and tax administrators – around the world. As I have met with tax administrators from a wide range of countries, we have agreed that we’re all in the same business of helping taxpayers determine what they owe and how to pay it. But, as you’ll discuss at this conference, there are many differences from country to country that may determine your approach. What’s right for us may not be right for you in all the details...
But we generally work to achieve compliance with tax obligations in two ways: through service and enforcement.
I tend to think of service and enforcement as two sides of the same compliance coin. Most people want to comply, but they need the agency to provide services that make it possible. At the same time, if people think they're not going to get caught if they cheat, or they're just fed up because they can't get the help they need to file their taxes, the entire system will be put at risk.
Notably, the amount of money we collect through enforcement – while it may be significant standing on its own – is a small part of the overall funds we collect through providing services that allow people to voluntarily comply. This is why taxpayer service is so critical.
In the United States for instance, our collection efforts yield about $50 to $60 billion a year. But overall voluntary compliance yields about $3.1 trillion a year.
So a big part of voluntary compliance comes down to service. It comes down to fairness. We know from many years of research that one of the biggest drivers of compliance is the feeling that your neighbors are paying their taxes too. In talking to my friends in the United Kingdom, that’s what they have discovered through surveys of their taxpayers. When you know everyone else is paying their share, you’re willing to pay as well.
Thus, my view is that the passage in the United States of the Foreign Account Tax Compliance Act was important not just for the revenue we’re now collecting. It also sends an important signal to the average American taxpayer that even the very rich, with fancy accountants and tax attorneys, are no longer able to hide their money abroad and avoid paying their fair share of taxes.
It’s helpful to discuss fairness in terms of the overall system, but perhaps more important, we’re also focusing on taxpayer rights in the context of one-on-one relationships with individual taxpayers.
Historically in the United States – looking back over the last three decades – we’ve had taxpayer rights embedded in a wide range of statutes. This is something you discussed during this morning’s panel session. Unfortunately, it hasn’t been easy for the average taxpayer to find, much less understand, all of their rights. There wasn’t a place to see them all at once.
To her credit, as I noted earlier, Nina has been encouraging the IRS for some time to pull all of the taxpayer rights together…so it’s easy to see in one place.
And so…working with Nina…we did that. In June of 2014, we announced to the public that, through administrative action, we had adopted a taxpayer bill of rights. In other words, people finally had an easy, plain language explanation of laws that had been in effect for several years.
Before our announcement, public awareness of the rights of taxpayers was very low. Nina’s office did a lot of research in prior years, and she came to some interesting conclusions based on focus groups they did around the country. Most people didn't know that they had the right to retain representation. They didn’t know they had the right to challenge the IRS’ position and be heard. They didn't know that they had the right to pay no more than what they owe. Perhaps it’s no surprise these days in light of our budget constraints, that they were most skeptical of the fact that they had the right to quality service.
Our main goal was this: We wanted to raise public awareness. We wanted to explain several things to the public and their representatives about their rights.
It was important to make clear that our actions were not creating new rights…that this was a continuation, rather than a first-time effort, of respecting taxpayer rights. In other words, it wasn’t that we didn’t respect the rights of taxpayers until now. We just wanted to draw more attention to the issue.
One of the most visible changes we made was updating a helpful guide that we include with notices and letters mailed to taxpayers. We call it Publication 1, Your Rights as a Taxpayer, and it lists the 10 broad categories of rights we announced last year.
This publication was first created nearly 30 years ago, after the first set of U.S. laws establishing taxpayer rights. Today, we print and send about 30 million copies a year. We also translate the publication into several languages, including Spanish, Chinese, Korean, Russian, and Vietnamese.
The end result is that the taxpayer bill of rights becomes a more visible part of the way our system operates. When you receive a letter from the IRS, you get this helpful reminder and it’s clear that you have these 10 basic rights…each one being important to know and understand.
In addition to updating Publication 1, we took other steps to raise awareness. We put signs and posters on display in IRS offices around the country. We released a new video on our YouTube channel. We created a special section on our website, IRS.gov.
I should also add that promoting taxpayer rights to the public has been only one part of the equation. Equally important have been our efforts to remind employees about what this means for them in their day-to-day work. As we explained, it was not that taxpayers didn’t have these rights before. And it certainly wasn’t that our employees weren’t honoring these rights . Instead, it’s about making a concerted effort to insure that taxpayers know their rights and feel comfortable asserting them, which is easier to do when the rights are visible in one place.
I personally sent a message to every employee, explaining why we took this action. We conducted surveys throughout the year to assess how well employees understood the issues. We also provided managers with helpful information and encouraged them to have meaningful discussions with their employees.
In addition, we started the process of updating our internal procedures. So when a revenue agent relies on written procedures, there’s a clear reminder about why these basic rights are important and how they work.
As I noted earlier and you’ll discuss today and tomorrow: We are in the same business as revenue agencies, but there are many key differences that will influence your approach. Taxpayer rights in one country may not look the same as taxpayer rights in another country. And there are plenty of good reasons to explain why.
Nonetheless – within the framework of a system that’s viewed as fair – we all have the same interests. They just get articulated in different ways, depending on any number of factors. Different systems, different structures, different tax codes…the list goes on.
No matter the context, it will always be true that fairness leads to positive outcomes. The voluntary compliance rate will be at an appropriately high level. The system will function effectively. And the revenue that funds government operations will be collected consistently.
Finally, let me just say that another very important issue is securing appropriate funding for the agency. How can you uphold taxpayer rights – especially the right to quality service – without the funding to support your operations?
We have many voices of support on this issue, and those voices are growing louder by the day.
Last week, former Commissioners of the IRS stated their support in a letter to Congress. And again this week, another letter of support was sent to Congress…this time, by the National Society of Accountants, a major group of tax and accounting professionals. This morning, the IRS Advisory Council – representing a variety of viewpoints in the tax community – also joined in raising concerns about IRS funding.
As an agency, we’re speaking up and making our position clear. And in fact, our position is relatively straightforward. It’s common sense. Taxpayers have the right to expect a certain level of service, and we need the funding to meet that demand. We need the funding to operate in a way that protects taxpayer rights…primarily because the tax code – especially the U.S. tax code – creates many complicated, complex situations.
But when we operate with the underlying commitment to respect these 10 basic rights, it’s good for taxpayers. It’s good for the IRS. And it’s good for the global tax system, especially as the world takes a more coordinated approach to tax collection.
Thank you for your time and attention, and thank you for joining these discussions. I hope you find them helpful in your own approach to developing and insuring the rights of taxpayers, wherever they may be.