Congress , IRS Must Do More to Improve Tax Compliance in “Sharing Economy,” National Taxpayer Advocate Says

National Taxpayer Advocate Nina E. Olson defined IRS practices as “absurd” at a May 26 House Small Business Committee hearing, when referring to the Service’s refusal to answer any more tax law questions in 2016, apart from information already provided online. “There is no substitute for talking to taxpayers, and understanding what their confusion is and learning what they need; that comes from human beings,” Olson said. Her testimony focused primarily on the IRS’s role in a sharing economy and how the Service might better encourage tax compliance among participants.

The hearing focused on tax challenges for workers and small businesses in the so-called “sharing economy.” Olson described the sharing economy as “collaborative consumption” or a “peer-to-peer market” that links providers to consumers of goods or services, generally coordinated through a community-based online service. This business framework is the fastest growing segment of the labor market, according to the committee. The danger that taxpayers face is failing to understand their tax obligations, including recordkeeping requirements, and not being offered any guidance or effective taxpayer service by the IRS to facilitate compliance, according to Olson.

Olson expressed concern about the IRS’s small business outreach function or, rather, lack thereof. In 2004, the IRS dissolved its small business outreach unit, a move Olson deemed “foolish.” Currently, there is no geographical IRS presence available to small businesses across the country to influence taxpayer understanding and compliance, Olson noted. “We need education and outreach,” she added.

“The IRS has not been part of the solution,” Chairman Steve Chabot, R-Ohio, said. Ranking member Nydia Velázquez, D-N.Y., mentioned IRS budget cuts as a contributor to the problem.

“Congress needs to provide the resources for the IRS to properly staff its phone lines to achieve an acceptable level of service, and it needs to hold the IRS accountable for answering tax law questions via the phone all year round,” Olson advised. “We are asking taxpayers to voluntarily comply with their tax obligations, and the IRS should be there to pick up the phone and answer questions,” she added

Olson made a number of additional recommendations for Congress and the IRS, including:

— Creating estimated tax payment deadlines that are easier to remember.

— Directing the IRS to create a program that allows independent contractors to enter into voluntary withholding agreements.

— Directing the IRS to develop an electronic tool available for employers to determinate worker classifications.

By Jessica Watkins, Wolters Kluwer News Staff

Written Statement of NTA Nina E. Olson

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Wolters Kluwer Tax and Accounting

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