Taxpayer Perceptions of the Internal Revenue Service

By Moen, David H.; Davies, Thomas L. et al. | Journal of Business and Accounting, Fall 2014 | Go to article overview

Taxpayer Perceptions of the Internal Revenue Service


Moen, David H., Davies, Thomas L., Lavin, Angeline M., Journal of Business and Accounting


ABSTRACT

In the early months of every year, taxes are on the minds of many US citizens as they prepare to file and pay their most recent federal income taxes. The goals of this research are to study public perceptions of the IRS prior to the reporting of the tax-exempt status and spending events, and to gauge the potential impact of each event on taxpayer opinion and behavior in the United States. This paper summarizes the results of a study undertaken by the authors that consisted of a survey administered to nearly 800 respondents in late 2013. The results of this study suggest that taxpayers do have a relatively higher opinion as to the agency's effectiveness in collecting tax but a lower opinion as to its efficiency and professionalism in conducting its affairs. This study has also shown that the negative reports this past summer about the agency have further tarnished its image and the taxpayers' confidence in it.

INTRODUCTION

During the summer of 2013, national news media reported that the Internal Revenue Service (1RS) had targeted certain organizations that had applied for tax-exempt status. The claim was that 1RS personnel had been more closely scrutinizing applications submitted by conservative groups. While there have been more recent reports that suggest these initial claims were not entirely accurate, an investigation and internal review of the policies being followed by the 1RS continued. Around the same time, it was also reported that the 1RS had not been fiscally responsible when holding training and development conferences for its employees in recent years. Specifically, there were allegations that the agency had spent money on questionable expenses such as parody videos and other items considered by some to be wasteful. The spending controversy also resulted in additional scrutiny by Congress and other government agencies.

As taxpayers know, the 1RS is the agency responsible for the collection of taxes and related activities arising from laws enacted by the federal government. The origin of the 1RS dates back to the Civil War when the first income tax was enacted to pay expenses of war in 1862. The income tax was then repealed in 1872. Congress revived the income tax in 1894, but a year later the Supreme Court ruled it unconstitutional. The tax was re-instated in 1913 after a three-fourths majority of the states voted to ratify the 16th Amendment which authorized Congress to levy an income tax. In 1913, the income tax was a flat tax; citizens making more than $3,000 but less than $500,000 were required to pay a one percent tax on net personal income, and those making more than $500,000 paid a six percent surtax. Income tax rates in the US have varied considerably over time. After the income tax was re-enacted, the rate rose quickly to finance the war effort, reaching a top rate of 77 percent in 1918. The rate dropped during the post war years to 24 percent in 1929 and then increased again during the Great Depression. Payroll withholding and quarterly payments were introduced during World War II (IRS(d), 2014).

Taxes are on the minds of many US citizens at the beginning of the year as they prepare to file and pay their prior years' taxes. The goals of this research are to study public perceptions of the 1RS prior to the reporting of the tax-exempt status and spending events, and to gauge the potential impact of each event on taxpayer opinion and behavior in the United States.

LITERATURE REVIEW

In January 2010, the Supreme Court ruled in Citizens United v. Federal Election Commission that organizations could not be denied tax-exempt status because of their support for political candidates (Liptak, 2010). Since the 2010 decision, the number of organizations applying for nonprofit, tax-exempt status undertax code §501(c)(4) of the Internal Revenue Code increased over 100 percent (IRS(a), 2013). Under Internal Revenue Code (Code) §501(c)(4), social welfare organizations and local associations of employees are able to apply for nonprofit status (IRS(b), 2013). …

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