National Taxpayer Advocate Nina E. Olson has released her statutorily mandated mid-year report to the United States Congress that identifies the priority issues the Taxpayer Advocate Service (TAS) will address with the Internal Revenue Service (IRS) during the upcoming fiscal year.
While also presenting a special report examining the use of questionable criteria by the IRS to screen applicants for tax-exempt status, TAS's mid-year report expresses particular concern about the impact of budget cuts on the IRS's ability to meet taxpayer needs, its unwillingness to issue full refunds to victims of tax return preparer fraud and shortcomings in its procedures for assisting victims of tax-related identity theft.
"Today, the IRS is an institution in crisis," Olson wrote. "In my view, however, the real crisis is not the one generating headlines. The real crisis facing the IRS – and therefore taxpayers – is a radically transformed mission coupled with inadequate funding to accomplish that mission. As a consequence of this crisis, the IRS gives limited consideration to taxpayer rights or fundamental tax administration principles as it struggles to get its job done."
The report identifies the priority issues on which TAS will focus during the upcoming fiscal year. The report describes numerous challenges facing the IRS, including relieving the financial harm suffered by victims of tax return preparer fraud; conducting adequate oversight of the tax return preparer industry; providing effective, timely and taxpayer-centric relief to victims of identity theft; and utilizing effective and timely collection alternatives to minimize taxpayer burdens.
With regard to the IRS's failure to provide timely relief to taxpayers who are defrauded by their tax return preparers, IRS Chief Counsel has opined since 2003 that the agency "has the authority to issue the taxpayer his or her correct refund, yet as of today, the IRS has not established procedures for making these taxpayers whole. Instead, it has directed its employees to put these cases on hold indefinitely until someone, somewhere, makes a policy call."
In the past year, TAS comments that, while the IRS has revamped the way it works identity theft (IDT) cases, and has set up 21 specialized IDT units to assist victims of identity theft, there is substantial evidence that this approach is not working.
TAS is specifically concerned that IDT cases continue to top the list of its case receipts; because IDT cases are complex and often involve multiple issues, the need for a centralized unit to monitor cases is even more urgent; the IRS is still harming victims by extensively delaying case resolution; and the IRS's IDT filters ensnare far too many legitimate filers.
In addition, TAS believes that the IRS should conduct education and outreach to taxpayers about their responsibilities under the Affordable Care Act; and establish less draconian and more reasonable "settlement initiatives" for the millions of taxpayers who have legitimate reasons for overseas bank and financial accounts and whose failure to file reports was merely negligent.
Olson has expressed particular concern about the impact of cuts to the IRS budget on taxpayer services, taxpayer rights and revenue collection. She recommends that Congress provide sufficient funding for the IRS to meet taxpayer needs. Notably, she recommends that funding be restored for employee training, which has been cut by 83 percent since 2010. "The last thing a financially struggling taxpayer should have to face is an under-trained IRS collection apparatus," she added.
Olson repeats her recommendation that Congress should enact a Taxpayer Bill of Rights (TBOR) that takes the dozens of existing taxpayer rights embedded in the Internal Revenue Code and groups them into broad categories – the right to be informed, to be assisted, to be heard, to pay no more than the correct amount of tax, of appeal, to certainty, to privacy, to confidentiality, to representation, and to a fair and just tax system.
Those categories would be designed to make existing rights clearer and more accessible to taxpayers and IRS employees alike. For example, in a 2012 survey commissioned TAS, only 46 percent of US taxpayers said they believed they have rights before the IRS, and only 11 percent said they knew what those rights were.
"A TBOR," she concluded, "would act simultaneously as an organizing principle for tax administrators, an educational framework for IRS employees, and a consciousness-raising document for taxpayers. It would provide a significant check and balance against government overreaching.".
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