Taxpayer Advocate Warns Of Increased Demands On IRS

by Leroy Baker, Tax-News.com, New York

07 January 2010

US National Taxpayer Advocate Nina E. Olson has released her annual report to Congress, warning that increased demands on the Internal Revenue Service (IRS) have eroded the agency’s ability to meet taxpayer service needs and expressing concern that collection practices are harming financially struggling taxpayers without producing significant revenue gains.

In the preface to the report, Olson noted that she is required by statute to identify taxpayer problems, but wrote that “the IRS in many respects has had an extremely successful year”.

She cited, in particular, the IRS’s success in implementing significant legislative changes designed to stimulate the economy in the midst of the filing season.

The report designates the IRS’s declining ability to answer telephone calls as the most serious problem facing taxpayers.

Olson noted that the IRS has set a target for fiscal year 2010 of answering only 71% of calls from taxpayers seeking to speak with a customer service representative about account questions, down from 83% in FY 2007.

“In other words, the IRS is planning to be unable to answer about three of every 10 calls it receives,” Olson observed, adding that the IRS expects those who get through will have to wait an average of 12 minutes.

The report contains a detailed assessment of IRS examination and collection practices, concluding that many practices have been developed piecemeal and that the IRS lacks an effective overarching strategy to maximize voluntary compliance.

The report also concludes that IRS collection practices often harm taxpayers without producing revenue.

In particular, the report cites IRS lien filing policies as the second most serious problem facing taxpayers. The IRS uses automated systems to file liens against taxpayers in a variety of situations, even when the taxpayer possesses minimal or no property and the lien will do little more than damage the taxpayer’s financial viability and access to credit.

A second study found that IRS procedures for determining a taxpayer’s ability to pay outstanding tax liabilities may be driving some taxpayers into long-term noncompliance because the IRS fails to consider other debts such as credit card balances, school loans, and actual hospital or medical bills.

“Any taxpayer with these debts will tell you that these creditors don’t go away,” Olson said.

“Taxpayers are placed in the intolerable position of agreeing to pay the IRS more than they can actually afford (given their other debts) and then defaulting on the IRS payment arrangements when they channel payments to unsecured creditors in order to get some peace. Thus, the IRS itself fosters noncompliance by its failure to take a holistic approach to the taxpayer’s debt situation.”

The National Taxpayer Advocate therefore recommended that Congress require the IRS, before imposing a lien, to make a determination that the benefits of filing the lien outweigh the harm to the taxpayer and will not jeopardize the taxpayer’s ability to comply with future tax obligations.

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