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US Taxpayer Advocate Delivers Annual Report To Congress

by Mike Godfrey,, Washington

13 January 2014

The United States National Taxpayer Advocate Nina E. Olson has released her 2013 annual report to Congress, in which one of her recommendations is for the Internal Revenue Service (IRS) to adopt a comprehensive Taxpayer Bill of Rights (TBOR).

While she urges the adoption of a TBOR so as to increase trust in the IRS, and, more generally, to strengthen its ability to serve taxpayers and collect tax, Olson also expresses deep concern that the agency is not adequately funded to serve taxpayers, pointing out that, in fiscal year 2013, it could only answer 61 percent of calls from taxpayers seeking to speak with an IRS customer service representative.

"FY 2013 was a very challenging one for the IRS," she said. "Because of sequestration, the IRS's funding was substantially cut, which translated into a reduction in taxpayer service … (while) public trust in its fairness and impartiality was called into question because of reports the IRS subjected certain applicants for tax-exempt status to greater review based on political-sounding names."

In addition, she added, "because of the 16-day government shutdown, the agency could not complete preparations for the upcoming tax filing season on time, delaying the date on which taxpayers can first file returns and claim refunds."

The report reiterates the Advocate's longstanding recommendation that the IRS adopt a TBOR. "Taxpayer rights are central to voluntary compliance," the report says, and argues that knowledge of taxpayer rights would promote such compliance. It cites a survey of US taxpayers in 2012 that found less than half of respondents believed they have rights before the IRS and only 11 percent said they knew what those rights are.

It is concluded that "a TBOR would serve as an organizing principle for tax administrators in establishing agency goals and performance measures, provide foundational principles to guide IRS employees in their dealings with taxpayers, and provide information to taxpayers to assist them in their dealings with the IRS."

Olson said the IRS is open to publishing a proposed TBOR, and she will continue to work with the IRS leadership to refine and publish it during the coming year.

Olson has also made clear that she primarily attributed deficiencies in taxpayer service to a lack of IRS resources. The report states that "it is a sad state of affairs when the Government writes tax laws as complex as ours – and then is unable to answer any questions beyond 'basic' ones from baffled citizens who are doing their best to comply." It concludes that "the logic behind budget cuts simply does not apply to the funding of the IRS. The IRS collected USD255 for each dollar it received in appropriated funds in FY 2013."

Among the "most serious problems" addressed in the report, Olson reinforces her call for increased tax return preparer oversight. Given the legal problems being encountered in the US courts, which have, so far, invalidated regulations governing the IRS's testing and continuing education requirements, the Advocate recommends that Congress should enact legislation to clarify that the IRS may directly regulate paid return preparers.

The report also recommends that the IRS should issue guidance to assist users of digital currency, such as bitcoin. It is noted that, in the four months between July and December 2013, bitcoin usage has increased by over 75 percent – from about 1,700 transactions per hour to over 3,000, and, over the same period, the market value of bitcoins in circulation increased more than ten-fold from about USD1.1bn to USD12.6bn.

However, it is pointed out that the IRS has yet to issue specific guidance addressing the tax treatment or reporting requirements applicable to digital currency transactions, and taxpayers are unsure of the rules to which they should comply. It is concluded therefore that the provision of such guidance would promote tax compliance, particularly among those who want to report digital currency transactions properly, and it would reduce the risk that users of digital currencies will face tax consequences that they did not anticipate.

TAGS: court | compliance | tax | tax compliance | commerce | law | employees | budget | Internal Revenue Service (IRS) | tax authority | internet | e-commerce | legislation | United States | currency | regulation | individual income tax | Tax

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