National Taxpayer Advocate Nina E. Olson’s annual report to Congress highlights the combination of an expanding IRS workload and declining resources as the most serious problem facing taxpayers.
Nina Olson
The result, the report noted, is inadequate taxpayer service, erosion of taxpayer rights, and reduced tax compliance. Olson expressed her continuing concern that the IRS’s expanding use of automated processes to adjust tax liabilities is causing harm to taxpayers and recommended that Congress enact a comprehensive Taxpayer Bill of Rights.
“The overriding challenge facing the IRS is that its workload has grown significantly in recent years, while its funding is being cut,” Olson said in releasing the report. “This is causing the IRS to resort to shortcuts that undermine fundamental taxpayer rights and harm taxpayers—and at the same time reduces the IRS’s ability to deliver on its core mission of raising revenue.”
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The sharp increase in the IRS’s workload is due to several factors, including the increasing complexity of the Tax Code and the code’s frequent changes, the need to provide service to an increasingly diverse taxpayer population, the IRS’s increasing responsibility for administering economic and social policies, a surge in refund fraud and tax-related identity theft, and the implementation of new third-party information reporting requirements.
To keep up with its rising workload, the IRS is increasingly relying on automated data-matching procedures to identify potentially inaccurate claims and adjust tax liabilities. However, automated processes are inherently imperfect, so the taxpayer’s return position often turns out to be correct. Moreover, taxpayers subject to audits are entitled to established taxpayer rights protections. But an increasing number of IRS adjustments are not classified as audits, so these protections often do not apply. Throughout the report, Olson describes IRS practices that “harm taxpayers by acting on assumptions of noncompliance arrived at by automated processes that do not solicit, encourage, or allow taxpayer response.”
Olson noted that under a program designed to detect returns relating to a scheme known as “Operation Mass Mail,” the IRS declined to process about 900,000 returns in 2011. In most situations where the IRS identifies questionable claims, it sends notices to the affected taxpayers to give them an opportunity to contest the IRS’s position. In some cases, however, the IRS simply “auto-voided” the returns, providing the individuals who had submitted them with no notice of the IRS action. Yet in tens of thousands of these cases, the IRS later marked the accounts with a code that indicated it had erred and the return had been submitted by a legitimate taxpayer. The report expresses concern that this “auto-void” procedure violates fundamental notions of due process, as individuals whom the government suspects of fraud—a serious charge—normally are given notice and an opportunity to respond before the government takes adverse action.
The report says inadequate funding for the IRS contributes to many of these problems and means the IRS cannot adequately pursue unpaid tax liabilities. The report points out that the IRS functions as the “accounts receivable” department of the federal government, as it collects more than 90 percent of all federal revenue and therefore provides the funds that make almost all other federal spending possible. On a budget of $12.1 billion, the IRS collected $2.42 trillion in fiscal year 2011. In other words, for every $1 that Congress appropriated for the IRS, the IRS collected about $200 in return. However, current federal budgeting rules do not take into account that a dollar appropriated for the IRS typically generates substantially more than a dollar in additional tax collections, leaving the agency substantially underfunded to do its job and limiting its ability to close the tax gap and thereby help reduce the federal budget deficit.
In light of the IRS’s unique role as the federal revenue collector, the National Taxpayer Advocate recommends that Congress develop new budget procedures designed to fund the IRS at a level that will enable it to meet taxpayer needs and maximize tax compliance, with due regard for protecting taxpayer rights and minimizing taxpayer burden.
The report also urges Congress to codify a Taxpayer Bill of Rights that would clearly list the major rights and responsibilities of taxpayers.
“The U.S. tax system is based on a social contract between the government and its taxpayers,” Olson wrote. “Taxpayers agree to report and pay the taxes they owe and the government agrees to provide the service and oversight necessary to ensure that taxpayers can and will do so.”
9 Comments
Wow - I made a short comment but I agree with each and every remark being made by all.
The IRS doesn't need more money - they need more education for sure. If a complicated taxpayer info is given to the employees - each would come back with a different tax liability.
And tax simplification and reduction of the complexity are a must without a doubt.
Posted by: Lenore | January 13, 2012 7:00 AM
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The insane "Practitioner Hot Line" 45 minute holds are only the beginning. Instead of getting fax numbers at the start of calls, you must wait for agents to get and look up client information. Then you often wait 30 minutes for them to get 2848 powers of attorney faxes. Many faxes do not go through, so you may need a second fax number. You also may get cut off in less than an hour (or 10 matters). This made me get 20 year 2848 forms from all clients, not the occasional one year form from those who need it. Bulk faxing these in advance, to the IRS CAF unit, wastes tremendous amounts of IRS time. The CAF unit quickly backed up from 10 days to more than 30 days. However, it saves me an extra 30 minutes on hold on each call. You can then compound this by agents who play God. Some reject forms if you fill in dates taxpayers omit, even if you do so when taxpayers are with you. Many attorneys and legal secretaries say they routinely fill in such dates on agreements, but some IRS agents are above the law in this area. Other agents reject forms that list years like 2005-2011, when there is no room on the form for 2005 2006 2007 etc. Still others reject forms with attached schedules, when limited room and a supposed need to detail dates makes anything but a schedule (or many 2848 forms) impossible. Some agents also play God by rejecting Hot Line calls if you also say you are a company officer. Still others reject your status as an officer unless you are an officer on state records, even if you send them minutes proving you are an officer, plus state laws showing that there are no state laws requiring the listing of more than one officer. These are only a few of the endless problems with income tax administration, compliance and planning (misplanning) that cost us more than 50% of what we pay in income taxes. These also are the problems that made me an ardent supporter of those who want to abolish the income tax and Internal Revenue, replacing them with the Fair Tax (a sales tax, collected by states, with rebates for necessities).
Posted by: MikeBlockCPA | January 13, 2012 1:05 AM
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I forgot to add that ACS should develop some sensitivity to folks or retrain them for people skills. When I was in Exam, the POA's and the taxpayer can talk to me and will get the right info since I use to be in Office Collection.
Posted by: gerardotax | January 12, 2012 9:08 PM
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I was with the IRS for 27 yrs. The rapid decline began when then commissioner, Rossoti, changed the whole structure. The IRS paid Booz Allen, a management firm, in the millions, to give an evaluation. Now the IRS is too top heavy and too many departments and some departments have been reduced like the Office Audit and some of the Appeals. The ones that are eliminated like Revenue Representative. and restricted the number of employees in quality reviews. Management also, gave the employees, this embedded quality evaluation: In collections, there are 150 attributes with with answers either yes or no. In short, the employees are taking more time to do their histories which now become narratives. The time to do request adjustments or Appeals have to be done in an office across the country instead of in the District office where the taxpayer is located. The information is no longer streamlined but must go to levels of management and liaisons. Lastly what consumes the time of the employees is learning some of the laws because the training now provided by the IRS is so poor. If it weren't for the bad economy the attrition rates among recruits would be higher. In the San Jose District 4/9 filed agents quit. The time to learn on your own, is demoralizing and takes away the valuable time of the employees. That waste of time could be put to good use to enable the employees to enjoy their leisure time with their family, habits etc. It is also the unrealistic expectation of management to guide the employees towards a win win conclusion on their cases. This why employees are so "bad" and that they become reckless in observing the rights of the taxpayers, that makes the Taxpayer Advocate Service overloaded with cases. Some of these TAS, God Bless, them are doing unnecessary work. Some have the lack of resources on who to contact like in San Jose, I don't even know the preparer penalty coordinator in Exam. In collection, I don't even know the person who handles redemption of a Federal Tax Lien. Also the Collection Appeals is gone and I have to deal with the Collection Appeals in Los Angeles.
Posted by: gerardotax | January 12, 2012 9:03 PM
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Ms. Olson, I thought the IRS's core mission was to collect revenue, not to "raise" revenue?
Posted by: Snickelfritz | January 12, 2012 6:16 PM
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Rather than throwing more funding and money at the IRS as Ms. Olson suggests, I would advocate simplifying (or eliminating) the thousands of special tax provisions that often are passed into law for the benefit of a specific industry or business. The U.S. tax code is needlessly complex because companies and their lobbyists are willing to ply congress into passing industry-specific rules benefiting a select few. Reduce the tax code to a simple graduated or tiered system based on income, do away with all the special-favor provisions, and I guarantee the IRS would have more than enough funding at current levels to effectively administer the tax code.
Posted by: manetco | January 12, 2012 1:21 PM
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Every time I call the practitioner hotline, I awlays get frustrated. I wonder if there is anybody there who tries to find out on the attached footnotes why the item reported by a third party does not agree with the return. A good example of this is when a real estate property is owned by more than one individuals. The 1099 does not allow more than one social security number. The real estate tax and mortgage interest are divided among the owners. This is what happened to one of my clients last year and because of this I got an accusatory letter from the IRS with the implied note that I might be ignorant of the tax laws and a threat of big penalty to boot.
Posted by: Linor34b | January 12, 2012 12:31 PM
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I have several clients that receive notices with absolutely no indication of where the IRS has come up with their numbers.
Then we have to attempt to get the information which in turn slows down resolution of the situation and causes a clog in wheel.
Further - the IRS should NOT be involved with responsibility for administering economic and social policies - EVER!!!!!
Posted by: Lenore | January 12, 2012 11:58 AM
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Ever try to call the practitioner hotline anymore? 45 minute holds!!! It is ridiculous...
Although I use e-services, there are times I need to talk to a person to clarify issues. Rick Donner, CPA Fort Myers, FL
Posted by: Unknown | January 12, 2012 9:23 AM
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