Coinciding with the end of tax season, House lawmakers last month passed a bill that promises to make tax preparation easier, while also repealing the Internal Revenue Service’s often controversial Private Debt Collection Program.By a margin of 238-179, the House approved the Taxpayer Assistance and Simplification Act of 2008, which repeals the outsourcing program. The program had come under heavy fire — particularly from Democrats — for spending $75 million to collect just $35 million for the IRS. Under the agreement, three private firms took a 24 percent cut of the taxes they collected.
Ways and Means Committee Chairman Charles Rangel, D-N.Y., and Oversight Subcommittee Chairman John Lewis, D-Ga., had introduced the bill. “It would once and for all repeal the authority of the IRS to enter into private debt collection contracts,” Lewis said. “This program violates the public trust.”
In addition to the private debt collection repeal, the bill eliminated special requirements for individuals to keep detailed records of the calls they make on cell phones provided by their employers.
The bill also equalizes the tax return reporting standards for tax preparers and taxpayers, reversing a provision in a 2007 law that the American Institute of CPAs had lobbied heavily against. The new provision modifies the penalty on an understatement of a taxpayer’s liability to remove potential conflicts of interest between the taxpayer and tax preparer. It also delays for one year the imposition of a 3 percent withholding requirement on government payments for goods and services made after Dec. 31, 2010.
Another provision promises to stop federal contractors from using foreign subsidiaries to evade Social Security and other employment taxes. And it makes the administrators of state and local government programs liable for paying employment taxes on amounts paid by government programs to in-home care workers provided to elderly and disabled persons.
It further seeks to combat identity theft and fraud by prohibiting the misuse of Department of the Treasury names and symbols in misleading Web sites and “phishing” schemes. It requires the IRS to notify taxpayers if it suspects theft of a taxpayer’s identity.
The authors of the bill hope to protect low-income taxpayers by prohibiting IRS debt indicators for predatory refund anticipation loans, allowing IRS employees to refer taxpayers to qualified low-income taxpayer clinics, and authorizing funding for Volunteer Income Tax Assistance programs.
BUT GRASSLEY LIKES IT
Ironically, the House repeal of the private collection systems comes as Sen. Chuck Grassley, R-Iowa, ranking member of the Senate Finance Committee, defended the outsourcing by pointing out the thousands of disciplinary actions taken against IRS employees.
In a letter to Sen. Byron Dorgan, D-N.D., lead sponsor of Senate legislation to cut the outsourcing program, Grassley noted the IRS’s own poor track record in closing the “tax gap” between taxes owed but not collected.
“The tax gap of $345 billion grew in part because the IRS either lacks the will, direction, innovation or sound management to stay on top of the problem,” wrote Grassley. “Congress may have contributed to these failures. If the private debt collection program is the ‘hood ornament for incompetence,’ as you called it, then the IRS’s failure to collect $345 billion of taxes due and owed is the Edsel of government functions.”
Grassley acknowledged that the private collection program has been derided as costing more money than it raised for the federal treasury, but countered that IRS employees are also a “big expense,” with their costly salaries and benefits.
While taxpayers have complained about harassment from the three private collection firms contracted by the IRS, Grassley noted that IRS employees had shortcomings of their own.
He singled out the National Taxpayer Advocate’s Office, which has pushed for repeal of the private collection program. “Ironically, staff members in the National Taxpayer Advocate’s Office were disciplined dozens of times for problems last year,” he wrote, adding that some of the actions involved computer security and taxpayer privacy violations. Other causes included failure to properly and timely file or pay taxes, and government credit card problems.
Overall, the IRS took disciplinary action against more than 2,000, or 2.3 percent, of its employees last year. As with the Taxpayer Advocate’s Office, some of the actions did not involve taxpayer privacy or service.
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