National Taxpayer Advocate Nina Olson released a report to Congress pointing out a variety of problems, including the impact of late-year Tax Code changes on taxpayers.
Olson noted that late changes such as patching the alternative minimum tax in December 2007 and the last-minute extension of several tax deductions in 2006 have the effect of delaying refunds and preventing taxpayers from claiming the tax deductions. She pointed out that the late refunds could cause financial hardships for low-income taxpayers.
"For some taxpayers," Olson wrote, "a delay of two to four weeks in receiving their refund could mean eviction, inability to pay the high heating bills that arise during winter, or defaulting on credit card bills from the holiday season."
Olson also proposed that the IRS set up a Cash Economy Program Office to help close the tax gap on noncompliance by people who earn money in cash. She said the IRS has declined for three years in a row to do so.
She called on Congress to authorize "apology payments" of up to $1,000 to taxpayers in cases where the IRS harms taxpayers. Olson also wants better guidance about the taxation of canceled debts, saying that many taxpayers may be paying taxes they don't owe on canceled mortgage debt.
Olson criticized user fees charged by the IRS, saying the agency collects about $180 million annually, mostly from fees charged to taxpayers who enter into installment agreements to pay their tax liabilities over time. Her report also noted that the IRS's private debt collection program is falling far short of revenue projections and that the costs of the program have far exceeded the revenue generated.
