The IRS has been in the dog house in the eyes of the American people for some time now. In an effort to renew trust in the agency, Taxpayer Advocate Nina E. Olson is calling for the IRS to adopt a new Taxpayer Bill of Rights in order to serve taxpayers better and collect taxes owed. She’s also urging the IRS to allow voluntary certification of tax preparers who are currently not enrolled if the IRS does not win it’s court appeal to invalidate testing requirements for tax preparers.
She pointed out several concerns about the fact that the IRS is short of funds and that it hasn’t been able to keep up with phone calls from confused taxpayers seeking help from customer service reps. This is partially blamed on the sequester that cut IRS funding. This reduced trust in the IRS. The government shutdown, which lasted 16 days, delayed the date that taxpayers could file returns and get refunds for the upcoming tax season. Kevin Thompson, CPA tells us “the sequester was to happen in early 2013. It was postponed until later in the year and we have cases still mired in the confusion caused by the shutdown of the IRS. One in particular has been delivered to the Taxpayer Advocates office because it has wallowed in the IRS for more than two years.” “As a professional, it is embarrassing not to be able to move these projects through the IRS timely. We have many frustrated taxpayers as a result. I think a Bill of Rights will go a long way in assisting Taxpayers when their rights are violated.”
The new Taxpayer Bill of Rights purpose is to meet taxpayer needs and encourage voluntary tax compliance.
She said, ““If taxpayers believe they are treated, or can be treated, in an arbitrary and capricious manner, they will mistrust the tax system and be less likely to comply with the laws voluntarily. If taxpayers have confidence in the fairness and integrity of the system, they will be more likely to comply.”
Only 2 percent of taxpayers are subject to IRS enforcement. 98% of all tax revenue is collected on a timely and voluntary basis. Voluntary compliance is much cheaper for the IRS than spending funds to track down those who have not voluntarily reported or paid.
Still, a survey of US Taxpayers noted that less than ½ of the respondents believe they have rights with regard to the IRS and only 11 percent knew what their rights were. According to Ms. Olson, it comes down to the fact that even though taxpayer rights already exist, the public is unclear on what they mean because they haven’t been presented in a coherent way. She is proposing 10 rights that are detailed in her report.
Ms. Olsen pointed out the requirement of US citizens to pay taxes is the biggest burden the government imposes on its citizens and that it needs to make the process as simple and easy as possible. She also believes that federal spending cuts, designed to reduce the deficit, actually increases the deficit when enforcement of tax paying needs to be put into play.
In recent years IRS service has been diminished due to a lack of resources. This includes answering calls, long wait times, less assistance for low income and disabled taxpayers, etc. Ms. Olsen remarked:
“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.”
Since 2010, the IRS training budget has been cut substantially. This has affected its customer service immensely and has often been attributed to taxpayers getting incorrect information and advice.
Olson also stated that IRS funding is shortchanged and that the federal budget treats the IRS as it does all other spending programs, with no “credit” given for the revenue it collects, which makes very little sense when applied to the IRS. She recommends that congressional committees, addressing the problem, work together to find new ways to fund the IRS in order to maximize voluntary tax compliance and to protect taxpayer rights and to minimize taxpayer burden.
Olsen’s report identifies 25 problems with the IRS, makes dozens of recommendations for changes in administration, 5 changes for legislative change, and analyzes 10 tax issues that end up frequently in court.
Some of the problems include:
The Need for Return Preparer Oversight – In 2013, the US District Court invalidated regulations that dealt with IRS testing and education for unenrolled tax preparers that had been in place since 2003. The Advocate is urging the IRS to protect taxpayers by finding other educational and enforcement options that do not exceed the authority of the Treasury Dept. One recommendation was to allow unenrolled preparers to earn a continuing education certification and to limit tax preparers who do not earn the certificate to represent taxpayers in audits of returns they’ve prepared.
The IRS Approach to Collection of Delinquent Taxes – The Advocate recommends that the IRS re-access its traditional approach toward tax collection. She urges the use of more flexible payment options for people who are struggling financially rather than increasing levies and liens that are often filed using automation.
Impact of Offshore Voluntary Disclosure Programs on Taxpayers who Have Made Honest Mistakes – The IRS has offered a series of offshore voluntary disclosure programs (OVD) and has also been trying to increase the enforcement of Foreign Bank and Financial Accounts. (FBAR) The problem is that the programs attempt to issue excessive penalties on taxpayers who did not file because of honest mistakes. The average penalty added up to about 381 percent of the amount owed for taxpayers with average balances. They were 580 percent for taxpayers with the smallest balances. (average of $44,855) Those who opted out of OVD tended to fare better but still faced penalties that added up to nearly 70% interest.
For More Info on the Report go to http://www.taxpayeradvocate.irs.gov/2013AnnualReport