Making Taxes Less Taxing!

On January 10, National Taxpayer Advocate Nina E. Olson released her annual report to Congress, identifying the combination of the IRS’s expanding workload and declining resources as the most serious problem facing taxpayers. The result, the report says, is inadequate taxpayer service, erosion of taxpayer rights, and reduced tax compliance. The Advocate expressed her continuing concern that the IRS’s expanding use of automated processes to adjust tax liabilities is causing harm to taxpayers. 

As in last year’s highlight of the Advocate’s report to Congress, over the next few weeks and months Tax Today will put its two cents worth with regard to the Advocate Service, IRS, and you, the taxpayer. 

The IRS Is Not Adequately Funded To Serve Taxpayers and Collect Taxes

According to the Advocate, the overriding challenge facing the IRS is increased workload with decreased funding.  This has caused the IRS to resort to shortcuts that undermine fundamental taxpayer rights and harm taxpayers. 

Workload Overload.  The sharp increase in the IRS’s workload is due to several factors, arising mostly out of the increasing complexity of the tax code, a surge in refund fraud and tax-related identity theft, and the implementation of new third-party information reporting requirements. 

Not cited in the report but playing a part in work overload is employee attrition, either through retirement, or the closing of certain IRS facilities around the country, subjecting the affected workers to retirement or a buyout by another employee, allowing him to retire.  The remaining workers inherit the workload of their predecessors while at the same time remain responsible for the work that they performed beforehand. 

New and expanded credits, such as the Earned Income Credit, First-Time Homebuyer Credit, the American Opportunity tax credit, the Adoption Tax Credit, and the Additional Child Tax Credit, has fostered an increase in bogus refund claims by both preparers and taxpayers alike that seeks to profit off the tax system by claiming refunds that exceed the amount of taxes they have paid.  At its worse, these individuals have resorted to stealing and using another taxpayer’s identity to file for refunds they are not entitled to.    

In 2011, the IRS’s Electronic Fraud Detection System (EFDS) flagged 1,054,704 returns on suspicion of fraud, an increase of 72 percent over 2010.  Meanwhile, the IRS’s centralized Identity Protection Specialized Unit (IPSU) received more than 226,000 identity theft-related cases, an increase of 20 percent over 2010.

According to Ms. Olson, “the IRS’s task in identifying these claims has become more challenging, with the inevitable result that some fraudulent claims are never identified and many legitimate claims are mistakenly held up, imposing a significant burden on honest taxpayers.” 

Of course, it would be nice if a strategy were formulated to avoid having honest taxpayers having to suffer unfairly at the hands of the dishonest ones.     

The Taxpayer Advocate Report To Congress: Executive Summary