IRS Information
Quick Links
Members Only Section
Facebook
Posted 1/11/2012
National Taxpayer Advocate Says IRS Not Adequately Funded
National Taxpayer Advocate Nina E. Olson has released her annual report to Congress which concludes that the IRS's expanding workload and reduced funding is the most serious problem facing taxpayers. The funding problem is causing inadequate taxpayer service, erosion of taxpayer rights, and reduced tax compliance, according to the report. Olson was particularly critical of the IRS using automated processes to adjust tax liabilities, which is causing harm to taxpayers, and recommended that Congress enact a comprehensive Taxpayer Bill of Rights.
Automated processes are inherently imperfect, so the taxpayer's return position often turns out to be correct, Olson notes. However, the automatic adjustments do not have the same taxpayer protections available in the audit process, so taxpayers have more difficulty challenging these adjustments. In 2010 alone, the IRS made about 15 million contacts with taxpayers to adjust their tax liabilities, but it treated only about ten percent (1.6 million) as audits. Thus, in most cases, the IRS action did not give rise to traditional audit protections, including the right to avoid repetitive examinations and the right to petition the Tax Court for review.
"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."
Factors Causing Problems
The report identifies several factors leading to the workload problem, including the IRS's increasing responsibility for administering economic and social policies, a surge in refund fraud and tax-related identity theft, new third-party information reporting requirements, and the expansion of refundable credits. There were approximately 4,430 changes to the tax code from 2001 through 2010, an average of more than one a day, including an estimated 579 changes in 2010 alone. The IRS must explain each new provision to taxpayers, write computer code so it can process returns affected by the provision, and train its auditors to identify improper claims.
Delays in Large Refunds, Taxpayer Service
Among taxpayers who sought assistance from the Taxpayer Advocate Service after their refunds were withheld on a suspicion of fraud, 75 percent received relief. However, these taxpayers had to wait an average of nearly six months to receive their refunds. The average refund amount was $5,600, a significant sum for most households. The IRS's taxpayer services also has declined in efficiency. The report states that from FY 2004 to FY 2011, the percentage of calls that the IRS answered from taxpayers seeking to speak with a telephone assistor dropped from 87 percent to 70 percent. Over the same period, the IRS's ability to timely process taxpayer correspondence also declined.
New Taxpayer Bill of Rights
The report urges Congress to codify a Taxpayer Bill of Rights that would clearly list the major rights and responsibilities of taxpayers. "I believe taxpayers and tax administration will benefit from an explicit statement of what taxpayers have a right to expect from their government and what the government has a right to expect from its taxpayers," Olson said.
Taxpayer Rights: The report recommends that Congress organize taxpayer rights under the following ten broad principles: (1) right to be informed; (2) right to be assisted; (3) right to be heard; (4) right to pay no more than the correct amount of tax; (5) right of appeal; (6) right to certainty; (7) right to privacy; (8) right to confidentiality; (9) right to representation; and (10) right to a fair and just tax system.
Taxpayer Responsibilities: The report recommends that Congress organize taxpayer responsibilities under the following five principles: (1) obligation to be honest; (2) obligation to be cooperative; (3) obligation to provide accurate information and documents on time; (4) obligation to keep records; and (5) obligation to pay taxes on time.
Related Document:
Click here for the text of the 82-page Executive Summary.
The full-text of the report is available on the IRS website at http://www.irs.gov/advocate/article/0,,id=252216,00.html