National Taxpayer Advocate's Annual Report to Congress

National Taxpayer Advocate Nina Olson

On 1/9/13, Nina Olson, National Taxpayer Advocate, released the annual report her office is required to issue to Congress (IR-2013-3). This lengthy* report points out serious problems that need to be addressed by both Congress and the IRS. The three key themes of the report are:

1. The need for tax reform.
2. Funding for the IRS is insufficient for it to do its work.
3. Identify theft problems.

For tax reform, the report suggests two actions for Congress:

1. "Lay the groundwork for tax reform by holding meetings with constituents to discuss the complexity of the existing tax code and the trade-offs between tax rates and tax breaks that tax reform will require.
2. Apply a “zero-based budgeting” approach to comprehensive tax reform that starts out with the assumption that all tax benefits will be eliminated and then adds a benefit back only if Members conclude that, on balance, the public policy benefits of providing that benefit through the tax code outweigh the complexity it imposes on taxpayers."

Instead of the 20 most serious problems (MSPs), there are 23 noted and discussed. They are:

"MOST SERIOUS PROBLEMS ENCOUNTERED BY TAXPAYERS

• The Most Significant Issues Facing Taxpayers and the IRS Today

  • Introduction: The Most Serious Problems Encountered by Taxpayers
  • The Complexity of the Tax Code
  • The Alternative Minimum Tax Corrodes Both the Tax System and the Democratic Process
  • The IRS Is Significantly Underfunded to Serve Taxpayers and Collect Tax

• Victims of Identity Theft and Other Vulnerable Taxpayers

  • The IRS Has Failed to Provide Effective and Timely Assistance to Victims of Identity Theft
  • The IRS Harms Victims of Return Preparer Misconduct by Failing to Resolve Their Accounts Fully
  • Despite Some Improvements, the IRS Continues to Harm Taxpayers by Unreasonably Delaying the Processing of Valid Refund Claims that Happen to Trigger Systemic Filters
  • The IRS’s Compliance Strategy for the Expanded Adoption Credit Has Significantly and Unnecessarily Harmed Vulnerable Taxpayers, Has Increased Costs for the IRS, and Does Not Bode Well for Future Credit Administration

• Protection of Taxpayer Rights in Compliance Initiatives

  • The IRS’s Offshore Voluntary Disclosure Programs Discourage Voluntary Compliance by Those Who Inadvertently Failed to Report Foreign Accounts
  • The IRS’s Handling of ITIN Applications Imposes an Onerous Burden on ITIN Applicants, Discourages Compliance, and Negatively Affects the IRS’s Ability to Detect and Deter Fraud
  • The Preservation of Fundamental Taxpayer Rights Is Critical as the IRS Develops a Real-Time Tax System
  • Overextended IRS Resources and IRS Errors in the Automatic Revocation and Reinstatement Process Are Burdening Tax-Exempt Organizations

• Taxpayer Service in the Twenty-First Century

  • Introduction: The IRS Must Confront Challenges to Delivering High Quality Taxpayer Service in the Twenty-First Century
  • The IRS Telephone and Correspondence Services Have Deteriorated Over the Last Decade and Must Improve to Meet Taxpayer Needs
  • The IRS Has Failed to Make Free Return Preparation and Free Electronic Filing Available to All Individual Taxpayers
  • The IRS Is Striving to Meet Taxpayers’ Increasing Demand for Online Services, Yet More Needs to Be Done
  • Challenges Persist for International Taxpayers as the IRS Moves Slowly to Address Their Needs
  • IRS Processing Flaws and Service Delays Continue to Undermine Fundamental Taxpayer Rights to Representation
  • The IRS Lacks a Servicewide Strategy that Identifies Effective and Efficient Means of Delivering Face-to-Face Taxpayer Services
  • The IRS Is Substantially Reducing Both the Amount and Scope of Its Direct Education and Outreach to Taxpayers and Does Not Measure the Effectiveness of Its Remaining Outreach Activities, Thereby Risking Increased Noncompliance
  • A Proactive Approach to Developing a Government-Issued Debit Card to Receive Tax Refunds Will Benefit Unbanked Taxpayers

• Taxpayer Service Within Collection

  • Introduction: The IRS “Fresh Start” Initiative Has Produced Significant Improvements in Some Collection Policies; However, Significantly More Emphasis on Service Delivery Is Necessary to Realize the Full Benefits of These Important Changes
  • The Diminishing Role of the Revenue Officer Has Been Detrimental to the Overall Effectiveness of IRS Collection Operations
  • The Automated Collection System Must Emphasize Taxpayer Service Initiatives to Resolve Collection Workload More Effectively
  • Although the IRS “Fresh Start” Initiative Has Reduced the Number of Lien Notices Filed, the IRS Has Failed to Determine Whether Its Lien Policies are Clearly Supported by Either Increased Taxpayer Compliance or Revenue
  • Early Intervention, Offers in Compromise, and Proactive Outreach Can Help Victims of Failed Payroll Service Providers and Increase Employment Tax Compliance"

As always, the NTA annual report is a great overview of key problems with our federal tax system with recommendations for improvement.

I'll have more later on a few of the topics.

What do you think? Anything missing?

* Volume 1 is 756 pages and Volume 2 is 166 pages.