Saturday, July 31, 2010


The recent National Taxpayer Advocate’s mid-year report observes that the IRS has, over the past several years, developed into a dual role agency. The report identifies that the IRS’ roles are now:

1.          To encourage tax compliance and
2.          To deliver social benefits and programs.

Most taxpayers are familiar with the IRS role of ensuring the filing of tax returns, the auditing of those returns and the collection of tax due. The Taxpayer Advocate report also appropriately identifies that the IRS resources are largely being diverted by the administration of social programs such as:

 Administering billions of dollars to millions of taxpayers in economic stimulus payments.

 Making work pay credits.

 First time home buyer credits.

 Hybrid car credits.

Without regard to the politics of these credits and social programs, there is a certain sense of logic to having the IRS administer these kinds of programs. The IRS has an existing infrastructure for managing and tracking the credits and payments. However, the significant observation by the Taxpayer Advocate is that the dual role of the IRS as it has evolved should receive a formalized acknowledgement in order to allow it to operate effectively.

Only by acknowledging the dual role of the IRS is it likely that additional resources will be provided to the IRS. This is necessary due to the substantial diversion of IRS resources to activities other than ensuring tax compliance. While the role of the IRS has increased, the resources allocated to it have not increased correspondingly. This is bad.

While it may be perceived as a bit counterintuitive that a tax attorney who is regularly engaged in disputes with the IRS would suggest that the IRS requires additional funding, this is exactly what the organization needs. Without adequate funds and staff, the IRS cannot function properly.

The Taxpayer Advocate’s report observes that the IRS is failing to consider all programs in place for resolving existing tax issues. This is largely due to the workload currently burying the IRS. Given the resources the agency has, its employees simply cannot be bothered to consider each taxpayer’s situation to find the best resolution. As a result, it holds fast to the “one-size fits all” approach to the majority of tax disputes.

Perhaps by accepting the social role that the IRS has grown into could lead to additional and adequate funding to prevent the current resources of the tax authority from being further overwhelmed. I withhold my opinion as to whether it is appropriate for the IRS to administer social programs in addition to ensuring tax compliance. However, I note that if the IRS is to serve multiple purposes, it should be funded and staffed to a level at which it can in fact serve the dual role.

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