Saturday, July 31, 2010

THE IRS IS NOT JUST ABOUT TAXES

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.

Friday, July 30, 2010

Friday's Tax Quote - July 30, 2010

“Death and taxes may be inevitable, but they shouldn’t be related.”
- J.C. Watts Jr.

Thursday, July 29, 2010

THE TAXPAYER ADVOCATE SAYS THAT THE IRS IS UNDERMINING TAX COMPLIANCE

The office of the National Taxpayer Advocate, an independent government watchdog over the Internal Revenue Service, has issued its 2010 mid-year report evaluating the Internal Revenue Service’s practices. The overall theme of this report (as in prior reports) is that the IRS’s collection practices are in grave need of overhaul.

Some of the highlights of the report include the following comments concerning the particularly onerous collection practices of the IRS:

It is increasingly difficult for taxpayers whose circumstances do not fit into checklist parameters to find someone able to address their problems.

The IRS is failing to address the needs of taxpayers who are experiencing economic difficulties and has not revised collection policies that harm taxpayers, thereby undermining its goal of increasing voluntary compliance.

The IRS has failed to utilize the significant collection alternatives available to it to resolve taxpayer debts, thus, leading to increasing accounts receivable on the IRS books, while taxpayers face staggering accruals of penalties and interest that impact their future compliance.

There is a general and extremely unfortunate perception in parts of the IRS that taxpayers who fall behind on their tax payments are “bad” taxpayers who deserve what they get.

What do these comments mean? They mean that the National Taxpayer Advocate, charged with oversight of the IRS, has observed the same thing that taxpayers across the country have experienced first hand.

What else does this mean? Probably very little. The onerous collection practices of the IRS and the failure to adequately consider collection alternatives based on a taxpayer’s circumstances, is something that has been reported in several of the reports. Until we see corrective action by the IRS or mandated by Congress, we have to consider that the tax authority will conduct “business as usual.” We should expect the IRS will do so in spite of these observations by the Taxpayer Advocate. This will likely result in additional unpaid taxes and greater non-compliance by the American public.

Friday, July 23, 2010

Friday's Tax Quote - July 23, 2010

“Blessed are the young, for they shall inherit the national debt."

- Herbert Hoover

Friday, July 16, 2010

Friday's Tax Quote - July 16, 2010

“We are told that this is an odious and unpopular tax. I never knew a tax that was not odious and unpopular with the people who paid it.”

- John Sherman

Friday, July 9, 2010

Friday's Tax Quote - July 9, 2010

“I don’t know if I can live on my income or not – the government won’t let me try it.”

- Bob Thaves (‘Frank & Ernest’)