Advocate Reports Taxpayer Concerns to Congress


W. Val Oveson, CPA, has been very busy ferreting out tax policy and administrative problems that make compliance burdensome for taxpayers. In his annual report to Congress, Oveson, who has been National Taxpayer Advocate since 1998, identified the top seven issues that impede taxpayer compliance.

The earned income tax credit (EITC) led the list of issues. The EITC is a problem, particularly for the low-income taxpayers to which it is targeted, because it is difficult to calculate. Taxpayers trying to figure the credit must contend with a long list of eligibility tests, modifications to income and unique definitions.

Top 10 Litigated Tax Issues

The National Taxpayer Advocate’s Annual Report to Congress included a list of the most litigated issues for individual taxpayers. The top issues were

  1. Penalties.
  2. Gross income defined.
  3. Trade or business expenses.
  4. Earned income credit.
  5. Head of household.
  6. Dependency exemption.
  7. Losses.
  8. Compensation for injury and/or sickness.
  9. Attorney’s fees.
  10. Annuities.

“The earned income tax credit is one of the primary causes of advocate casework,” Oveson said. “A great deal needs to be done to simplify it.” In the report, he made the following recommendations to improve the way the EITC is administered:

  • Simplify the definition of a qualifying child.
  • Permit taxpayers who reside with another eligible adult to also claim the EITC.
  • Eliminate the age requirement for the EITC.
  • Make the EITC exempt from offsets for federal tax debt or other liabilities (for example, delinquent child support).

Six other areas identified as particular obstacles to taxpayer compliance, along with proposals to address each, follow:

  • Business deductions: Correct inequitable treatment of business deductions for taxpayers whose expenses are not reimbursed by their employers and who do not itemize.
  • Interest charged by the IRS: Broaden the interest abatement requirements and limit the assessment of interest on tax balances owed.
  • Penalties: Eliminate the inequities in the assertions, abatements and computation of penalties.
  • Refunds: Amend statutes, notifications and other laws that prevent taxpayers from legally collecting the refunds due them.
  • Alternative minimum tax: Repeal or reform the unnecessarily complex and burdensome AMT.
  • Phase-out of itemized deductions and the personal exemption: Repeal the phase-outs of these items because they add to the complexity of tax calculations and are burdensome to a large number of taxpayers.

In another part of the report, Oveson revealed the results of a survey in which he asked individual and business taxpayers and tax professionals to rank their most serious tax problems. Not unexpectedly, the ones that topped the list in 1998 were still causing headaches in 1999. The top five problems were the complexity of the tax law, the clarity and tone of the IRS, the administration of the EITC, the lack of “one-stop” service and the administration of penalties.

Oveson also presented a detailed discussion of 53 legislative proposals for improvements in the Internal Revenue Code and the IRS in the annual report. The full text of the report is posted on the IRS Web site, ( www.irs.ustreas.gov/prod/ind_info/rpt99-1.html ).

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