Taxpayer Advocate Urges Better IRS Service

A report examining problems taxpayers encounter with the IRS found that the Service’s collection practices may harm long-term taxpayer compliance and are not supported by reliable data. The IRS also faces challenges in providing core services such as meeting the demand for telephone assistance, National Taxpayer Advocate Nina Olson said in her annual report to Congress released Wednesday.


Olson commended the Service for its administration of expansive new tax relief as part of the economic stimulus packages Congress enacted in the past year. The IRS “has, through talent, determination, and dedication, pulled off what could have been a disastrous filing season,” Olson wrote. She also gave qualified approval to a major step the IRS took this week toward a priority she has championed for years—regulating all paid tax return preparers.


Olson issued the 700-page report (an executive summary is available) pursuant to IRC Section 7803(c)(2)(B)(ii), which requires, among other things, that Olson annually identify at least 20 of the most serious problems faced by taxpayers and offer recommendations to Congress. The report also looks at the most litigated tax issues, as well as tax administration research and related studies.


Topping the list of taxpayer problems this year is what the report calls a decline in the IRS toll-free telephone service, which comes at a time of high taxpayer demand for telephone assistance, according to the report. The Service has committed itself in fiscal 2010 to answer the calls of 71% of taxpayers seeking to talk to a person, down from an 83% level of service in fiscal year 2007. Callers who get through will have to wait an average of 12 minutes. Olson called the level of service “unacceptable” and said “it is sure to have downstream consequences that will cause problems for taxpayers and the IRS alike.”


The report also questions the IRS’ policies for filing tax liens. The IRS often files a lien even when a delinquent taxpayer has few or no assets, thus producing little revenue but damaging the taxpayer’s financial prospects, Olson said. Over the past decade, filings have increased by nearly 475%, yet overall inflation-adjusted collection revenue has declined by approximately 7.4%, her office found. The report also found flaws in the Service’s data collection and reporting procedures that Olson said cast doubt on the reliability of its published figures for revenue collection.


Olson called the IRS’ plan to regulate all return preparers a “significant, far-reaching initiative,” and praised its advancement with the Service’s release Monday of its report outlining a planned regulatory regime for so-called unenrolled preparers—those who are not CPAs, attorneys or enrolled agents. She noted, however, that only signing preparers—those who sign a return and are considered to have primary responsibility for its accuracy—will be subject to the plan’s new registration, testing and continuing-education requirements.


Nonsigning preparers—those who do not sign a return but complete at least a substantial portion of it, or whose advice results in a position on a return that represents a substantial portion of the return—will not be covered by those requirements. She noted that many return preparation businesses employ many nonsigning preparers—who meet with taxpayers and prepare their returns—and one signing preparer. Excluding nonsigning preparers from the requirements “could create an exception that swallows the rule,” she said, because return preparation businesses may employ one certified signing preparer and many uncertified nonsigning preparers to reduce costs and burdens of registration, testing and CPE compliance. She recommended extending such requirements to all unenrolled nonsigning preparers. (The IRS report said the Service may eventually do so, and the plan does include nonsigning preparers among unenrolled preparers who will become subject to the ethics and practice requirements of Circular 230, which are now required only of enrolled preparers.)


Olson also praised the Service for acting on two longstanding issues she has identified several times as most serious problems of taxpayers–identity theft and automated levies on Social Security benefits.


After a year of negotiations with the Taxpayer Advocate Service (TAS), the IRS’ Identity Theft Hotline has now committed to providing taxpayers with services–including coordination and oversight–that previously have only been available from TAS.


And after TAS published its study in last year’s report showing that automated levies on Social Security benefits under the Federal Payment Levy Program were harming low-income taxpayers, the IRS agreed to implement a filter to prevent automatic levies on taxpayers whose income is at or below 250% of the federal poverty level. The move, to take effect in 2011, will “protect hundreds of thousands of taxpayers from economic damage and unnecessary interaction with the IRS,” Olson wrote.


Get your clients ready for tax season

Upon its enactment in March, the American Rescue Plan Act (ARPA) introduced many new tax changes, some of which retroactively affected 2020 returns. Making the right moves now can help you mitigate any surprises heading into 2022.


Black CPA Centennial, 1921–2021

With 2021 marking the 100th anniversary of the first Black licensed CPA in the United States, a yearlong campaign kicked off to recognize the nation’s Black CPAs and encourage greater progress in diversity, inclusion, and equity in the CPA profession.