National Taxpayer Advocate Releases Annual Report On Jan. 6, National Taxpayer Advocate Nina E. Olson released her annual report to Congress. Each year, the advocate is required to submit a report identifying at least 20 of the most serious problems encountered by taxpayers and make administrative and legislative recommendations to mitigate those problems. An Internal Revenue Code statute requires that the report focus on problems and areas in need of improvement. At the beginning of the report, Olson states that the Internal Revenue Service (IRS) has had an extremely successful year in implementing significant legislative changes designed to stimulate the economy in the midst of the filing season. However, she warned that increased demands on the IRS have eroded the agency’s ability to meet taxpayer service needs and expressed concern that IRS collection practices are harming financially struggling taxpayers without producing significant revenue gains. Among the key issues and themes identified in this year's report are telephone service, examination and collection issues, preparer regulation, and running social programs through the tax system. The report designates the IRS’s declining ability to answer telephone calls as the most serious problem facing taxpayers. Olson notes that the IRS has set a target for FY 2010 of answering only 71 percent of calls from taxpayers seeking to speak with a customer service representative about account questions, down from 83 percent in FY 2007. Additionally, the report contains a detailed assessment of IRS examination and collection practices, concluding that many practices have been developed piecemeal and that the IRS lacks an effective overarching strategy to maximize voluntary compliance. The report also concludes that IRS collection practices often harm taxpayers without producing revenue.
Meanwhile, the report praises the IRS for moving ahead with plans to regulate federal income tax preparers. Olson called the plan, which the IRS issued earlier in the week, a "significant, far-reaching initiative." However, Olson expressed concern that one aspect of the plan may create a significant gap in the new rules that may be widely and increasingly exploited. Under current law, anyone may prepare a tax return for compensation, with no training, licensing, or oversight required. While attorneys, CPAs, and Enrolled Agents must pass difficult examinations to practice, others known as "unenrolled preparers" are not required to do so. To protect taxpayers and improve tax compliance, Olson has proposed since 2002 that unenrolled preparers be required to register with the IRS, pass an examination, and complete periodic continuing education courses. The recently released IRS plan would impose these requirements on return preparers who sign tax returns but not on preparers who meet with taxpayers and prepare their returns if someone else signs them. According to Olson, to minimize cost and burden, a return preparation business may decide to employ one "signing" preparer who is certified under the new IRS rules and an unlimited number of "nonsigning" preparers. The nonsigning preparers would not have to register, pass an exam, or take continuing education courses. Olson emphasized that the burden of the new rules themselves may cause more return preparation businesses to employ nonsigning preparers. The report states that not all nonsigning preparers need to be covered to protect taxpayers and recommends that the IRS consider extending the new rules to apply to all unenrolled nonsigning preparers. Overall, this year’s report identifies 21 problems, provides updates on two previously identified issues, makes dozens of recommendations for administrative change, proposes 11 recommendations for legislative change, and analyzes the 10 tax issues most frequently litigated in the federal courts during the past fiscal year. For more information and to read the full advocate report, go to www.irs.gov/advocate. |