Thursday, January 11, 2007


IRS National Taxpayer Advocate Nina Olsen has submitted her required annual report to Congress. The 80-page report lists the 21 most serious problems encountered by taxpayers.

Number One on the list is the dreaded Alternative Minimum Tax (see my posting on “The AMT Must Be Destroyed”). The report states, “Today, the AMT is left to punish taxpayers for engaging in such classic ‘tax-avoidance behavior’ as having children or living in a high-tax state.” Olsen recommends that the AMT be repealed.

Number Two is the “Tax Gap” – the gap between what taxpayers should be paying and what the IRS is actually collecting, which has been estimated at close to $300 Billion per year. Olsen states that noncompliance by some taxpayers causes honest taxpayers to pay an additional $2,200 a year. She says the gap could be narrowed through tax simplification, tax withholding on certain non-wage income, and improved IRS compliance initiatives.

Olsen also contends that the IRS use of private collection firms is “fatally flawed, risking much for a small return on investment” and should be stopped. She has urged Congress to repeal its authorization of the program.

The three private collection agencies used by the IRS keep up to 24% of what they collect, which comes out to $330 Million of the $1.4 Billion expected to be collected over the next 10 years. A 2002 study showed that the IRS could collect an additional $9.5 Billion per year if Congress would budget an extra $296 Million to hire new employees.

According to the report, “In other words, the IRS is implementing a plan that returns $4.00 for every dollar invested over a plan that returns $32.00 per dollar invested.” It further states that “The IRS is using almost as much in human resources to monitor these companies as it takes the companies to do the work.” The IRS has assigned at least 65 workers to oversee the work of 75 employees of the private agencies.

In addition, Olsen, whose office has reviewed the “scripts” used by the private agencies, has said, “We are concerned that the private collectors are using trickery, device and belated Fair Debt Collection Practices Act warnings to take advantage of taxpayers.”

I wholeheartedly agree with Nina that the dreaded AMT should be repealed and the IRS use of private collection agencies should be stopped.


No comments: