Thursday, January 10, 2008


It seems a lot was abuzz yesterday as I was counting the doctor’s money and visiting the folks in Ocean Grove!

For one, National Taxpayer Advocate Nina E. Olson released her annual report to Congress. Nina’s report discusses 29 problems facing taxpayers, makes dozens of recommendations for administrative change, proposes 11 recommendations for legislative change, and discusses the 10 tax issues most frequently litigated in the federal courts during the preceding fiscal year.

According to Nina, the most serious problem facing taxpayers is “the frequency and magnitude of late-year changes to the tax code” – i.e the irresponsibility of Congress. In each of the last two years, Congress has acted in December to provide tax benefits with retroactive effect for the full year. Nina estimates that more than a million taxpayers may not have claimed tax deductions to which they were entitled for 2006 simply because they did not know about them, and predicts that low income taxpayers may experience serious financial hardship because their 2007 refunds are delayed.

The report updates prior National Taxpayer Advocate reports on the private debt collection program, stating that the program is falling far short of revenue projections. To date, the costs of the program have exceeded the revenue the program has generated, and the IRS cannot project when the program will break even.

Nina expressed particular concern about “the lack of transparency in the program” –

IRS collection procedures are publicly available and subject to review by taxpayers and Members of Congress. By contrast, the private collection agencies have designated comparable information – including calling scripts and training materials – as proprietary, and the IRS to date has declined to insist on a contractual term to make them publicly available. As a consequence, the Advocate is prohibited from describing them in her reports to Congress, and the materials are not subject to public scrutiny. Olson reiterated her prior call for repeal of the program.”

The report urged Congress to -

· enact a Taxpayer Bill of Rights,

· authorize symbolic “apology payments” in egregious cases where taxpayers suffer significant harm as a result of IRS errors,

· eliminate Tax Strategy patents,

· identify new approaches to reduce the tax gap without imposing undue compliance burdens or undermining taxpayer rights, and

· create an optional “standard home office deduction” (I will be discussing this topic in detail in a THE FLACH REPORT posting).

The report contains a second volume that describes the results of six research studies. The findings of the studies include the fact that low income taxpayers fare much better in IRS Earned Income Tax Credit audits when they are represented by practitioners, and most taxpayers do not have the resources to submit the newly required 20 percent deposit when applying for an Offer in Compromise.

Go here to download the full report, the Executive Summary and prior reports.

Kay Bell of DON’T MESS WITH TAXES has written a post on this subject. I like her thoughts on how to fix Nina’s #1 problem –

I suggest that all taxpayers jam our Representatives' and Senators' phone lines demanding that they do their job in a timely manner. If we are expected to meet tax filing deadlines or face penalties, then they should complete their legislative duties in a timely manner or face penalties, too.

Let your lawmakers know you'll remember how poorly they did their jobs when it comes time to decide whether they should keep those offices on Capitol Hill

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