How the IRS Drives Taxpayers Crazy

One of the greatest fears of the typical American is wrangling with the IRS over a tax matter.But a few people routinely support your best interests: your tax professional and his or her team, and the National Taxpayer Advocate, Nina Olson and her staff.Ms. Olson leads a section of the agency that works for your rights and often cuts through the bureaucracy when all hope seems gone. Her latest report to Congress, fresh from its Christmas vacation, identified the 25 most serious matters taxpayers face today. Her top issue: the IRS "desperately" needs more money to do its job properly.With funding cuts forcing a drop of 87% in the IRS’ training budget, Ms. Olson says the agency is severely hampered in performing its services effectively. Full-time staffing decreased by nearly 8,000 people over recent years, many from retiring boomer veteran agents. Government shutdowns and automatic spending cuts (sequestration) added more pressure.Certainly we can argue the rest us managed get by with less in these hard times. But Ms. Olson is convinced that the never-ending expansion of the tax law, plus the IRS’ new role of enforcing the many Affordable Care Act regulations, can only compromise the agency’s effectiveness if it is understaffed.She reports that last year the IRS could respond to only 61% of taxpayer calls received and just 47% of correspondence. While most agents try hard to resolve problems, we’ve noticed recently an increase in their turnaround times in our work representing our clients. They also drastically cut back walk-in sites nationwide and plan to respond only to "basic" tax law questions during the busy filing season. So much for service.Bill of Rights: Our Advocate again pointed out that there is no single list of specific protections from abuses from one of our most intimidating government agencies. She proposes a formal, consolidated taxpayer bill of rights that both the IRS and filers can learn about and rely on. TheU.S. tax code is loaded with these protections, but they’re scattered and sometimes vague. If we possessed a clear, concise list of protections under the law, which would likely minimize an attitude of fear and mistrust, taxpayer compliance should improve.Identity Theft: Our entire financial life has come under increased risk as it’s moved rapidly toward a digital system. The IRS hasn’t done a good enough job protecting us from fraudulent tax return filing despite the current safeguards in place. Olson tells us that they take too long – an average of almost a year – to settle taxpayer identity theft cases. The resulting long delays in refund processing for victims are unreasonable. Currently, refund claims are processed by 20 different units and she wants this system centralized.Foreign Asset Reporting: FATCA, the Foreign Account Tax Compliance Act, was intended to minimize the loss of tax revenue on accounts held overseas. It implements myriad new reporting rules, with related penalties and sanctions onU.S. taxpayers, foreign entities, and withholding agents. FATCA phases in from 2013 through 2017. Some wonder if the data being requested is necessary and will be properly used. Do the enforcement initiatives justify the significant burdens and economic hardships it places on taxpayers and institutions? How will taxpayer rights be protected in the process?Fundamentally, the Advocate wonders whether the implementation of this law will sufficiently differentiate the good guys from the bad guys; that is, those making innocent or naïve mistakes vs. the chronic abusers or those intentionally staying underground.Taxpayers could be severely penalized due to poor implementation by foreign financial institutions either not interested in or not accustomed toU.S.reporting standards. Also, the IRS has been slow to react to concerned and well-informed stakeholders in developing reasonable rules.IRS Response to Her Report: On Congress' first week back, the new Commissioner, John Koskinen, said he was "extremely concerned about the deep budget cuts that our agency has had to absorb over the last few years." He reported that his agency is making progress on several of the concerns Olson raised. Building on Olson’s emphasis on funding problems, he said that, "[i]t is important to note that the IRS must carefully balance limited resources to meet its dual mission of providing taxpayer service and enforcing the tax laws."Let's hope for the best from their promises of improvement.(For Ms. Olson’s complete list of the 25 most serious problems check out http://www.taxpayeradvocate.irs.gov/2013-Annual-Report/Most-Serious-Problems)If you need a more personal advocate, the professionals at Patrick & Robinson CPAs are here to help. Contact us at Office@CPAsite.com or 904-396-5400.