Here's your Chance to Help Fix the Nation's Tax System

Everyone loves to complain about the U.S. tax system, and as part of her report Nina E. Olson has created a new way for taxpayers to share suggestions to improve the complicated tax code. Think you’ve got the answer? Join in!

From TodayShow.com:

On Wednesday, the National Taxpayer Advocate launched a suggestion box where taxpayers can offer their ideas for reforming the tax system.

“There has been near universal agreement for years that the tax code is broken and needs to be fixed,” National Taxpayer Advocate Nine E. Olson said in a statement announcing her annual report to Congress “Yet no broad-based attempt to reform the tax code has been made.”

Olson said tax reform is the No. 1 priority facing the tax administration, but any attempts to change the system have hit massive roadblocks.

In the release, Olson said she’s hoping to hear what taxpayers would be willing to give up in favor of a more simplified system. She also wants to know what aspects of the current system seem particularly burdensome or unfair.

The Taxpayer Advocate Service helps taxpayers who are experiencing economic problems, need help resolving problems with the IRS or believe the IRS isn’t working the way it should. It’s an independent organization that operates within the IRS.

Read more here

Tax Waste: 6.1 Billion Hours Spent Complying with Federal Tax Code

Earlier today the National Taxpayer Advocate Nina E. Olson issued her new report to Congress. She called the ever-growing tax code's complexity as the most serious problem facing both the IRS and taxpayers. Nina’s got it just right: this is inefficient and leads to frustration, honest mistakes, and widespread evasion. But will her plan to fix it work?

Forbes reports:

As a measure of how unwieldy the law has become, Olson’s staff found the tax code had grown to 3.8 million words as of Feb. 1, 2010, compared to the 1.4 million words the Joint Committee on Taxation reported in 2001. (That doesn’t include tweaks Congress made to the tax code in 2010—some 579 in all, according to a count kept by tax publisher CCH, a division of Wolters Kluwer.)

While the burden of complying with all those words has been calculated in different ways, Olson multiplied the IRS’ own estimates of how much time taxpayers spend collecting data for and filling out each individual tax form by the number of forms filed to estimate that Americans (both individuals and businesses) spend 6.1 billion hours a year complying with the code. That’s the equivalent of more than 3 million workers toiling away full time, all year. By way of comparison, the Federal government employs the equivalent of 2.1 million full-time civilian workers and Wal-Mart, the nation’s largest private employer, has 1.4 million workers in the U.S., although not all are full time.

Complexity is also raising individual taxpayers’ out-of-pocket costs for filing their 1040s, Olson noted. About 60% of individual taxpayers now pay CPAs, enrolled agents, H&R Block or other services to prepare their returns while another 29% use software, such as Intuit’s TurboTax. According to a recent IRS study, the median individual taxpayer (as measured by income) spent $258 in 2007 for tax prep, up from $220 in 2000, in constant, inflation-adjusted dollars.

Continue reading at Forbes.com...

National Taxpayer Advocate Submits Mid-Year Report to Congress

According to the IRS’ newest press release, National Taxpayer Advocate Nina E. Olson released her mid-year report to Congress yesterday. The report “identifies the priority issues the Taxpayer Advocate Service (TAS) will address during the coming fiscal year.”

The report expresses concern about the adequacy of IRS taxpayer service, particularly as the IRS begins to implement health care reform, about new information reporting burdens facing small businesses and others, and about certain IRS collection practices.

Among the areas the report identifies for particular emphasis in FY 2011 are the following:

1. Taxpayer Services

Spending for IRS taxpayer service programs has been declining in recent years. At the same time, more taxpayers have been contacting the IRS for assistance as the IRS has been tasked with administering an increasing number of social benefit programs, including Economic Stimulus Payments, Making Work Pay credits, and First-Time Homebuyer credits. The report says that as a result of the imbalance between taxpayer demand and IRS resources, the IRS has fallen short of providing adequate taxpayer service in important areas. Most notably, after answering a high of 87 percent of its calls from taxpayers seeking to reach a telephone assistor in FY 2004, the IRS answered only 53 percent of its calls in FY 2008 and has set of goal of answering only 71 percent in the current fiscal year.

The report attributes much of the problem to inadequate funding for taxpayer services. While funding for the IRS overall has been increasing in recent years, the additional funding has been earmarked for enforcement programs. An analysis of IRS budget trends conducted by TAS shows that since FY 2004, inflation-adjusted funding for IRS enforcement activities has risen by 17.9 percent while spending for taxpayer service programs has declined by 6.8 percent, as shown in the following chart:

Continue reading at IRS.gov…

Low Income Taxpayer Clinic Grant Recipients Announced

According to their newest press release, the IRS has awarded nearly $10 million in matching grants to Low Income Taxpayer Clinics (LITCs) for the 2010 grant cycle (Jan. 1 to Dec. 31, 2010).

LITCs are organizations that represent low-income taxpayers in federal tax controversies with the IRS for free or for a nominal charge, provide tax education and outreach for taxpayers who speak English as a second language, or both.

Through the LITC program, the IRS awards matching grants of up to $100,000 a year to qualifying organizations. For the 2010 grant cycle, the IRS awarded LITC grants to 160 organizations. LITCs and their employees and volunteers operate independently of the federal government.

The LITC grant program is a federal program administered by the Taxpayer Advocate Service, led by National Taxpayer Advocate Nina E. Olson.

Questions about the LITC Program can be addressed to the LITC Program Office at (202) 622-4711 (not a toll-free call) or by e-mail at LITCProgramOffice@irs.gov. IRS Publication 4134, Low Income Taxpayer Clinic List, provides information on LITCs in each geographic area and the languages each clinic serves in addition to English. It is available at www.irs.gov or at local IRS offices.

The Joy of Tax

As thousands of Americans across the country are spending hours working on their tax returns to meet the tax deadline, Nina Olson – the National Taxpayer Advocate – is once again calling on Congress to simplify the U.S. tax code. Although Olson makes this request every year, according to the Economist she has reportedly become fed up that her professional opinion is being ignored.

The federal tax code, which was 400 pages long in 1913, has swollen to about 70,000. Americans now spend 7.6 billion hours a year grappling with an incomprehensible tangle of deductions, loopholes and arcane reporting requirements. That is the equivalent of 3.8m skilled workers toiling full-time, year-round, just to handle the paperwork. By this measure, the tax-compliance industry is six times larger than car-making.

Every year, the national taxpayer advocate issues a report begging Congress to simplify the system. In her most recent one, published on December 31st, Ms Olson frets that she is repeating herself. She refers Congress to what she said the previous year. An incredible 82% of taxpayers are so flummoxed that they pay for help. Some 60% hire an accountant or tax preparer, while another 22% use tax software. She might have added that even the head of the Internal Revenue Service, Douglas Shulman, gets someone else to do his taxes.

President Barack Obama says he wants to simplify the tax code. But he has just added a ton of health-care-related provisions to the system. And even if he were zealous about simplification, he would find it hard.

National Taxpayer Advocate Delivers Annual Report to Congress

In their new press release, the IRS discussed the annual report National Taxpayer Advocate Nina E. Olson delivered to Congress. 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.

In the preface to the report, Olson noted that she is required by statute to identify taxpayer problems, but she wrote that “the IRS in many respects has had an extremely successful year.” She cited, in particular, the IRS’s success in implementing significant legislative changes designed to stimulate the economy in the midst of the filing season.

Among the key issues and themes identified in this year’s report:

Telephone Service. 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.

“In other words, the IRS is planning to be unable to answer about three of every 10 calls it receives,” Olson said, adding that the IRS expects those who get through will have to wait an average of 12 minutes. The report states that this projected level of service is barely above the level of 69 percent notched in 1998, when Congress passed the landmark IRS Restructuring and Reform Act due in large part to concerns about inadequate taxpayer service. “This level of service is unacceptable,” Olson wrote.

National Taxpayer Advocate Issues New 2008 Annual Report to Congress

Earlier in the week the National Taxpayer Advocate issued it’s new report to congress, “urging Congress to greatly simplify the tax code and recommending measures to reduce the burden on taxpayers who are struggling to pay their tax bills.”

The report takes note of the serious financial difficulties facing many Americans in light of the ongoing economic downturn. “It is imperative for the IRS to consider the circumstances of taxpayers facing economic hardship before initiating enforcement actions,” Olson wrote.

When the IRS contemplates taking an enforced collection action such as a levy, a lien or an asset seizure, both the tax code and IRS procedures require that IRS personnel consider whether the collection action will impose an economic hardship on the taxpayer. Despite these requirements, “current IRS guidance provides little direction to help IRS employees identify taxpayers who are experiencing economic hardship and prevent undue economic burden,” Olson wrote.

You can download the PDF of the full report by checking out IRS.gov.

National Taxpayer Advocate Sends 2009 Objectives to Congress

The other day National Taxpayer Advocate Nina E. Olson delivered a report to Congress identifying the priority issues the Office of the Taxpayer Advocate will address in the upcoming fiscal year. According to the IRS’ news release, the report addresses the three following key issues.

1. Tax-Related Identity Theft

The National Taxpayer Advocate’s 2007 Annual Report to Congress identified tax-related identity theft as one of the most serious problems facing taxpayers. The report stated that the IRS does not have adequate procedures in place to assist victims of identity theft and does not have adequate systems in place to quantify the number of tax-related incidents of identity theft that occur. The report made eight recommendations, including the creation of a centralized unit to handle identity theft cases and the development of a centralized set of procedures that cuts across IRS functions. The IRS has taken a number of steps to improve its procedures; notably, it has developed a Service-wide identity theft indicator and is studying the creation of a centralized unit to assist identity theft victims. During FY 2009, the Office of the Taxpayer Advocate will work with the IRS to improve its procedures in this area.

2. Cancellation of Debt Income

When an individual or business borrows money and the debt is cancelled, the borrower generally must include the amount of the cancelled debt in gross income. This requirement generally affects borrowers who lose their homes to foreclosure or who default on car loans or credit card debts. Taxpayers may exclude the amount of a cancelled debt from gross income under certain circumstances, but to do so, they must take the affirmative act of filing Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), with their tax returns. Very few taxpayers file Form 982, and the Office of the Taxpayer Advocate has focused and will continue to focus on increasing public awareness of the rules and exceptions. It has worked with the IRS to simplify the instructions for Form 982 and to develop an IRS publication that covers the tax aspects of cancellation of debt issues comprehensively, produced podcasts (known as “TAScasts”) that are available online, and provided specialized training for Low Income Taxpayer Clinic (LITC) practitioners. The Office of the Taxpayer Advocate will continue to work with the IRS to simplify reporting procedures and will continue to conduct outreach to affected taxpayers and practitioners in FY 2009.

3. IRS Collection Practices

The National Taxpayer Advocate’s 2006 Annual Report to Congress raised a number of concerns about IRS collection practices. Joint working groups have been established to work on five issues – levies, allowable living expense standards, installment agreements, offers in compromise, and early intervention techniques. However, the Office of the Taxpayer Advocate remains concerned about additional collection issues, including resorting to seizures before all viable collection alternatives have been exhausted, under-utilization of partial-pay installment agreements, and excessive delays in collection that exacerbate taxpayer delinquency problems because of the accumulation of interest and penalties. The IRS is working with the Office of the Taxpayer Advocate to address these concerns, and the collaboration will continue in FY 2009.

National Taxpayer Advocate Releases Report on Tax Issues

"National Taxpayer Advocate Nina E. Olson today delivered a report to Congress that identifies the priority issues the Office of the Taxpayer Advocate will address in the coming fiscal year. Among the key areas of focus will be improving taxpayer services, ensuring that taxpayer rights are protected in the IRS’s private debt collection initiative, and making the IRS’s offer-in-compromise program more accessible for taxpayers who are unable to pay their tax debts in full." You can see the detailed report at the IRS’s website.