National Taxpayer Advocate Submits Mid-Year Report to Congress; Targets Budget Cuts and Lien Filings

Nina E. Olson, the National Taxpayer Advocate and head of the IRS Taxpayer Advocate Service, submitted her mid-year report to Congress on all things IRS related.

Among the concerns brought to Senate Finance Committee were the impact on taxpayers from IRS budget cuts, and the continued filing of Notice of Federal Tax Liens, a subject on the Advocate's radar for some time.

"The IRS has made significant progress on important fronts over the last year..." Olson said in releasing the report. "At the same time, the IRS faces significant challenges in the year ahead, particularly if its budget is reduced."

While the government has rolled out new credits over the past few years in an effort to combat the recession and a general economic downturn, these same credits have meant that already-reduced IRS resources have had to pick up the slack.

In particular, the Economic Stimulus Payments, the First-Time Homebuyer Credit and the Making Work Pay Credit have proven complex to claim or substantiate, and at the same time have led to increases in concerns raised by taxpayers.

Resources allocated to these programs have caused an imbalance in the Service's ability to answer general taxpayer inquires.

According to the report, a comparison of fiscal year 2010 with 2004 shows the percentage of phone calls the IRS answered from taxpayers seeking to reach a telephone assistor declined from 87 percent to 74 percent, and the percentage of unanswered correspondence increased by 135 percent.

"In recent years, the IRS has been given more and more tasks, but it is not receiving the resources it needs to fulfill these tasks without cutting corners," the report says. "And when the IRS cuts corners, taxpayers can be harmed and revenue collection may suffer."

"Spending cuts mean the IRS will not have the resources to ensure that all taxpayers pay their fair share, thereby effectively forcing compliant taxpayers to pay more to subsidize noncompliance by others. Moreover, the IRS will not have the ability to meet the service needs of the taxpayers who are paying our nation's bills."

The report also puts the scrutiny on Taxpayer Advocate Service (TAS) itself, citing the same budgetary concerns with the Advocate's goal to help taxpayers resolve their tax problems.

"Congress created TAS largely to serve as the IRS's 'safety net' for taxpayers who are experiencing significant hardships," the report says. "In practice, TAS is often a taxpayer's last resort for resolving a tax problem."

TAS's case receipts have risen from about 169,000 in 2004 to just under 300,000 in 2010, an increase of 77 percent. The report expresses concern that if TAS does not receive sufficient resources to handle its growing workload, it will have no choice but to decline acceptance on certain categories of cases, leaving taxpayers to fend for themselves.

Lien filings have been overhauled as of late, with the IRS expanding the options for lien withdrawals as well as increasing the minimal amount a taxpayer owes before the IRS files a lien as a matter of policy.

Still, the Advocate is pushing for more first-hand inspection of a case before a lien is filed, in lieu of the current practice of automatically filing tax liens based on a dollar threshold. By doing so, the Advocate believes that such an analysis "should balance the need to protect the government's interests in the taxpayer's assets with a corresponding concern for the financial harm the lien will create for that taxpayer."

When a taxpayer has a large balance, or when the IRS determines a taxpayer cannot make payment on a balance because of financial hardship, in most cases, a Notice of Federal Tax Lien is filed in order to protect the Government's interest and to ensure the IRS remains a priority creditor on the debt.

If the IRS agrees to defer collection on a tax balance for an indefinite period of time, the lien filing is often the only instrument available for ensure possible future collection potential.

According to the report, in fiscal year 2012 the Advocate plans to work with the IRS to fully evaluate the results of its limited changes to the lien-filing process and identify additional opportunities for improvement.

You can read Nina Olson's full report to Congress here.

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