National Taxpayer Advocate Taking On 'Priority Issues'

National Taxpayer Advocate Nina E. Olson -- a frequent FAE speaker -- delivered a mid-year report to Congress yesterday 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 working with the IRS to improve taxpayer services, enhancing IRS oversight of federal tax return preparers, improving the accessibility of the offer in compromise program, and working with the IRS to improve its ability to administer refundable tax credits effectively.

The new fiscal year will also mark the 10-year anniversary of the Taxpayer Advocate Service.

Among the areas the report identifies for particular emphasis in FY 2010 are the following:

1. Taxpayer Services: The report notes that the IRS created a five-year strategic plan for taxpayer service (known as the Taxpayer Assistance Blueprint, or “TAB”) in response to a directive from the House and Senate Appropriations Committees in FY 2006. The directive was originally motivated by concern that IRS taxpayer services were often ad hoc and not sufficiently coordinated or research-driven. Olson’s report expresses concern that the momentum to implement and refine the TAB recommendations has abated.
2. Oversight of Tax Return Preparers: Tax return preparers complete about 62 percent of all individual income tax returns and therefore play a critical role in facilitating tax compliance. However, “shopping visits” conducted by the Government Accountability Office, the Treasury Inspector General for Tax Administration, and others suggest that a high percentage of preparers prepare inaccurate returns, fail to perform sufficient due diligence, and even take positions that they know are not supportable. "The advocate reiterates her longstanding recommendation that the government do more to protect taxpayers by regulating unenrolled federal tax return preparers, including by requiring initial testing and continuing professional education, and recommends that the IRS step up enforcement actions against preparers who fail to perform due diligence or consciously facilitate noncompliance," said a press release from the IRS.
3. Offers in Compromise: For the past nine years, the Advocate has expressed concern about the effectiveness of the IRS’s offer in compromise (OIC) program, a program designed to enable financially struggling taxpayers to pay what they can afford and make a fresh start. The Advocate believes the IRS requires taxpayers to provide too much information with the initial application, thereby deterring taxpayers who legitimately qualify for the program from applying for it. IRS data show that the number of accepted offers has declined by 72 percent over the past seven years, from 38,643 in FY 2001 to 10,677 in FY 2008. In response to these concerns, the IRS recently announced the formation of an OIC Project Team, which includes TAS representation. As part of this project, the IRS has retained two contractors to take a closer look at the characteristics of applicants who submit acceptable offers and to increase the number of qualifying applicants within the existing process. During the coming year, TAS will continue to devote priority attention to improving the accessibility of the offer program for appropriate taxpayers.
4. Refundable Tax Credits: The American Recovery and Reinvestment Act of 2009 temporarily increased the refundable portions of the Earned Income Tax Credit (EITC) and the child tax credit and authorized several new refundable credits, including the “Making Work Pay” credit, the “American Opportunity” education tax credit (40 percent is refundable), the first-time home buyer credit (up to $8,000), and a credit for certain federal and state pensioners. While the decision to expand refundable credits is entirely reasonable from a policy standpoint, refundable credits present significant administrative challenges for the IRS.

The National Taxpayer Advocate is required by statute to submit two annual reports to the House Committee on Ways and Means and the Senate Committee on Finance. The statute requires these reports to be submitted directly to the Committees without any prior review or comment from the Commissioner of Internal Revenue, the Secretary of the Treasury, the IRS Oversight Board, any other officer or employee of the Department of the Treasury, or the Office of Management and Budget. The first report is submitted mid-year and must identify the objectives of the Office of the Taxpayer Advocate for the fiscal year beginning in that calendar year. The second report, due on December 31 of each year, must identify at least 20 of the most serious problems encountered by taxpayers, discuss the 10 tax issues most frequently litigated in the courts, and make administrative and legislative recommendations to resolve taxpayer problems.