Federal law requires the National Taxpayer Advocate to submit an Annual Report to Congress that identifies at least 20 of the most serious problems encountered by taxpayers and makes administrative and legislative recommendations to mitigate those problems. Overall, this year’s report identifies 22 problems, provides updates on four previously identified issues, makes dozens of recommendations for administrative change, proposes 13 recommendations for legislative change, and analyzes the 10 tax issues most frequently litigated in the federal courts.
Among other things, the report contains:
• A comprehensive overview of the nearly 100-year history of the U.S. tax system, which
details how the income tax expanded from a “class tax” to a “mass tax,” how the IRS has
changed from focusing on personal, local service to automated, centralized processes,
and how the mission of the IRS has expanded from pure tax collector to disburser of
federal benefits as well.
• An analysis of the IRS’ current examination strategy that discusses the IRS’ increasing
use of automated procedures not technically classified as audits to adjust tax liabilities.
The report argues that these procedures deprive taxpayers of traditional audit rights
and make it difficult for taxpayers to discuss their cases directly with an IRS examiner.
• A research study on the impact of tax liens on taxpayer compliance behavior. The
results suggest the overuse of liens may undermine tax collection by reducing payment
compliance, reducing filing compliance, and reducing the amount of income earned
(and thus the amount of tax due) by taxpayers against whom liens have been filed.
• A recommendation that Congress modify the circumstances under which the personal
information of decedents, including their names, Social Security numbers, and
dates of birth, are made available to the public shortly after their deaths. Such information
is used by identity thieves to commit tax fraud.
• A “Most Serious Problem” discussing the IRS’ policy change in applying key terms
of the IRS’ 2009 Offshore Voluntary Disclosure Program more than a year after the application deadline had passed. The report states that the policy change contravenes the
IRS’ written pledge that “under no circumstances will a taxpayer be required to pay a
penalty greater than what he would otherwise be liable for under existing statutes.”
• An update on the IRS’ progress in developing and implementing a system to register
and test federal tax return preparers.
• A recommendation that Congress authorize the IRS to issue refunds in hardship cases
during a government shutdown. When a government shutdown seemed imminent
during the 2011 filing season, the IRS and the Treasury Department concluded that the
IRS would have been legally barred from paying certain refunds or taking other actions
that would benefit or minimize harm to taxpayers during the shutdown.