Report: Congress causes tax troubles
WASHINGTON (AP) - January 9, 2008 The National Taxpayer Advocate also accused the IRS of not doing
enough to help the insolvent - including those losing their homes -
avoid paying taxes on canceled debts and not providing fee waivers
to low income taxpayers.
Taxpayer Advocate Nina E. Olson urged Congress to enact a
Taxpayer Bill of Rights and to authorize symbolic apology payments
to those seriously affected by IRS errors.
The National Taxpayer Advocate, who works independently within
the IRS, is required by Congress to report annually on at least 20
of the most serious problems facing taxpayers.
A year ago, the advocate focused on the alternative minimum tax,
the levy originally aimed at ensuring that a small number of the
superrich pay taxes. Because it was never adjusted for inflation,
the tax now affects millions of upper-middle income level people.
This year the main culprit was Congress, which for the second
straight year passed legislation in December that significantly
changed the tax code.
The problem? The legislation was enacted after the IRS normally
goes to print with forms for the coming tax season.
In 2006, Congress waited to extend several popular tax
deductions, and the advocate said taxpayers made an estimated 1.4
million fewer claims for those benefits in 2006 than the previous
year because information on the benefits was not included in the
original forms.
Some low-income people who claim the earned income tax credit, a
refund averaging more than $3,000, had to wait weeks for that
refund while the IRS reprogramed its computers. For some, Olson
said, that delay could mean eviction, the inability to pay winter
heating bills or defaulting on credit card bills.
Last month Congress finally took steps to shield more than 20
million from getting hit by the alternative minimum tax. The IRS
has said that more than 13 million taxpayers may have to wait until
Feb. 11 to file their returns while the agency updates its programs
to reflect the changes.
Congress recently took steps to protect people losing their
homes from taxes levied on canceled debts, but the report said the
IRS does not adequately explain exceptions to the general rule that
such canceled debts are taxable.
The IRS also collects about $180 million a year in user fees,
mostly charges to people who enter into installment agreements to
pay tax liabilities over time. But here too the agency lacks an
adequate policy for waiving fees for low-income taxpayers who can't
afford the fees, the report said.
The report also takes up a perennial problem, the estimated $290
billion gap between what taxpayers owe every year and what the IRS
collects. It said that unreported income from the cash economy is
probably the single largest component of the tax gap, and urged the
IRS to create a cash economy program office to coordinate efforts
to address the issue.
The private debt collection program, under which the IRS farms
out smaller scale delinquency programs to private collection
agencies, also got repeat mention. Olson repeated her position that
the program be eliminated, saying that so far the costs of the
program have exceeded the revenue generated. The goal of the
program had been to raise between $1.5 billion and $2.2 billion
over the next 10 years.
Among other problems:
-Tax preparers continue to sell products such as refund
anticipation loans under which lower income people at times get hit
by high interest rates in exchange for getting advances on expected
refunds. The IRS says it is proposing steps to restrict such
practices.
-IRS identity theft procedures, while better than they were in
the past, too often apply more scrutiny to the victim of identity
theft than the perpetrator.
-Taxpayers who visit IRS taxpayer assistance centers continue to
have difficulties making appointments, obtaining return preparation
assistance and making payments.
A National Taxpayer Advocate study found that low-income
taxpayers do much better in EITC audits when they are represented
by practitioners, suggesting the examination process is flawed.
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