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Taxpayer Advocate Is Trying Hard to Do Her Job

Nina Olson, our National Taxpayer Advocate, is doing her best to do what she was hired to do. While she’s employed directly by the IRS, she and her staff are charged with assisting us with our individual tax problems and promoting positive changes to make the entire organization more efficient. She spares no one in her semiannual reports, and her 2012 year-end report to Congress was no exception. She covers three major themes in her comments:

Her first point summarizes the need for tax reform. “The existing tax code makes compliance difficult, requiring taxpayers to devote excessive time to preparing and filing their returns,” Olson wrote. “It obscures comprehension, leaving many taxpayers unaware how their taxes are computed and what rate of tax they pay; it facilitates tax avoidance by enabling sophisticated taxpayers to reduce their tax liabilities and provides criminals with opportunities to commit tax fraud; and it undermines trust in the system by creating an impression that many taxpayers are not compliant, thereby reducing the incentives that honest taxpayers feel to comply.” Can anyone argue with that statement?

Ms. Olson has three arguments on this topic:

First, since 2001, Congress has made 5,000 changes to the Internal Revenue Code, which now exceeds 4 million words. IRS data reveals that it takes individuals and businesses 6.1 billion hours over the course of a year to comply with tax filing requirements. That’s quite a jobs program, as 60% of taxpayers hire a preparer and 30% use a software package to assist them.

Second, the myriad exclusions, exemptions, deductions and credits for individuals total a projected $1.09 trillion with the resulting revenue being $1.36 trillion. Simply eliminating the complexity of getting to the taxable income would enable tax rates to be reduced by 44%.

Third, she recommends a ground up approach to tax reform meaning that Congress should start over by eliminating all of these complex “incentives” to reduce our tax. Then each of them should be tested with three basic questions:

  • Does this government incentive make sense?
  • If so, is that incentive better coming through the tax code or by a direct spending program?
  • Is it doing what it was intended to do?

Next Ms. Olson sheds light on the fact that the IRS is underfunded to do the job it’s charged to do. While not a popular approach at a time when everything the government spends is under scrutiny, “underfunding the IRS makes no sense,” Olson said. “The IRS is materially different from other discretionary programs in that it serves as the de facto Accounts Receivable Department of the federal government. Each dollar appropriated for the IRS generates substantially more than one dollar in additional revenue. It is therefore ironic and counterproductive that concerns about the deficit are leading to cuts in the IRS budget, when those cuts are making the deficit larger.” She added: “The plain truth is that the IRS’s mission trumps all other agencies’ missions, because without an effective revenue collector, you can’t fund those other agencies.”

Tough words! What’s your opinion on her comments?

Ms. Olson has some impressive statistics on the return on investment the IRS provides and how much inefficiency remains despite that. Certainly a balance exists between an efficient execution of IRS responsibilities and providing so much funding that it evolves into an oppressive agency to impair our liberty and impede our economy.

Her third topic is also a recurring one: tax related identity theft. In the last five years, the taxpayer advocate’s office saw a 650% increase in ID theft cases! At the end of the last fiscal year, the IRS held nearly 650,000 cases open across the country. The problem is growing annually with 75% of the cases causing delayed refunds (averaging $3,000 each). The IRS anticipates that resolving a case requires six months, and some will certainly take longer. The official plan to reduce this turnaround time and backlog is to decentralize the work on these cases. Olson disagrees with this approach and advocates a centralized office to concentrate on a solution.

Obviously her work is not done and we don’t see her letting up. We appreciate this fine civil servant who tirelessly works on our behalf in one our least favorite government agencies.

If you have thoughts on her efforts that you’d like to discuss, or you’re ready to tackle this year’s taxes, we’re here for you. Contact us at 904-396-5400 or office@CPAsite.com.

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