Congress's "continual enactment" of significant new tax laws and tax extenders late in the year has delayed millions of tax returns, led many taxpayers not to claim benefits, and already has put the 2013 filing season at risk for similar problems, according to a June 27 report from the Taxpayer Advocate Service (TAS).
Sixty tax provisions expired at the end of 2011, creating delayed refunds and missed tax credit opportunities for cash-strapped taxpayers awaiting refunds in the 2012 tax season, while 41 more provisions (including the Bush tax cuts) are scheduled to end this year, TAS's "Fiscal Year 2013 Objectives" report to Congress says. Many of those provisions could be extended by, or even after, year's end, increasing the burden on the IRS to alter its processes and reprogram computers to keep up. (For the report, see Doc 2012-13649. For a related IRS news release (IR-2012-66), see Doc 2012-13665 .)
"Everybody knows this, but do they really know the detail of what this is going to mean, including the detail of what this will mean for the IRS during the tax filing season?" National Taxpayer Advocate Nina Olson said in an interview with Tax Analysts. The new report provides more information on the risks to taxpayers and the stresses on resources that the IRS will face as a result of new tax law and extenders -- in short, "here's what it means if we don't get this done timely," she said.
Edward Karl, vice president of taxation at the American Institute of Certified Public Accountants, agreed that Congress's frequent late-session changes to the tax code and the burden they impose on IRS operations and administration "all lead up to a problematic filing season." The situation may get worse, with the prospect of a post-election lame-duck session and the possibility that some modifications may be imposed on taxpayers retroactively. "It really shortens and intensifies the filing season," Karl said. "It's all cascading into one interesting situation."
Statutory Authority for TADs?
The TAS report provides the IRS with recommendations for its struggle against identity theft and tax-related fraud, for its efforts to balance automation and human services, for how to handle its crackdown on individuals with offshore accounts, and for improving its coordination with other agencies to ease taxpayers' compliance burdens and protect their rights.
The IRS did not respond to a request for comment on the report.
The TAS report also says the IRS "has ignored and sought to limit" the advocate's ability to issue taxpayer advocate directives (TADs) that would bring to the attention of senior IRS management issues of taxpayers' rights and compliance burdens.
The advocate's office has issued four TADs in the last 12 months, compared with a total of eight since 2001, but Olson said the TADs have met with increasing resistance from IRS officials. The advocate's office is empowered through an IRS delegation order to propose TADs regarding IRS administrative practices to mitigate taxpayers' systemic problems with the IRS and improve the Service's functional processes or grant relief to taxpayers. The IRS is "basically reading out of the statute the mission of the Taxpayer Advocate Service, which is to help taxpayers solve their problems with the IRS," Olson said.
Olson said she has recently taken "fairly aggressive stances" in TADs to get senior IRS management's attention on various systemic issues that would protect taxpayers or grant relief in specific cases. Now she wants Congress to codify the advocate office's authority to require senior IRS officials to respond in writing to TADs. (Taxpayer assistance orders, issued by TAS to correct lower-level cases involving taxpayers, already have statutory authority under section 7811.) (For prior coverage, see Doc 2012-3462 or 2012 TNT 34-6.)
With the IRS challenging her right to issue TADs when matters of legal interpretation are involved, the Service is "saying that I don't even have the right to express my opinion," Olson said, adding, "I don't know where this is coming from, but they're basically challenging the authority of the Taxpayer Advocate Service."
Guidance for International Taxpayers?
Olson said her office is also concerned about the lack of guidance from the IRS for international taxpayers trying to avoid devastating financial penalties because of inadvertent noncompliance with laws such as the Foreign Account Tax Compliance Act and for filing delinquent foreign bank account reports.
The IRS issued updated frequently asked questions on June 26 for the offshore voluntary disclosure program that tightened eligibility guidelines while offering help to U.S. citizens abroad in meeting their filing responsibilities. However, Olson said she was unable to review the new document before the release of TAS's objectives report and remained concerned about unclear wording in the FAQs and the lack of opportunity to incorporate suggestions from the advocate service. "Our prime concern was, stop with the FAQs and issue guidance people can rely on," Olson said. (For prior coverage, see Doc 2012-13625 or 2012 TNT 124-1.)
Karl said that while the AICPA is sympathetic to the problems posed by unofficial assistance in FAQs, "we generally look for any kind of guidance that people can get."
Olson also noted that the TAS has taken a more direct approach to its work coordinating class action litigants' activities with the IRS and other government oversight agencies. That includes working with almost 4,000 taxpayers allegedly harmed by the California tax debt law firm of Roni Lynn Deutch; at least 76 cases of alleged misconduct by the tax return preparation and lender service Mo' Money Taxes in Memphis, Tenn.; and assistance to customers of TaxMasters Inc. of Houston left without representation after that firm filed for chapter 7 bankruptcy liquidation in March.
"It's sort of a new line of work for us, in a way," Olson said, describing TAS's coordination with external agencies to provide single-point-of-contact assistance to taxpayers who otherwise might have to rely on less consistent IRS help.
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