The National Taxpayer Advocate Nina E. Olson submitted a Mid-Year Report to Congress that identifies the priority issues the Taxpayer Advocate Service (TAS) will address during the coming fiscal year. The report expressed particular concern about the impact of IRS budget cuts on taxpayer service and tax compliance and about IRS lien filing practices.

Ms. Olson said in releasing the report. “the IRS faces significant challenges in the year ahead, particularly if its budget is reduced.” The last few years have been particularly challenging for taxpayers and the IRS, as the recently enacted Economic Stimulus Payments, First-Time Homebuyer Credit, and Making Work Pay Credit, among other tax benefits, have proven complex to claim or substantiate and have led to a significant increase in taxpayer inquiries and problems. At the same time, the IRS’s ability to respond to taxpayer phone calls and correspondence has declined.

The IRS’s appropriations in FY 2011 were reduced by 0.2 percent in nominal dollars and by more when increased costs are taken into account as compared with FY 2010. The funding level for FY 2012 remains uncertain. “In recent years, the IRS has been given more and more tasks, but it is not receiving the resources it needs to fulfill these tasks without cutting corners,” the report says. “And when the IRS cuts corners, taxpayers can be harmed and revenue collection may suffer.”

The National Taxpayer Advocate has previously suggested that the IRS generally be exempt from budget caps or reductions. She has noted that the “tax gap” (i.e., the amount of tax due but not paid voluntarily and timely) is estimated to be about $345 billion a year. “As the de facto ‘Accounts Receivable Department’ of the federal government, the IRS collects well over 90 percent of all federal revenue,” the report notes. On a budget of about $12.1 billion, the IRS collected $2.35 trillion in FY 2010, or about $194 in federal revenue for each dollar it spent.

The report states: “Despite differing views about the appropriate level of taxation, there is widespread agreement that taxes that are due and owing under the law should be collected. Spending cuts mean the IRS will not have the resources to ensure that all taxpayers pay their fair share, thereby effectively forcing compliant taxpayers to pay more to subsidize noncompliance by others. Moreover, the IRS will not have the ability to meet the service needs of the taxpayers who are paying our nation’s bills.”

The report also expresses concern about the ability of TAS itself to meet taxpayer needs. “Congress created TAS largely to serve as the IRS’s ‘safety net’ for taxpayers who are experiencing significant hardships,” the report says. “In practice, TAS is often a taxpayer’s last resort for resolving a tax problem.” TAS’s case receipts have risen from about 169,000 in FY 2004 to about 299,000 in FY 2010, an increase of 77 percent. The report expresses concern that if TAS does not receive sufficient resources to handle its growing workload, it will have no choice but to decline to accept certain categories of cases, leaving taxpayers to fend for themselves.

The National Taxpayer Advocate has expressed concern about IRS collection practices in prior reports. The report expresses continuing concern about the IRS’s practice of automatically filing tax liens based on a dollar threshold instead of basing lien-filing decisions on an analysis of the taxpayer’s financial situation. The National Taxpayer Advocate believes that such an analysis “should balance the need to protect the government’s interests in the taxpayer’s assets with a corresponding concern for the financial harm the lien will create for that taxpayer.”

If you would like more details, please do not hesitate to call our office. Our office has been successful in helping taxpayers with IRS and IDOR collection problems for over 20 years. Please call our office and ask for Brittany at (847) 705-7555 to talk to one of our attorneys in the tax practice group and find out how we can help your client in front of IRS collections.