Taxpayer advocate: IRS may shortcut taxpayer rights to reduce tax gap

The IRS Automated Collection System is a better investment than private debt collection initiatives now under consideration, according to a report by the National Taxpayer Advocate.

National Taxpayer Advocate's 2008 Objectives Report to Congress

Congress should go beyond urging the IRS to collect more revenue and require that IRS adopt a long-term plan to close the tax gap that includes approaches to change taxpayer behavior to pay what they owe, the National Taxpayer Advocate said.

Although reducing the tax gap is very critical, Nina Olson, the National Taxpayer Advocate, is concerned that the IRS may ramp up enforcement excessively and run roughshod over taxpayers if it is pressured to do too much too quickly.

“There is a very real concern that employees may react to the current pressures by cutting corners,” Olson said in her report to Congress last week on her priority challenges for the coming year.

The Taxpayer Advocate Service is struggling to respond to taxpayers’ difficulties that arise as result of IRS efforts.

Olson wants to ensure taxpayer rights are protected under the IRS’ private debt collection initiative. She has opposed the use of private debt collectors for certain tax debts because of the risk to taxpayer privacy and confidence in the federal tax system.

“The collection of tax is an inherently governmental function, which should only be undertaken by IRS employees trained to protect taxpayer rights,” Olson said.

The money spent on the IRS’ private debt collection initiative is an inefficient use of government dollars, as IRS collection employees can collect more delinquent tax dollars at a lower cost to the government, Olson said. The IRS Automated Collection System currently collects about $20 for every $1 spent on staffing, while the private debt collection initiative is estimated to return $4 for every dollar spent, she said in the report.

“By improving its collection strategy and use of currently available resources, including better research, the IRS could reach most, if not all, of these cases at less cost to U.S. taxpayers and less risk to taxpayer rights,” Olson said.

Mirroring her concern, the House Ways and Means Committee last week approved the Tax Collection Responsibility Act of 2007, which repeals IRS’ authority to use private debt collectors. In a hearing in May, witnesses related abusive collection tactics, the committee said.

Olson’s Taxpayer Advocate Service also has an increasing load of identity theft cases based on stolen Social Security numbers, up to 2,486 in fiscal 2006 from 335 in 2004, the report said.

IRS has insufficient security barriers to prevent those determined to commit fraud from filing tax returns using another’s SSN. In addition, stolen-identity victims are required year after year to prove they are the rightful owners of the stolen SSNs. IRS is developing a marker for the accounts of taxpayers whose SSNs have been misused, but it is uncertain to what extent IRS will use the marker to ease the burden for victimized taxpayers.

IRS can play a significant role in reducing identity theft and reducing the burden experienced by taxpayers whose SSNs were misused. IRS must consider how it can help taxpayers who have had their identities stolen, for example, by letting legitimate SSN owners request that the IRS turn off the electronic filing option. Olson’s office is working with IRS’ Office of Privacy and Information Protection to develop comprehensive approaches to the problem of stolen identity.

To serve taxpayers better, the advocate service needs to manage its case intake process better by integrating its systems, create complete electronic case files, centralized document storage, and improve its ability to update and validate its data.

TAS employees use a variety of systems to document and monitor their efforts to advocate for taxpayers, identify taxpayer needs and assess business results, but chief among these are the Taxpayer Advocate Management Information System and the Systemic Advocacy Management System. This year, TAS has begun developing a one-system approach to application enhancement and development.