It’s a little bit (ok, a lot bit) frustrating reading the National Taxpayer Advocate’s annual report to congress that was released today. Of course my frustration is with the IRS, not the Taxpayer Advocate. It’s pretty much the same report year after year. The IRS is severely understaffed and underfunded, and its employees are less than qualified. The level of service is reaching abysmal levels and still dropping.
This year the Taxpayer Advocate applauded the IRS for adopting a Taxpayer Bill or Rights administratively, but is still pushing for it to be enacted legislatively so that it really has some “teeth” and so that it becomes a permanent fixture that encourages voluntary compliance.
One point that evokes an abundance of frustration for me is the “absence of studies to determine whether existing penalties promote voluntary compliance.” What this means in plain English is that the IRS has been punishing Americans with penalties as long as anyone now alive can remember, but the IRS has done relatively little to determine if these penalties actually work. This is the functional equivalent of building a castle on sand or on an active volcano. And if you think this is a minor problem, you’ve probably never had a tax debt that has tripled in size due to penalties and interest. Furthermore, you’re probably unaware of this little factoid:
The number of provisions in the Internal Revenue Code that either authorize or require the IRS to impose penalties has ballooned from 14 in 1955 to over 170 today.
A penalty is considered effective if it promotes voluntary compliance. In other words, a penalty (or all the tax penalties combined) should cause taxpayers who are on the fence about paying to decide that they will pay voluntarily rather than expose themselves to IRS enforced collections. And the IRS needs to strike the right balance: not too severe and not too light. That’s not an easy task, but the IRS does not appear to be taking it very seriously, according to the Taxpayer Advocate. Ever heard of the IRS Office of Service-wide Penalties? Of course you haven’t because it’s a 6-man operation tucked neatly out of sight that hasn’t answered to Congress in over 20 years.
On a positive note, I am very happy with my own direct experiences with the Taxpayer Advocate Service (TAS) recently. I had previously been told that the TAS would not provide assistance to taxpayers without the presence of an IRS levy or threat of levy (or other adverse action). And even then, I was under the impression that TAS may not take a case without the presence of some sort of delay. However, I have noticed that the TAS intake department has become quite a bit more liberal. In fact, I have a couple cases that the TAS gladly accepted where there was no financial hardship whatsoever, only delay.