By George Yaksick, Washington Staff Writer
Speaking to lawmakers in Congress on January 9, 2007, National Taxpayer Advocate Nina Olson identified a number of areas of concern regarding IRS operations and tax policy. Addressing the alternative minimum tax (AMT) and the tax gap of uncollected revenue are pressing issues, and privatizing certain IRS functions worries some critics. The findings are in the 2006 Annual Report to Congress.
Olson identified the individual alternative minimum tax (AMT) as the most serious problem for taxpayers, which she called the "poster child" of complexity in the Tax Code.
The AMT is today ensnaring taxpayers it was never meant to impact, Olson reported. Middle class taxpayers are being "punished" for having children or living in a high tax state.
Olson warned that without Congressional action, 32.4 million individual taxpayers will be liable for AMT in just three years, one-third of all U.S. taxpayers.
Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, endorsed Olson's call for Congress to repeal the AMT. "It's time to protect families from the higher burden of this hidden second tax system once and for all. It's a tall order to do this in fiscally responsible fashion, but that's the job before us," Baucus said.
The committee's Ranking Member Charles Grassley (R-Iowa) called the AMT "taxpayer enemy number one. It's Congress' responsibility to fix it," he said in a statement.
Baucus and Grassley have introduced legislation, the Individual Alternative Minimum Tax Repeal Act of 2007 to abolish the AMT permanently.
Closing The Tax Gap, Other Concerns
To close the tax gap--the difference between what taxpayers pay and what they owe--Olson reiterated her earlier recommendation to expand third party reporting requirements. However, she cautioned against "ramping up enforcement activities too quickly or by pressuring IRS examination and collection personnel to hit revenue targets."
"Some say there's not really much revenue to be squeezed from the tax gap, but I refuse to believe that Treasury can't figure out how to collect hundreds of billions of dollars in taxes that are legally owed," Baucus said in a statement.
Olson also repeated her familiar recommendation to make the offer-in-compromise program more attractive. For example, Congress should repeal the new requirement that taxpayers submitting "lump sum" offers to include a nonrefundable partial payment of 20 percent of the offer with their applications.
Other legislative recommendations included expanding tax benefits for military personnel and disabled individuals, fine-tuning collection due process (CDP) hearings and raising the exempt-organization information return filing threshold.
Partial Privatization of Collections
Congress should terminate the IRS' private debt collection initiative, Olson told lawmakers. According to Olson, the Service doesn't have enough "easy" cases to assign to private collection agencies and the government is not getting a good return on its investment.
The IRS reported last year that private debt would initially be assigned cases where the taxpayer does not dispute the liability. According to Olson, the assigned cases have not been the "easy" ones.
"The assigned inventory turned out to be far more complex than the IRS ever expected," she said. Some cases involved active levies, which are outside the scope of private collection work. Other cases were ineligible for installment agreements.
Originally, the IRS intended to assign 40,000 accounts to private collectors. Olson reported that "complications" have resulted in fewer cases being assigned. "Complications include the unforeseen extent of IRS employee involvement in the manual administration of these cases," Olson said.
According to Olson, the IRS' privatization initiative is falling short of its revenue goals. "The IRS assigned approximately $65 million of inventory (11,500 delinquent accounts) to private collectors with approximately $1 million collected for the first month," Olson told Congress.
"On the other hand, only half of that revenue collected in the first month was commissionable. In other words, the IRS's initial contact of these taxpayers and not any action on the private collector's part, generated the account resolution," she observed. Olson acknowledged that after the first month, the ratio of commissionable to non-commissionable income increased.
Supporters of the plan say those figures do not tell the whole story. Jenifer Loon, director of government affairs for ACA International, a trade association of credit and collection professionals, said that the privatization initiative is showing "strong and positive results."
Loon took issue with Olson's estimate of revenue collection. "For the first 10 weeks, over $8.4 million were collected," she said. "Collections are coming in better than expected, exceeding targets set by the IRS." Loon also emphasized that private collection agencies are getting high marks for customer service.
"The National Taxpayer Advocate clearly fails to recognize the value that private collection agencies are affording the IRS," the Tax Fairness Coalition said in a statement. "For decades, private collection agencies have partnered with government agencies at the local, state and federal level to professionally and efficiently recover past due government debts."
Opponents of privatization took a different view. "Paying private debt collectors a bounty of up to 25 percent of the money they collect is a waste of taxpayer dollars and exposes taxpayers to the risk of identity theft and overly aggressive collection tactics," Colleen Kelley, president of the National Treasury Employees Union (NTEU), said in a statement. The NTEU represents IRS employees.
On Capitol Hill, at this time, it is unclear whether there is enough support for legislative action to change the months-old privatization initiative.
- Related items:
- IRS Officials Highlight Tax Return Changes For Individuals
- Final Tax Package Extended; Congress Adjourns
- Failure to Renew Expired Tax Extenders Subject of Concern, Debate
- Congressional Panel Examines Business Tax Reform
- Rules Change for Hybrid Vehicle Tax Credit
- IRS Outlines Taxpayer Protections in Private Debt Collection Program
- IRS Outsources Some Debt Collection Activity
Added to the news on January 10, 2007.
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