Looking Out for Taxpayers, Holding the IRS Accountable

A report issued this week by the Taxpayer Advocate for the Internal Revenue Service, or IRS, is new evidence that the tax-collection agency will have troubling handling the new responsibilities it will be given if the health care legislation passed by Congress becomes law.

The National Taxpayer Advocate said the IRS is having trouble with some services to taxpayers, including “planning to be unable to answer about three in every 10 calls it receives.”  The report has a long discussion of the IRS’ burden of administering “tax-based social benefit programs.”  The Advocate says that if the burden of administering new such programs is “excessive, it could impair the IRS’s ability to deliver on its core tax-collection mission.”  The Advocate goes on to say that “Implementing these provisions without adequate notice and resources will strain IRS systems and will likely lead the agency to divert resources from its core functions.”

What’s left unsaid is that administering health care reform will be the biggest tax-based social benefit program the IRS and the taxpayers have ever seen.  It will be much bigger and affect millions more taxpayers than current programs such as the earned income tax credit, which itself has been problematic.  I hope the Advocate’s warning about these consequences will register with the White House, Treasury Department, the IRS and policymakers pushing this legislation.  I’ve been beating the drum about the administrative burden of health care reform, especially thinking about the impact on taxpayers and the heightened level of frustration they’ll face in dealing with the IRS.  I’ve only gotten a lackadaisical response so far.  Taxpayers pay for administrative costs, along with everything else.

I’ve worked for decades to keep pressure on the IRS to provide better service to taxpayers.  In 1998, I co-authored the IRS restructuring legislation that established the National Taxpayer Advocate and took many other steps to try to restore taxpayer rights after the IRS had engaged in heavy-handed enforcement tactics.  I served on the bipartisan IRS Restructuring Commission that developed recommendations for these legislative reforms.  And, I authored the first-ever Taxpayer Bill of Rights, which was followed by updates, during the 1980s.  It’s a never-ending battle to keep the IRS focused on being responsive to taxpayer questions and inquiries, at a very basic level of good customer service, and to make sure the IRS focuses its enforcement work with an even hand.

Just last month, I had to put a Senate hold on several nominees for senior Treasury Department posts until the department suspended efforts to collect an unfair tax penalty from hundreds of small businesses.  The IRS responded by extending a moratorium on collecting the penalty.  My action was prompted by a ruling by the Treasury Department, which oversees the IRS, to help Citigroup by letting it keep $38 billion in tax deductions that the law otherwise would have required to decline in value as the government sells its stake in the company.  At the same time, the IRS was extending this break to Citigroup, it was dragging out negotiations with small businesses on how they would be treated in a different matter.  My ire was up because there seems to be a double standard and a failure to recognize that small businesses are just as critical to the economy as big banks, if not more.  What’s more, it’s unclear whether the Treasury Department even had the authority to issue its ruling for Citigroup.

Seeking fair treatment for small businesses, I’ve asked the Treasury Department to review implementation of a law that I co-authored in 2004 imposing fines on companies that failed to report the use of a tax shelter.  The law was written for large companies, but a review of cases shows that the IRS is disproportionately coming down on small businesses.  I’ve introduced bipartisan legislation to make fines proportionate and reduce the penalties levied against small businesses. The IRS has agreed to stop collecting these fines until Congress can act.  I especially want the IRS to reconsider liens it is imposing on some businesses, making it very difficult and even impossible for them to get or refinance loans.  As these small businesses try to weather the battered economy, this heavy hand by the IRS severely limits their ability to survive.  The IRS has to use its discretion to determine when liens are the best course to improve tax collection and when they’re just a knee-jerk enforcement tactic that will do more harm than good.