Advocate: IRS should pay if it delays a taxpayer

from www.boston.com




New York Times News Service / January 10, 2008
Taxpayers who endure excessive expense or drain on their time when the Internal Revenue Service mishandles a case should receive "apology payments" of up to $1,000 each, the National Taxpayer Advocate told Congress yesterday.
more stories like this
The advocate, a position Congress created in 1998, also said a new taxpayer bill of rights should be enacted, one that requires taxpayers to conduct themselves honestly and to cooperate with auditors and tax collectors.
Nina E. Olson, the taxpayer advocate, also said the IRS could use technology to apply the tax system to the underground or cash economy, where small entrepreneurs work for unreported pay.
She said that by tracking credit card spending, state sales tax reports, and other records, the IRS could identify who collects this cash.
Olson estimated the IRS could collect $100 billion more each year from those who evade taxes by dealing in unreported cash. That would be enough for honest taxpayers to receive a 10 percent cut in their income tax bills.
The proposed apology payments of $100 to $1,000, adjusted for inflation, would go to taxpayers who endure "excessive expense or undue burden" on their time. Britain and Australia already make such payments. The money would not be subject to tax.
"A fair and just tax system should acknowledge IRS mistakes and delays" in resolving issues, Olson said. She proposed that her office have the authority to authorize such payments up to $1 million a year.
Olson also told Congress that the use of private debt collectors is costing more than the money brought in. Private debt collection "is failing in most respects," she said.
She also said that the IRS had become much too aggressive in charging fees. One manager of a nonprofit organization who asked how to list some unusual income on its tax return was told that an answer would cost $2,700.
The IRS had expected private companies to collect $88 million but has now lowered that to as little as $23 million. The collectors are paid almost a fourth of the money they bring in.
If Congress authorized more money for IRS staff and equipment, the agency said it could bring in $20 for each dollar it receives, five times the Bush administration's official estimate of private debt collector efficiency.
Republicans oppose hiring more IRS workers, and the administration favors private collection even though it acknowledged it is far less efficient than having the IRS handle collections.
But the proposal most likely to draw opposition is one that would require partnerships, limited liability companies, and S corporations - all of which pass tax obligations on to their owners - to report more about their income.
© Copyright 2008 Globe Newspaper Company.