Word from tax advocate: IRS heal thyself

Every year the Taxpayer Advocate Service issues a report to Congress about the state of the nation's tax code. Washington, D.C., area readers of this blog may be interested, but not surprised to know that the latest report from the head of the service suggests there are a few things that could use some changing, and perhaps the most important might be for the Internal Revenue Service to focus on fixing itself.

According to Nina Olson, the chief taxpayer advocate, the IRS should put some focus on the voluntary disclosure programs it has instituted as part of its efforts to boost collections from foreign bank accounts.

As a matter of law, taxpayers with significant balances in foreign banks are required to file Foreign Bank and Financial Accounts (FBAR) forms every year. The IRS has determined that there are a lot of individuals who haven't stayed on top of this requirement. To recoup some of the estimated resulting revenue losses, the agency has created the voluntary disclosure programs through which taxpayers can catch up on their missed filings, paying taxes and reduced penalties.

According to Olson, however, the programs have a major flaw. She says they treat every FBAR filer the same. She says there are bad apples who have sought to dodge their obligations. But she says there are some filers who have legitimate reasons for not having filed the forms. Others may have just failed to do so inadvertently. But they are all treated the same, and she says that's not fair.

As Olson puts in her report, "The program has caused 'excessive burden and fear for taxpayers.'"

Olson says the IRS also fumbled the ball in responding to news that nearly 650,000 social security numbers were stolen last year by thieves looking to get their hands on tax returns. She says rather than moving fast to correct issues, the IRS put in place a slow-moving process that leaves affected taxpayers in limbo for six months.

Issues with the IRS may not be a problem most taxpayers face. When they do surface, it's good to know that a Taxpayer Advocate Service exists and is there to be a voice for taxpayers. Often, though, additional advocacy is needed and can be found in an experienced tax attorney.

Source: Palm Beach Daily News, "Taxpayer complaints with IRS include forms, handling of identity theft," Gail Liberman, Jan. 27, 2013

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