American taxpayers face inadequate service, erosion of rights and reduced tax compliance because of the Internal Revenue Service's expanding workload and declining resources, according to a report by the IRS' internal monitor.
National Taxpayer Advocate Nina Olson noted in her annual report to Congress, released last week, that use of automated processes to adjust tax liabilities is harming taxpayers, and recommended that Congress enact a comprehensive Taxpayer Bill of Rights.
"The overriding challenge facing the IRS is that its workload has grown significantly in recent years, while its funding is being cut," Olson said in a statement. "This is causing the IRS to resort to shortcuts that undermine fundamental taxpayer rights and harm taxpayers–and at the same time reduces the IRS' ability to deliver on its core mission of raising revenue."
The report said the IRS' workload has grown sharply because of the increasing complexity of the tax code and the code's frequent changes, the need to provide service to a more diverse taxpayer population, the IRS' increasing responsibility for administering economic and social policies, a surge in refund fraud and tax-related identity theft and the implementation of new third-party information reporting requirements.
To keep up with its rising workload, the IRS is relying more and more on automated data-matching procedures to identify potentially inaccurate claims and adjust tax liabilities. In many cases, however, the taxpayer's return position turns out to be correct.
Moreover, although taxpayers who are subject to audits are entitled to established taxpayer rights protections, an increasing number of IRS adjustments are not classified as audits, so these protections often do not apply. In 2010 alone, the IRS made about 15 million contacts with individual taxpayers to adjust their tax liabilities, but treated only 1.6 million as audits.
Even then, it conducted more than three-quarters of those by correspondence with no single IRS employee responsible for the audit, making it more difficult for the taxpayer to communicate with the IRS about his or her case.
