Taxpayer Advocate Service Warns Congress About Late Tax Changes

July 2, 2012

With wholesale changes to American tax law scheduled for January, many tax analysts are rightly concerned about the serious complications that will arise, both for individuals and the IRS. Tax Analysts published an article (subscription required) on June 28th covering a report by the Taxpayer Advocate Service, which argued that Congress’s “continual enactment” of tax law in late 2011 delayed millions of tax returns, a disturbing trend that threatens to add a significant compliance burden to the public at large.

While our complex tax structure has always made tax season somewhat of a headache, this coming year is set to be particularly painful for American families, as numerous changes in tax law are set to go into effect should congress not extend expiring statutes. Sixty tax provisions expired at the end of 2011, creating a climate of confusion that caused significant uncertainties for tax payers and the IRS and ultimately delayed tax refunds. The situation is similarly dire this year, with 41 provisions scheduled to expire if Congress does nothing. However, there is significant uncertainty about what, if anything, Congress will do regarding these expiring provisions. For example, one of the most important pieces of expiring legislation are the Bush Tax Cuts, which lowered rates across the board, and expanded some deductions and credits. Should congress extend these provisions the IRS will need to reprogram its filing system and re-instruct its agents on active tax law. The TAS report concludes that “the 2013 filing season is likely to pose problems for many (if not most) taxpayers and the IRS if Congress does not address the many provisions that have already expired or soon will.”

Compounding these changes in statutory law is the lack of information being provided to taxpayers by the IRS. The Taxpayer Advocate Services provides the Internal Revenue Service with “taxpayer advocate directives” that provide direction with regards to taxpayers’ rights and compliance issues. Unfortunately it would appear that the IRS has become increasingly hostile to these directives, repeatedly ignoring them or otherwise limiting their effectiveness. National Taxpayer Advocate Nina Olson noted that the TAS has issued 4 taxpayer advocate directives in the last year, all of which have been met with growing resistance from the IRS.

The coming changes to our tax law present their own set of administrative problems, but they serve to highlight a broader concern: the lack of stability in our tax code. Two fundamental principles of sound tax policy are that the tax code should be stable and neutral; sadly politicians have largely eschewed these principles in favor of a complicated, piecemeal approach that is problematic for taxpayers, tax administrators and businesses. Congress would be wise to address these systemic flaws in the tax code by avoiding temporary tax provisions and moving to a system that is broadly based (i.e. avoids targeted tax benefits as much as possible), neutral in application, and low in rates.

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