National Taxpayer Advocate Report: Identity Theft, OVDP, and ITINs Among the Major Issues

Nina Olson, the National Taxpayer Advocate, issued her annual report to Congress this past week. She also included a special report on “Political Activity and the Rights of Applicants for Tax-Exempt Status.” Here are some of the other issue she highlighted:

1. Tax reform. “The Time for Tax Reform is Now!” screams the lower right portion of the report. No argument–the US Tax Code is far too complex. Unfortunately, having tax reform depends on a functional Congress…and that’s not going to happen this year.

2. The IRS refuses to issue refunds to victims of tax preparer fraud. As Ms. Olson points out, the IRS Chief Counsel’s office says that the false return can be deemed a “nullity” and the true return can be accepted and processed. Yet the problem of getting refunds for innocent taxpayers continues.

3. Identity Theft. As Jason Dinesen can vouch, victims of identity theft will see delay after delay. Ms. Olson states that the current Identity Protection Specialized Unit is harming identity theft victims.

4. The current IRS Offshore Voluntary Disclosure Program burdens benign actors and damages IRS credibility. This is something I’ve commented on before, and I’m glad to see Ms. Olson agrees with me.

5. Lack of coordination between the IRS and FINCEN (responsible for the FBAR) burdens taxpayers and undermines compliance efforts. Ms. Olson focused on filing of the FBARs. I’d like her to take a look at the duplication between the FBAR and Form 8938. By the way, one piece of good news on the FBAR front: Buried in the FAQ of the BSA efile system is the announcement that tax professionals are now allowed to efile the FBAR for clients as long as we’re assured the information is accurate.

There’s plenty more in Ms. Olson’s report that I agree with, but I do want to point out one area where I disagree with her. Ms. Olson argues that the current limited oversight of return preparers makes taxpayers vulnerable to unscrupulous or incompetent preparers. Ms. Olson forgets that the IRS does have tools to weed out tax preparers who are unscrupulous. Indeed, the IRS has filed numerous civil and criminal cases against such tax preparers over the years. (I do agree with Ms. Olson that anyone using a tax professional should ask about his qualifications and should obtain a signed copy of the return.)

All-in-all, Ms. Olson’s report is worth reading by the IRS and Congress. She highlights many of the areas of concern that tax professionals have with the current system. Unfortunately, I expect her report to be lost in the sea of other news regarding the IRS that has come out of Washington this Spring and Summer.

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