National Taxpayer Advocate Issues Report to Congress: "Tax Gap" Cited As Top Problem

In her annual National Taxpayer Advocate Report to Congress, Nina Olson outlines her top concerns and challenges regarding the tax system, tax system compliance and related issues. For example, she highlights problems for taxpayers (and IRS operations) when Congress makes tax changes so late in the year (as they did with the AMT “patch” in 2007, and with state and local tax and other expiring deductions in 2006).

She notes “as a most serious problem” the lack of a coordinated effort to go after the cash economy – that is, the “tax gap.” The “tax gap” has been a top issue for Olson. It first made the list of “top taxpayer concerns” in her annual report when she assumed the role of National Taxpayer Advocate.

Other highlights in the report include better tax guidance about taxation of cancelled debt (in light of the increase in home foreclosures). She calls for the repeal of the private debt collection program; a more transparent and fair approach for establishing IRS user fees; and “apology payments” for those the IRS has wronged (small but symbolic payments as she calls them.)

Overall, the report covers 29 problems facing taxpayers, makes dozens of recommendations for administrative change, proposes 11 recommendations for legislative change, and looks at the 10 tax issues most frequently litigated in the federal courts during the preceding fiscal year.

There are many good proposals in the report, but I remain concerned about the efficacy and fairness of efforts and programs to close the so-called “tax gap.” (National Taxpayer Advocate Report to Congress)