Taxpayer Advocate Says IRS ‘in Crisis’ Calls for more tax preparer regulation

Washington, D.C. (June 26, 2013)

By Jeff Stimpson


National Taxpayer Advocate Nina Olson’s latest mid-year report to Congress calls the IRS “an institution in crisis,” with its many problems affecting its ability to conduct its mission.

While acknowledging the scandals currently engulfing the tax service, the report states, “The real crisis facing the IRS … is a radically transformed mission coupled with inadequate funding to accomplish that mission. As a consequence of this crisis, the IRS gives limited consideration to taxpayer rights or fundamental tax administration principles as it struggles to get its job done.”

The wide-ranging report identifies priorities that the Taxpayer Advocate Service will address during the upcoming fiscal year. Among them:

• Adequate oversight of the tax return preparer industry, and relieving financial harm suffered by victims of preparer fraud;
• Resolving erroneous revocations of the tax-exempt status of small Section 501(c)(3) organizations and failing to provide them with a pre-revocation administrative appeal;
• Effective, timely and taxpayer-centric relief to victims of ID theft; and,
• A congressionally enacted Taxpayer Bill of Rights.

Olson also released a special report examining the IRS’s use of questionable criteria to screen applicants for tax-exempt status.

Preparer oversight

Reiterating her longtime support for regulation of return preparers, Olson said that last January’s U.S. District Court Loving decision, which disagreed with the IRS’s view that it has the authority to implement RTRP requirements on its own, “is based in part on an outdated understanding of return preparation and filing. The return preparation industry has changed substantially over the last few decades as a result of the ready availability of return preparation software, refundable credits and refund-based loans.”

“The National Taxpayer Advocate’s main focus continues to be the retention of minimum standards for return preparation,” the report added. “The reinstatement or reissuance of the IRS preparer oversight rules would promote tax compliance by imposing minimum competency standards. In addition, questionable preparers would have less opportunity and incentive to engage in misconduct or fraud.”

“The National Taxpayer Advocate is concerned that taxpayers remain vulnerable to incompetent or unscrupulous preparers,” the report read, with an additional stress on taxpayers sharply questioning preparers about their qualifications and experience in preparing returns.

Olson’s report also urged Congress restore funding for IRS employee training, which has been cut by 83 percent since 2010.