by Brian Mahany
The Taxpayer Advocate Service is an independent voice within the IRS. It’s mission is to help taxpayers who believe they are lost in the system and not getting the treatment and service they deserve. Looking over the shoulder of an agency of almost 100,000 employees, Taxpayer Advocate Nina Olson is a very busy woman.
One of Olson’s duties is to submit periodic reports to Congress. Unlike most bureaucrats who only may speak through the agency’s chain of command, the Taxpayer Advocate makes a report directly to Congress. On December 31st of last year she issued an extensive report, much of it critical of the agency and of its funding from Congress.
Olson began her report with a quote from a previous Commissioner of the IRS; a quote that was made back in 1964 – a time long before computers. The then commissioner warned, “There may be a tendency to overcentralize operations, to overextend capabilities, and, yes, to capitulate to overmechanization and underhumanization of tax administration. In brief, IRS must constantly weigh machine capability against the actual and psychic costs to the nation.” That statement made almost 50 years ago by Commissioner Mortimer Caplan rings true today.
Olson told Congress several weeks ago that as the IRS relies more and more on automation, it runs an increasing risk that it will “assume taxpayers are cheating, confuse taxpayers about their rights and sidestep longstanding taxpayer protections.” In our opinion, there is no risk that this might happen. Unfortunately, we see it every day.
A case in point is the agency’s reliance on outside sources of information in the issuance of Automated Substitute for Return (ASFR) assessments. Those assessments assume that the taxpayer was wrong. In reality, most of those assessments are wrong.
Olson also shares our concern with the current focus on offshore tax compliance. She told Congress that millions of taxpayers with offshore accounts or foreign green card holders face “serious challenges in understanding and meeting their federal tax obligations.” She is right.
The current reporting system including FBARs (Reports of Foreign Bank and Financial Accounts), FATCA (Foreign Account Tax Compliance Act), foreign corporation and foreign partnership disclosure forms is confusing. We receive calls weekly from highly skilled CPAs, lawyers and other financial professionals seeking guidance. If they have trouble, be assured that the retired school teacher that moves to Mexico or the computer program that sends money home to India is having real trouble too.
Not only are the offshore rules complex, the penalties for noncompliance are extremely steep.
The IRS has come along way but as the Taxpayer Advocate points out, the agency needs a great deal of improvement. As former revenue commissioner of Maine, I know first hand that the problems are not always of the agency’s creation. Congress deserves a fair amount of the blame as well. A recent World Bank survey revealed the U.S. gets low marks for the ease of our tax system. To date, no one in our office has ever met an IRS employee that has read the entire tax code. It’s not that they are lazy, it is unfortunately because the tax code has simply grown that large. When you add rules and regulations, the General Accounting Office says it is 16,845 pages long.
In the words of former President George W. Bush, “The tax code is a complicated mess. You realize it’s a million pages long.”
If you find yourself overwhelmed by the tax code, give us a call. We help individuals and businesses with wide variety of tax matters. From welfare benefit plans to offshore tax amnesty applications, we can help. For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at All inquiries are strictly confidential.
Mahany & Ertl – America’s Tax Lawyers. Offices in Wisconsin (Milwaukee), Michigan (Detroit), Maine (Portland) and Minnesota (Minneapolis). Tax services available nationwide.