Report Card Time

May 30, 2012

Memorial Day has come and gone, and the school year is quickly winding down, if it isn’t already over. Kids are getting excited for summer vacay, and there’s just one hurdle left — the dreaded report card. (If your kids are getting nervous and antsy around mail time, you might want to pay attention!)

Kids in school aren’t the only ones who have to sweat report-card time. That’s right, the IRS gets a report-card time, too. In fact, they get two. By law, National Taxpayer Advocate Nina Olson has to submit two reports to Congress each year: the “Objectives Report,” which outlines goals and activities planned for the coming year, and the “Annual Report,” which summarizes the 20 most serious problems encountered by taxpayers, recommendations for solving those problems, and other IRS efforts to improve “customer” service and reduce taxpayer burden.

And how do you think our friends at the IRS are doing? Well, this year’s Annual Report listed twenty-two problems, not 20. Their biggest conclusion is that the IRS is simply “not adequately funded to serve taxpayers and collect taxes.” It identifies “the combination of the IRS’s expanding workload and declining resources as the most serious problem facing taxpayers.”

Granted, the IRS faces an especially tough challenge. “There were approximately 4,430 changes to the tax code from 2001 through 2010, an average of more than one a day, including an estimated 579 changes in 2010 alone. The IRS must explain each new provision to taxpayers, write computer code so it can process returns affected by the provision, and train its auditors to identify improper claims.”

And there were more specific problems, too. The IRS has to rely on computers to do most of their work, and computers don’t always get things right. The IRS adjusts about 15 million returns per year — but treats only 10% of those as “audits,” so taxpayers don’t always get traditional audit protections. And sometimes the IRS is just too busy to respond: they answer just 70% of taxpayer phone calls, and just 53% of written correspondence gets answered in 45 days. It’s hard to ace your report card when you’re missing that much of your homework!

What can the IRS do about their report card? Well, they can’t just make up their missing credit in summer school. But the Taxpayer Advocate does have two main recommendations. First, she urges Congress to “develop new budget procedures designed to fund the IRS at a level that will enable it to meet taxpayer needs and maximize tax compliance.” And second, she suggests codifying a “Taxpayer Bill of Rights” to clearly outline and explain taxpayer protections and and responsibilities.

Fortunately, the news isn’t all bad — the IRS has joined the social media revolution! There’s a smartphone app to help track your refund, a YouTube channel with helpful videos in English, American Sign Language, and various foreign languages, and podcasts you can download from the iTunes store. You can even follow them on Facebook and Twitter!

Our “Plan A,” of course, is to give you the concepts and strategies to help you pay the least amount of tax legally possible — then help prepare returns that avoid IRS scrutiny. But just in case that scrutiny finds you, we’re always ready with “Plan B” — to help deal with the IRS on your behalf, and make sure you don’t become another Annual Report statistic!