Some items of note from the latest National Taxpayer Advocate’s Annual Report:
has something called the Federal Payment Levy Program, which is designed
to intercept payments coming from the federal government to people who
have tax debts. According to this report, “the bulk of
levy payments have historically been related to Social Security benefits.”
At one point there was a hardship income threshold under which the
government would not seize social security benefits to reclaim taxes, but
the government phased this out and finally eliminated it at the beginning
of . The Taxpayer Advocate noted that
this was further impoverishing some people on fixed-incomes who were
already below the poverty line, and proposed a new filter. The
has agreed to implement a “low income filter” that “will exclude taxpayers
from the FPLP
if their estimated income (based on internal
data) is less than 250 percent of the poverty level.” This change is due
to begin in . The “internal
data” the report speaks of here it tries to explain in a footnote:
Although people with low-incomes may be saved from having their social security seized via FPLP in this way, the IRS may still use other collection techniques. For instance, they may seize the bank account your social security payment is deposited into, thus saving you from a partial levy only to hit you with a 100% seizure. Or they may file a “paper levy” to attach 100% of future social security payments until the unpaid tax is collected. For low-income tax resisters, this will require vigilance. Still, the Advocate predicts that this change “will protect hundreds of thousands of taxpayers from economic damage and unnecessary interaction with the IRS.”
To compute the taxpayer’s income, where the taxpayer has filed a tax return for the most recent year or two, the IRS will use the greater of the total positive income from that return, or income based on payor documents filed with IRS for that year. Where no such return was filed, the IRS will use payor documents for the most recent tax year. To determine family size, which is a component of the federal poverty level computation, the IRS will use the family unit size claimed on the taxpayer’s most recent return filed for the last two years, or if no such return is filed, the IRS will assume a family unit size of one.
- According to the Advocate, “many of the collection policies and practices in place today have little empirical justification even as they violate the spirit, if not the letter, of the IRS Restructuring and Reform Act of and result in unnecessary harm to taxpayers. For example, despite the fact that IRS levies and Notice of Federal Tax Lien filings increased by approximately 590 percent and 475 percent, respectively, [see The Picket Line, ], overall inflation-adjusted collection revenue declined by approximately 7.4 percent over the same period.” The IRS appears to be systematically exaggerating the effectiveness of its collection efforts by attributing any revenue collected during the collection process, even things like subsequent tax refunds being automatically intercepted before they’re sent, as being attributable to the activities of collections personnel. Also, “[t]here is an astonishing lack of transparency as to what is included in the revenue figures and how they are computed.”
- The hardship standards that the IRS uses to determine whether a tax debt is collectible (that is, is there anything to seize, and will seizing it effectively throw the taxpayer onto government assistance, thus robbing Peter to pay Peter) don’t take into account things like credit card debt, school loans, and medical bills. In many cases, they’re trying to get blood from a stone.
- The IRS tends to file official lien notices haphazardly, without much regard for whether they are effective. Their policy seems to be: when an account reaches a certain threshold of unpaid balance, file a a notice of federal tax lien. This even though very little collection revenue comes from liens and though a lien notice like this can make it more difficult for delinquent taxpayers to get back on their feet financially. (These notices make the “secret lien” filed against all delinquent taxpayers part of the public record, available to potential creditors and employers and landlords and such, and put the lien into effect so that the IRS can skim money, for instance if the taxpayer sells property or has accounts receivable.)
- Taxpatriatism appears to be rife. According to the report, “[i]t is estimated that more than seven million American citizens reside abroad. Although U.S. citizens are required to file U.S. income tax returns regardless of their residency status, IRS data show that only 462,340 taxpayers (or 6.6 percent) filed returns from a foreign address in tax year 2007.”
- The “offer in compromise” program — in which people with large tax debts they can’t pay off can enter into an agreement with the government to pay a portion of their debt, comply fully with the tax laws for five years, and have the remainder of their debt forgiven — has become useless for most people. Now, in order to use this program, you have to pay a fee and submit a substantial down-payment along with your application (which involves “more than 100 steps in a 44-page package”) — and then your application may still be declined.
- Weirdly, the IRS processes our 1040 forms before it processes the W-2s and 1099s that substantiate the income we report. This makes it easy for fraudsters to understate their income and get refunds before the government knows anything is wrong.
- “The IRS is experiencing high levels of new individual taxpayer payment delinquencies in categories that could produce high levels of subsequent noncompliance.” Music to my ears.