Tuesday, February 07, 2006

OMB: IRS Wins (Slightly) More Money

In a day chock full of good stories from Tax Analysts, one of the stories was a $46 billion increase in IRS funding. To the undoubted disappointment of Nina Olson, present IRS plans are to spend most of the new funding on enforcement as opposed to modernization or customer service. One reason for the emphasis on enforcement--a tax gap that is perceived as growing. Proposed enforcement tools, some of which may be controversial, especially in the tax preparer community, include: increased frivolous tax penalties, expanded Tax Court jurisdiction, loosening of due process rules, higher expectations of paid preparers (possibly including new e-filing requirements) and expanding backup withholding on certain government payments. In a separate development reported elsewhere on the Tax Analysts site, the IRS announced that notification of "frozen refunds" would begin shortly.

I do not want to minimize the tax gap; failure to pay taxes is unfair to honest taxpayers. At the same time, I am uncomfortable with the increased emphasis on enforcement; have Republicans forgotten the "Taxpayer Bill of Rights" hearings in the 1990s? A better solution--improve customer service and modernization and simplifing the tax code. It is possible that drawing down troops from Iraq and reducing the progressivity of the income tax code may also help. Additionally, the tax preparing community needs to look into the enforcement mechanisms here and make sure that these provisions are not overly onerous.


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