Report: IRS holding back refunds
Taxpayer Advocate says poor service and delays in refunds are most serious issues facing taxpayers.
By Steve Hargreaves, staff writer

NEW YORK ( - The nation's taxpayer advocate said Tuesday that the lack of assistance the IRS provides and the agency's propensity to withhold refunds are the two most serious problems encountered by taxpayers.

In her annual report to Congress, National Taxpayer Advocate Nina Olson also said the plethora of rules in the country's tax code is leading to inadvertent mistakes by law abiding taxpayers and opening up loopholes for cheats, according to a statement on the tax advocate's Web site.

"The exploitation of 'loopholes' leads to calls for new legislation to crack down on abuses, which in turn makes the tax law more complex," Olson said in the statement. "In short, complexity begets more complexity." The National Taxpayer Advocate is an independent office within the IRS that is charged with helping taxpayers resolve problems with the IRS.

Olson said the IRS has devoted more resources to catching tax cheats at the expense of programs designed to help normal taxpayers complete their returns.

She said the IRS has eliminated TeleFile, reduced the number of returns the IRS prepares for taxpayers who seek assistance, reduced the percentage of calls IRS telephone assistants answer, and substantially reduced taxpayer education for small businesses.

She said the absence of these programs risks making more people not comply with their tax obligations.

Holding back refunds

Olson also expressed concern that the IRS was withholding hundreds of thousands of refund requests it suspected of being fraudulent for up to 8 months without informing taxpayers that their refund claims were under review.

She said that of 28,000 people who contacted her office in 2004 in regards to their refund being held up, a sample study showed that 66 percent ultimately received their full refund request while an additional 14 percent received a partial refund.

"I'm especially troubled by the issues the taxpayer advocate raises about the IRS criminal investigation division's freezing of refunds," Sen. Chuck Grassley, chairman of the Committee on Finance, said in a statement. "We need to make sure taxpayers have proper due process when the IRS decides to freeze a refund."

The Committee on Finance has jurisdiction over the IRS.

Olson urged the IRS to inform taxpayers that their refunds were under review, provide them the opportunity to defend their claim, and reach a resolution sooner.

Each year, National Taxpayer Advocate is required to report to Congress at least 20 of the most serious problems faced by taxpayers. In addition to poor service and holding back refunds, other issues in this year's report include the need to adequately tax the "cash economy."


The high cost of tax compliance. Study says paying taxes costs 22 cents for every dollar collected. Click here.

IRS fees to rise steeply in February. Click hereTop of page

Follow the news that matters to you. Create your own alert to be notified on topics you're interested in.

Or, visit Popular Alerts for suggestions.
Manage alerts | What is this?