Taxpayer advocate to IRS: Protect taxpayer data
In a report to lawmakers, Nina Olson urges ban on tax preparer use of client data for non-tax purposes and limited use of private debt collectors.
NEW YORK (CNNMoney.com) -- If taxpayer advocate Nina Olson has her way, lawmakers and the IRS will implement measures that better protect confidential taxpayer information, limit the use of private debt collection agencies and repeal a new provision that requires partial payment up-front from taxpayers least able to pay back taxes.
Those are three areas Olson plans to emphasize in the coming year, according to a report to Congress delivered this week.
Better protection of taxpayer data: Under current regulations - and under proposed changes to those regulations - tax preparers, with a client's consent, may use, share or sell that client's tax information for non-tax purposes. And once the information gets into third-party hands, there is no restriction on how it may be used.
While Olson commends the IRS for coming up with proposed regulations that provide more protection for taxpayers overall than the current ones do, she would like the new regulations to prohibit tax preparers from using client information for anything other than tax-related purposes.
"More and more tax preparation businesses view tax preparation merely as a hook to get customers in the door so they can sell them other, more lucrative products," Olson wrote. "As a result taxpayers with limited financial sophistication often end up paying high fees for products that are not suitable for them."
Those products run that gamut from the notoriously high-cost refund anticipation loans, to IRAs and mortgage refinancings, none of which Olson considers "tax-related."
Repeal down payment provision in offers in compromise: When a taxpayer is unable to pay his tax bill, he may strike a deal with the IRS called an offer in compromise. A new provision requires taxpayers who submit an offer in compromise to put down 20 percent of the total amount they agree to pay.
Olson notes that taxpayers in such a situation are unlikely to have enough funds to cover the 20 percent, and likely would have to gather them from costly loans, gifts or assets that the IRS would not otherwise be able to touch.
"The legislation will encourage taxpayers to submit low-ball offers, which would require a lower down payment," she writes.
She is concerned that the new provision will reduce the money the IRS collects both because of lower offers made coupled with a greater likelihood that the IRS would reject them because they're too low.
Limit use of private debt collectors: The authority to use private debt collectors on cases of back taxes owed was given to the IRS by Congress in 2004.
Olson has criticized the measure for, among other things, its costs and its potential to incentivize private agencies to harass taxpayers since their compensation will be based on a percentage of total money collected.
In her report, she raises particular concern about the use of private debt collectors in cases where taxpayers are already having some of their income garnished by the IRS under an automated levy system, especially the elderly living on Social Security.
When such a case is brought to the Taxpayer Advocate Service, Olson notes in her report, the Service intervenes, often resulting in the IRS granting the elderly taxpayer full relief.
She has called on the IRS to make procedural and policy changes to ensure that a private debt collector will never be assigned to a case in which the IRS is already collecting levies since it can be a costly duplication of efforts and it can create unnecessary hardships for the taxpayer.