What started as the Office of the Taxpayer Ombudsman was replaced in 1996 by the Office of the Taxpayer Advocate. Since 2001 it has been headed by Nina Olson -- "the voice of the taxpayer."
Every year Olson presents a report to Congress, outlining areas in the tax code that are in urgent need of reform. It might not come as a surprise that Congress hasn't rushed to implement all suggested tax reform changes immediately. Thus, many items are repeated from year to year.
Here are some of the key concerns raised by the taxpayer advocate in the just-released 2012 report:
Tax-Code Complexity and Cost of Compliance
The tax code has grown over the years to what now encompasses almost four million words. It's so complex that 59 percent of individuals pay tax pros to prepare their returns (and another 30 percent use tax-prep software). This is an extra cost borne by taxpayers. The cost is not just financial -- individuals and businesses spend more than 6 billion hours each year on taxes.
Olson cites this as the biggest tax-reform target we face, explaining: "The existing tax code ... obscures comprehension, leaving many taxpayers unaware how their taxes are computed and what rate of tax they pay; it facilitates tax avoidance by enabling sophisticated taxpayers to reduce their tax liabilities and provides criminals with opportunities to commit tax fraud; and it undermines trust in the system by creating an impression that many taxpayers are not compliant, thereby reducing the incentives that honest taxpayers feel to comply."
Underfunding the IRS
According to Olson, the IRS collected $2.5 trillion in fiscal 2012, on a budget of less than $12 billion -- that's a 214:1 average return-on-investment. Yet this money-generating entity has been facing budget cuts, not increases.
Prolonged Problems Helping Victims of Identity Theft
Not only is identity theft a big and growing problem for many Americans, but when their finances are hijacked, it can also cause massive headaches with taxes.
The Alternative Minimum Tax was enacted in 1969 to prevent high-income taxpayers from avoiding taxation. It's not working well, though, as about 7,000 millionaires in 2011 paid no income tax at all. Meanwhile, the AMT is very complicated, and due to some of its peculiarities, it can ensnare middle-income taxpayers.
As part of the fiscal cliff deal, Congress finally agreed to a permanent "patch" for the AMT, indexing it for inflation so that it won't hit most of those middle class taxpayers, now or ever. But Olson's recommendation is far simpler: Repeal it.
See What Your Advocate Is Fighting For