Taxpayers who endure excessive expense or drain on their time when the Internal Revenue Service mishandles a case should receive “apology payments” of up to $1,000 each, the national taxpayer advocate told Congress on Wednesday.
The advocate, a position Congress created in 1998, also said a new taxpayer bill of rights should be enacted, one that includes a list of responsibilities requiring taxpayers to conduct themselves honestly and to cooperate with auditors and tax collectors.
Nina E. Olson, the taxpayer advocate, in her annual report on the most serious problems faced by taxpayers, also said that the I.R.S. could use technology to apply the tax system to the underground or cash economy, where small entrepreneurs work for unreported pay. She said that by tracking credit card spending, state sales tax reports and other records, the I.R.S. could identify who collects this cash.
Ms. Olson estimated that the government could collect $100 billion more each year from those who evade taxes by dealing in unreported cash. That would be enough for honest taxpayers to receive a 10 percent cut in their income tax bills.
Ms. Olson also criticized Congress for making changes in the tax laws in November and December. She said such last-minute changes caused a million taxpayers to forgo deductions they were entitled to last year.
Within a long list of problems, shortcomings and backsliding by the I.R.S., the proposal that Congress authorize apology payments is the most unusual.
The proposed apology payments of $100 to $1,000, adjusted for inflation, would go to taxpayers who endure “excessive expense or undue burden” on their time. Britain and Australia already make such payments. The money would not be subject to tax.
“A fair and just tax system should acknowledge I.R.S. mistakes and delays in” resolving issues, Ms. Olson said. She proposed that her office be allowed to authorize such payments up to a total of $1 million a year. The proposed budget implies that the advocate’s office believes 1,000 to 10,000 taxpayers per year should receive apology payments.