Editorial: Disclosing IRS’ heavy-handedness

Saturday, Jan. 14, 2006 | 9:50 a.m.

Earlier this week the IRS taxpayer advocate revealed that the IRS has been annually freezing hundreds of thousands of refunds to low-income Americans without notifying them that they're being investigated for tax fraud. The failure to tell taxpayers what is going on, the taxpayer advocate noted, means they can't effectively challenge the IRS' determination.

"At a minimum, this procedure constitutes an extraordinary violation of fundamental taxpayer rights and fairness," Nina Olson, the IRS taxpayer advocate, wrote in her annual report to Congress. "In our view, it may also constitute a violation of due process of law."

It also is disturbing that the taxpayer advocate's investigation concluded that 66 percent of those who discovered the IRS had frozen their refunds and who contested the decision were actually entitled to a full refund. Essentially, a computer program that the IRS uses to flag suspicious returns is ensnaring not just tax cheats or people who make honest mistakes but also those who are legitimately owed refunds.

The median income of those cases investigated by the taxpayer advocate was $13,330 and the median refund that was supposed to be received was $3,519. And because many of those whose refunds have been frozen are unfamiliar with the complex tax code, they may not understand how to fight the agency and get their refund, the taxpayer advocate noted.

The taxpayer advocate recommended, among other things, that the IRS notify all taxpayers within two weeks any time it places a refund on a claim. Furthermore, the taxpayer advocate said the IRS should devote more resources to improving the accuracy of the software that is supposed to flag tax filers who may be trying to defraud the government. These changes can't be made soon enough.

Congress created the position of taxpayer advocate in 1998 after hearing horror stories that taxpayers' rights were being trampled. As this latest report shows, the rights of taxpayers are still being violated.