Shoot-Yourself-in-the-Foot Dept.: Fee creep could also increase enforcement costs.
By Rick Telberg
Surely nothing ticks off a taxpayer more than having to pay a fee in order to pay taxes. But the Internal Revenue Service charges fees for installment agreements, offers in compromise, pre-filing agreements, and special enrollment examinations.
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But are the fees high enough? The IRS thinks not.
Granted, these are fees for extra services that nobody has to participate in, but the same legal authority that applies to those “extras” could also apply to
- filing an appeal,
- receiving assistance from the Taxpayer Advocate Service (TAS),
- requesting an audit reconsideration,
- entering a closing agreement,
- visiting a taxpayer assistance center,
- calling the IRS,
- receiving a communication, such as a call, letter, or notice),
- making a payment,
- submitting a tax form,
- using the “where’s my refund” website, or
- asking the IRS to withdraw a lien.
Whether the IRS ever grows so audacious may depend on whether Congress grows ever more tight-fisted with its IRS budget. Because that’s what the IRS blames its use of fees on, and if the IRS continues to need new sources of funding to operate, fee creep could become an ugly reality.
The Taxpayer Advocacy Service examined the use of fees and had nothing good to say about them. With the IRS now proposing to raise certain extant fees, the TAS warns the IRS to think twice before asking taxpayers to cough fees in order to cough up taxes. The attempt could prove counterproductive.
“The effect of IRS user fees could be more complicated than it seems,’ the TAS warns in its 2017 Annual Report to Congress. “Fees can significantly reduce uptake even among those who can afford them, perhaps by making the uptake decisions more complicated. Free services could generate goodwill, trust, and a cooperative attitude toward the IRS, which studies suggest could improve voluntary compliance…helping people comply (for free) reinforces the view that tax compliance is a civic and moral duty, whereas charging for assistance reinforces the view that compliance is just a monetary transaction which is ‘smart’ to undertake only if it makes economic sense.”
The IRS can increase fees without considering whether the relevant services generate revenue, reduce costs, or erode taxpayer rights. It does not have to consider whether a fee actually increases enforcement costs.
Due to budget cutbacks, the IRS doesn’t have much presence where the taxpayer meets up against the tax bureaucracy. Many taxpayer assistance centers are closed, and they are all closed outside of tax season. Most taxpayers who call the IRS toll-free lines never reach anybody. When taxpayers want to express their feeling about fees, it isn’t the IRS that has to hear it. Often as not, it’s a spouse, a bartender, or a tax practitioner. None of these is responsible for IRS fees, of course, but the latter can help out a little.
- They can warn clients of possible fees.
- They can help clients avoid fees.
- They can opine in public with a certain authority.
The IRS does not need congressional permission to increase fees or extend them to new services. However, Congress has the power to pass legislation prohibiting or controlling fees. Unless it does so, fee creep could become a real problem. Tax practitioners, who serve on the front lines of taxation, need to be aware of what is happening.