Independent Contractor Compliance Blog - by Collabrus™

WASHINGTON DC- As I shared earlier this week, the IRS’ National Taxpayer Advocate, Nina E. Olson, released her annual report to Congress, (required by federal statute) dated December 31, 2009, warning that (the IRS struggling because) it “is subject to three diverging forces…”

1. Increased responsibility for non-core tax administration duties,
2. Increasing demand for taxpayer service,
3. Declining resources to meet demands

In her explanation she stated:

• The IRS has set a target for FY 2010 of answering only 71 percent of calls from taxpayers seeking to speak with a customer service representative about account questions, down from 83 percent in FY 2007.
• The IRS examination and collection practices have been developed piecemeal…
• The IRS does little to encourage voluntary compliance. That often business taxpayers who have been subject to a desk audit, or examination, show a decline in voluntary compliance in subsequent years.
• The IRS collection practices often harm taxpayers without producing revenue. One reason cited in the report is the IRS’ tendency to take enforcement actions without regards to effectiveness or their effects on the ability of the taxpayer to survive.

The bottom line? There isn’t enough money for the IRS to do all of these things correctly.

Reading through the report the reoccurring (and often implied) theme is to give more money to the IRS and then the immense agency will be able to do a better job.

This is not a new theme! The IRS has been under increased pressure to become more efficient in collecting taxes, including federal employment taxes, for many years. In fact, last year the General Accounting Office issued a report to congress finding that the IRS is not achieving compliance in the collection of federal employment taxes. (Keep in mind the IRS estimates 15% to 25% of the well publicized Federal “Tax Gap” is related to 1099 misclassification and underreporting issues).

Don’t cry for the IRS. It gets usually gets more money during tough economic times…

The American Recovery and Reinvestment Act of 2009 increased IRS funding to hire 4,500 new revenue agents for the purpose of closing the tax gap.

How are these new agents being used? Well in part to go after misclassified 1099 workers. In May 2009, IRS Commissioner Douglas Shulman told Congress he is placing more importance on greater enforcement of worker misclassification as a method of closing the “tax gap.” He announced the IRS will conduct 6000 employment tax audits in 2010 as a pilot to determine the extent of non-compliance.

Now the latest Taxpayer Advocate report to Congress is saying the IRS needs more money to improve taxpayer service, measure IRS effectiveness and improve voluntary compliance. When they get the money you can be sure they will reach out and touch more businesses.

Have you prepared for the knock on the door?