IRS tax liens can be harmful in the extreme to finanically struggling taxpayers and may not even be an effective means of collecting revenue, the National Taxpayer Advocate's office says.
In her 2010 annual report to Congress delivered earlier this month, National Taxpayer Advocate Nina Olson, a public official charged with representing the interests of taxpayers, reported that in the last seven years, the IRS has filed liens on over 5 million taxpayers. In fiscal 2010 alone, the agency filed liens against 1.1 million taxpayers, compared with 168,000 in 1999—a jump of 550 percent. Because tax liens affect credit scores, which increasingly are used by employers, mortgage lenders, car dealerships, auto insurers and credit-card companies, their potential impact goes far beyond the realm of tax collection, she said.
And, in spite of a sharp increase in the use of tax liens over the past decade, the IRS does not have data to show that the liens actually help it collect more revenue. Over the same period that lien filings rose by 550 percent, annual revenue from the IRS's Collection function remained flat on an inflation-adjusted basis, the report noted. The Taxpayer Advocate Service (TAS), the office under Olson's purview, reported in 2009 liens may actually hurt collections, Olson said.
As she has in the past, Olson recommended the IRS step up its use of other, more benign collection methods when dealing with strapped taxpayers, including offers in compromise.
The Taxpayer Advocate Service is an independent agency within the Treasury Department charged with representing taxpayers' interests in the federal tax system, including helping to solve individuals' problems with the IRS and recommending ways to fix the system to prevent those problems. Each year, the National Taxpayer Advocate must give Congress and annual report on the state of the federal taxation system from the viewpoint of taxpayers, and an objectives report on what agency officials hope to do in the coming fiscal year.—Tobie Stanger