National Taxpayer Advocate Nina E. Olson released her annual report to Congress today, urging the Internal Revenue Service to reconsider its policy on penalizing struggling taxpayers with tax liens and identifying the need for tax reform as “the number one priority in tax administration.”
A tax lien is a claim the government files against a taxpayer’s property as collateral for money owed. A lien helps ensure that the government has priority over other creditors. Even if the taxpayer has no current assets, a lien still gives the government a claim on future assets.
According to the in-house report, the problem is that the IRS’s aggressive use of liens is hurting taxpayers by pushing them further into debt, damaging their credit, and harming their employment and property rental opportunities.
Olson takes issue with the fact that — despite the global economic recession, high unemployment and a real estate crisis — the IRS has not changed its policy on regularly imposing liens on delinquent taxpayers.
By making it harder for taxpayers to get back on their feet, the IRS might actually be shooting itself in the foot, ultimately reducing long-term tax collections, according to the new report.
The IRS filed 1.1 million tax liens in 2010 fiscal year, compared to the 522,887 it filed in 2005. Though lien filings have soared over the past 11 years, revenue brought in through the IRS collection program “has remained flat,” Olson wrote.