- Associated Press - Wednesday, January 5, 2011

A government watchdog said Wednesday that the Internal Revenue Service is inflicting “torment” on struggling taxpayers in the midst of a slumping economy by increasing the number of liens the agency has filed against people who owe back taxes.

The IRS filed nearly 1.1 million liens in the budget year that ended in September, a 14 percent jump over the previous year. Liens punish taxpayers and often hurt their ability to pay back taxes, National Taxpayer Advocate Nina E. Olson said Wednesday in her annual report to Congress.

“By filing a lien against a taxpayer with no money and no assets, the IRS often collects nothing, yet it inflicts long-term harm on the taxpayer by making it harder for him to get back on his feet when he does get a job,” said Ms. Olson, an independent watchdog within the IRS. “Absent data that show liens make a meaningful contribution to revenue collection and especially in this economy, I find it unacceptable that the IRS continues to torment financially struggling taxpayers in this way.”

The IRS responded that liens are not filed until taxpayers are given numerous opportunities to pay their tax bills, or sign up for payment plans.

IRS spokeswoman Michelle Eldridge said the agency has taken steps to help taxpayers facing financial problems, including offering increased flexibility in installment agreements and other collection efforts.

“The IRS recognizes that many taxpayers are struggling financially,” Ms. Eldridge said. “The IRS has taken numerous steps to help taxpayers facing tough times in the past two years.”

Each year, Ms. Olson reports to Congress on the issues she deems important to administering the tax code. This year, the advocate highlighted collection efforts, the complexity of the tax code and the need for tax reform, and the challenges facing the IRS in implementing President Obama’s new health care law.

Under the new health care law, the IRS will process a tax credit that helps low-income families pay health premiums and a tax credit that helps small businesses provide insurance to employees. The agency will also be in charge of imposing penalties on people who do not buy health insurance - one of the most controversial aspects of the Obama health plan.

Mr. Olson warned that the IRS will need more staff and money to take on the new responsibilities, which could become an issue in Congress, where the new Republican majority in the House has vowed to repeal the health overhaul law. The Congressional Budget Office estimates that the IRS will need an additional $5 billion to $10 billion over the next 10 years.

Tax liens give the federal government a claim on property to help secure payment of back taxes. They are filed publicly for tax debts that are deemed uncollectable, alerting creditors and others that taxpayers owe back taxes.

Ms. Olson criticized the IRS policy of automatically issuing liens in some cases. According to her office, a lien is automatically filed if a delinquent tax debt exceeds $5,000, unless a collection employee gets a supervisor’s approval not to file it.

IRS spokesman Terry Lemons, however, said taxpayers are given multiple opportunities to apply for an extension, enroll in a payment plan, or even apply for a program that allows them to pay less than the full amount they owe.

“Before you get to a lien, you’re going to have many communications from the IRS,” Mr. Lemons said. “You’ll have multiple opportunities to talk to us.”