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Posted at 1:08 PM ET, 01/ 5/2011

Ombudsman's report says IRS should recast itself

By Ed O'Keefe

Buried within the annual ombudsman report on the Internal Revenue Service, the nation's taxpayer advocate warns that the agency needs to recast itself as it prepares to enforce elements of the new health-care reform law.

"Historically, the IRS's mission has been to collect taxes, but in recent years, Congress has directed the IRS to administer an increasing number of social benefits programs, including Economic Stimulus Payments, the First-Time Homebuyer Credit," and the new health-care law, National Taxpayer Advocate Nina E. Olson writes in her annual report to Congress released Wednesday.

Specifically, the health-care law directs the IRS to administer the penalties for the controversial individual mandate, which is facing several legal challenges. It also will have to enforce penalties against employers who fail to provide coverage and the small business tax credit.

The IRS can succeed in implementing its responsibilities as part of the health care act, but the new responsibilities are "placing significant strains on the IRS's limited resources and requiring the IRS to perform tasks that go well beyond" tax collection responsibilities, Olson said.

"As the IRS prepares to administer large portions of the health care legislation, it will have to shift from being an enforcement agency that primarily says, in effect, 'you owe us' to an agency that places much greater emphasis on hiring and training caseworkers to help eligible taxpayers receive benefits and work one-on-one with taxpayers to resolve legitimate disagreements," Olson said.

Among other things, the IRS should rewrite its mission statement to acknowledge its new dual role as tax collector and benefits administrator.

"Greater recognition of this dual role will enable the IRS to plan more effectively to handle health care and will make explicit to Congress that the agency will require sufficient funding to perform both of its functions effectively," Olson said.

The IRS will need $5 billion to $10 billion over 10 years to implement provisions of the health-care law, according to Congressional Budget Office estimates.

And an interesting anecdote that won't help the IRS improve its image: It received 110 million calls in each of the past two fiscal years from taxpayers attempting to complete tax returns, but failed to answer more than 25 percent of them, according to the report.

Read more about Wednesday's report and leave your thoughts in the comments section below

By Ed O'Keefe  | January 5, 2011; 1:08 PM ET
Categories:  Agencies and Departments, Health Care  
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