IRS chief says 2006 tax season taxing the agency

The 2006 tax filing season has been unusually difficult for the Internal Revenue Service, thanks to late-breaking changes in the law, a one-time refund and a new deposit service, according to the top IRS official.

IRS Commissioner Mark Everson said Tuesday during a televised address at the National Press Club that a package of tax break extensions not finalized until the end of December made the agency scramble to implement the changes in time for filing deadlines. The IRS successfully implemented those provisions and incorporated them into software packages in which it had a hand, Everson said, rating the overall success, "So far, so good."

In addition to those changes, Everson said, the IRS struggled with a one-time telephone excise tax refund for many taxpayers related to long-distance bills over the past several years.

So far, the agency has had a surprisingly low claim rate of between 65 and 70 percent for the refund, he said. Early in the return season the agency received some apparently fraudulent claims for around $10,000, which Everson described as far in excess even of what his teenage children could incur for their phone calls. The agency took an aggressive approach to the high claims, trumpeting its intention to vigorously pursue fraud, which Everson said seems to have been effective.

The IRS chief also cited as a management challenge a new service that allows those taxpayers owed a refund to have funds directly deposited in up to three accounts. He said to date, only about 55,000 people have used the new feature, but that he expects it to grow over time as taxpayers pick up on the opportunity to set aside part of their refund as savings, or in accounts dedicated to special budgeting purposes such as bill payment.

Everson highlighted the popularity of the Free File program, which allows some taxpayers to electronically submit their forms free of charge through tax preparation firms that partner with IRS. The program was revised this year so that firms could no longer integrate marketing for additional paid services like refund anticipation loans into their Free File interface.

Everson said those loans, which often involve high fees and interest, continue to be a problem to the extent that they take advantage of vulnerable taxpayers.

The tax chief said he has discussed with lawmakers a slate of 16 legislative proposals for the agency, and that he hopes to see progress on three key priorities: a move to make the failure to file federal taxes a felony; direct reporting to the IRS of businesses' gross credit card receipts; and mandatory basis reporting for stock sales, a proposal that he said could clarify tax preparation for filers as well as for the agency.

Everson said shifting toward more direct reporting would help to bring collected receipts closer to the amount owed. "We're not going to audit our way out of the tax gap," he said.