Tax Article - AMT Will Ensnare One-Third of Individuals by 2010, National Taxpayer Advocate Warns

In less than three years, one-third of individual taxpayers could be paying AMT, National Taxpayer Advocate Nina Olson predicted in her recently released annual report to Congress. AMT reforms was just one of many recommendations in her report, including closing the tax gap and terminating private debt collection.

Top 10 taxpayer problems

Olson ranked the AMT as #1 on her list of the “most serious problems encountered by taxpayers”. Rounding out the top 10 are: The tax gap;

• IRS transparency;
• Private tax debt collection;
• Collection payment alternatives;
• Levies;
• Centralized lien procedures;
• Collection issues of lower income taxpayers; and
• Excess contributions

Olson’s warnings about the AMT are not new. She has repeatedly urged Congress to reform the tax so it returns to its original purpose: preventing the very wealthy from escaping federal taxation.

If left unchecked, 42.4 million individual taxpayers (34 percent of individual filers who pay income tax) will be subject to the AMT in 2010, Olson predicted. Eighty-nine percent of married couples with AGI between $75,000 and $100,000 and with two or more children will owe AMT, according to Olson.

Closing the tax gap

Olson repeated her past recommendation that Congress expand third party-reporting to help close the tax gap—the difference between what taxpayers owe and what they pay—currently estimated at $300 billion. Simplification of the Tax Code would also help close the tax gap, she predicted.

Outsourcing tax collection

In September 2006, the IRS announced that it would initially assign 40,000 delinquent taxpayer accounts to three private collection agencies. Olson discovered that fewer cases have been assigned. Some cases involved active levies, which are outside the scope of private collection work. Other cases were ineligible for installment agreements.

According to Olson, privatization may be falling short of revenue targets. In the first month, the IRS assigned $65 million of inventory with approximately $1 million collected.

Top 10 litigated issues surrounding the AMT

Olson also highlighted the top 10 most litigated issues. Coming in at number one is collection due process (CDP) appeals. Also on the list are:

• Gross income;
• Enforcement of IRS summonses;
• Accuracy-related penalty;
• Failure to file penalty;
• Frivolous issues penalty;
• Trade or business expenses;
• Innocent spouse relief;
• Family status; and
• Charitable contribution deduction

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