Struggling taxpayers punished by IRS liens, watchdog warns

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, Nina E. Olson, the national taxpayer advocate, said 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 Olson, an independent watchdog within the IRS.

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, and “recognizes that many . . . are struggling.’’

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

Under the 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.

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. The Congressional Budget Office estimates that the IRS will need an additional $5 billion to $10 billion over the next 10 years.

Regarding the tax code, Olson called on Congress to remove special-interest breaks, make the rules easier to obey, and detail how the money is spent.

Olson has criticized the use of tax liens in the past and said the response from the IRS was inadequate. The number of liens filed last year was more than five times the number filed in 1999, Olson said in her report.

Material from Bloomberg News was used in this report.