Tax Profs were quoted in press coverage of yesterday’s release of the 2005 Annual Report to Congress by National Taxpayer Advocate Nina E. Olson (blogged here):

• New York Times, I.R.S. Move Said to Hurt the Poor, by David Cay Johnston:

Tax refunds sought by 1.6 million poor Americans over the last five years were frozen and their returns labeled fraudulent, although the vast majority appear to have done nothing wrong, the IRS’s taxpayer advocate told Congress yesterday…Nina Olson said the IRS devoted vastly more resources to pursuing questionable refunds sought by the poor – which under the highest estimate is $9 billion – than to the $100 billion in taxes not paid each year by people who work for cash and either fail to file tax returns or understate their income.

Ms. Olson, who ran a tax clinic for the poor before her appointment in 2001 as taxpayer advocate, told Congress that the biggest need was a simplification of the tax system. "Our tax code has grown so complex," she wrote, that "it creates opportunities for taxpayers to make inadvertent mistakes as well as to game the system." …

Professor Leslie M. Book of Villanova University, who runs a tax clinic for the poor and has studied how well the poor comply with the tax laws, said the computer program was a blunt and unfair tool for fighting fraud. "Surely there are taxpayers who are ineligible claiming the credit," Professor Book said. "But freezing refunds without giving taxpayers due process is an extremely dangerous way to administer the earned-income tax credit," he said. "These taxpayers often need more rather than less protection because they are not sophisticated, are afraid of government involvement."

• Wall Street Journal, Congress Is Urged to Require Disclosure of Investors’ Costs, by Tom Herman:

A senior IRS official is urging Congress to require financial-services companies to disclose to the government what investors pay for their stocks and mutual funds. That would represent a big change from the current system….

IRS officials and tax lawyers suspect many people, knowing that firms don’t report this information to the IRS, overstate their cost, depriving the government of billions of dollars in tax revenue. In a report to Congress yesterday, IRS National Taxpayer Advocate Nina Olson said requiring institutions to report an investor’s cost information would do more than discourage cheating. It would also benefit taxpayers, she says, because it would help simplify the task of tracking costs for millions of law-abiding people. Nobody knows for sure how much revenue is lost because of investors overstating their "cost basis," as the purchase price of a security is known. But two professors who specialize in tax law, Joseph M. Dodge at Florida State University College of Law and Jay A. Soled at Rutgers University, estimate the government’s revenue loss could easily be $60 billion a year.