Keeping the IRS in Check

Olson has concerns about the effectiveness of the coding system. She recommended that the IRS create a centralized unit to handle identity theft cases.

· Cancellation of debt income. When a person or business borrows money and the debt is canceled, the borrower generally must include the amount of the canceled debt in gross income. This often-unexpected tax hit can affect borrowers who lose their homes to foreclosure or who default on car loans or credit card debts. Last year, Congress passed a law giving temporary tax relief to homeowners who had mortgage debt canceled. The Mortgage Forgiveness Debt Relief Act allows a taxpayer to exclude from income qualified home loan debt forgiven in 2007, 2008 or 2009. The debt must have been used to buy, build or substantially improve your principal residence and must have been secured by that residence.

Here's the problem. The tax relief isn't given automatically. You have to file IRS Form 982, "Reduction of Tax Attributes Due to Discharge of Indebtedness," and the form has to be attached to the federal tax return.

Many people entitled to this tax break aren't filing the form. Olson said she wants to work with IRS to get the word out to more people.

· IRS collection practices. Olson remains concerned about collection issues, including the seizure of assets before other alternatives have been exhausted.

If you are having trouble resolving a tax problem, contact the taxpayer advocate service by calling toll-free 1-877-777-4778 or TTY/TDD 1-800-829-4059. The service is free and confidential. For more information online, go to http://www.irs.gov/advocate.

Olson's report is fair to the IRS but also tough. If the agency implements even a fraction of what she recommends, taxpayers will be better treated by one of the most feared agencies in the government.

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and athttp://www.npr.org.

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

· By e-mail:singletarym@washpost.com.

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