Tax day: 1040 reasons you should know Nina Olson

It was supposed to be her benevolent deed for the day – helping a family member with a tax return. But soon Nina Olson was lost in the labyrinth that is the United States tax code.

The problem at hand was an Individual Retirement Arrangement (IRA) – how to know which contributions to it would be tax-deductible for a person who had some job income while also receiving Social Security benefits.

Yes, there's a special IRS worksheet for that. Three of them, actually, in Appendix B of Internal Revenue Service Publication 590.

"The calculations were so unbelievable," says Ms. Olson. "It was something like enter Line 2 on Line 12; divide by 83; multiply times four, and then times 0.125 or something."

Olson stoically did the best she could. But it wasn't good enough. The Internal Revenue Service (IRS) ended up notifying her family member of a mistake on the calculations.

It's the kind of bad tax day that could happen to anyone. As it turns out, though, Olson isn't just any average American. She's one of the most knowledgeable people on earth about the IRS and US tax law.

By the time she wrangled with these worksheets in exasperation, she had already made a whole career in the tax field: earning a living preparing returns, becoming a tax lawyer, founding a nonprofit to help people with tax problems, and then assuming the role of National Taxpayer Advocate – a kind of "voice of the people" within the IRS. If Olson finds the tax code bewildering, it's little wonder millions of Americans do, too.

Taxpayers, meet your champion at the agency you love to loathe. Citizens tired of form-filling burdens, meet someone who agrees with you and who has a megaphone in Washington – a big one.

She's not just another ombudsperson at some random federal agency. The IRS, as Americans are reminded every April 15, is the government's revenue-collection arm. And with nearly 100,000 people working at the agency – scouring returns, conducting audits, filing lawsuits against delinquent payers – that arm is a long one.

To enter Olson's world is to gain a rare view of the workings of a federal revenue machine that takes in about one-fifth of America's annual income, currently in excess of $2.3 trillion. It offers a window into the flaws of the tax code and the trials individuals face with the IRS.

In some respects, the woman who sits at the center of this vilified but vital institution isn't any different from you or me. She's a single mother, a pet lover (one dog and two cats), a knitter, a fine-arts major who dabbles in textile design on weekends. And, yes, she does her own tax returns.

Yet there are differences, too. She sits down the hall from the all-powerful commissioner of the IRS, oversees 2,000 people, travels the country giving speeches about a tax code as impenetrable as a Kevlar vest, testifies regularly before Congress, and, most important, gets paid to question – even defy – her employer on your behalf.

Olson wields significant clout, influencing policy on Capitol Hill and within the IRS, where her army of caseworkers can win relief for as many as 200,000 individuals per year. Many experts say she's been not merely an effective National Taxpayer Advocate (NTA), but also has largely defined the job during its formative period.

"She has very much shaped the office," says Christopher Bergin, publisher of Tax Analysts, a leading tracker of the tax code. "She's tenacious. She's brilliant. She's a hard driver."

Olson describes herself as an accidental occupant of the office. She never set out with a goal of holding a prominent government position, but her background girded her with some crucial job traits: knowing the tax problems Americans face and being unafraid to battle entrenched powers.

Even though her authority on setting tax policy is limited – the job of enacting long-term fixes rests with Congress – she can use her office as an amplifier for the concerns of average citizens. At a time when at least some members of both parties are talking about the need for sweeping tax reform, some of her ideas could capture more attention.

She has been a consistent crusader in particular for simplifying the federal tax code – a tangled tome that today contains nearly five times the number of words in the Bible.

* * *

Part of Olson's philosophy in running the advocate office is rooted in a dirty kitchen. While still in college, she took a break from course work to launch a vegetarian restaurant with friends. They scraped together used equipment to outfit the kitchen. Other than knowing how to cook, "we had no idea what we were doing," she says.

When a public health inspector showed up one day, "he could have shut us down on the spot." Instead, Olson says, he listed the five most urgent problems and said those had to be fixed when he came back the next week. He followed the same pattern for four more weeks. Each time the youthful proprietors got five more things to fix and seven days to do it.

"That was an incredible lesson," Olson says. The restaurant was able to stay in business, all because an official was willing to work with people to bring them into compliance.

The parallel to her current job: As the NTA, she wants to help well-meaning taxpayers get treated fairly and to prod the IRS to be humane in its dealings with people.

Public policy experts say it's inevitable that the agency must seek a balance between hard-headed collection and what can plausibly be called customer service – efforts to help tax-payers understand and navigate the system more easily. The two objectives aren't necessarily incompatible. Olson's job is to nag and goad the agency – sometimes in ways that rattle top IRS officials – yet that role arguably benefits revenue collection as well as taxpayers. An angry or befuddled taxpayer, after all, is less likely to send in money voluntarily to help pay the nation's bills.

Still, the job description is awkward. If Olson pushes too far, IRS insiders could lash back against the gadfly in their midst. If she isn't pushy enough, outside critics will wonder if a supposedly independent voice has been co-opted by the agency where she's employed. (For the record, the NTA is appointed by the Treasury secretary – and can be asked to leave by the secretary – but the IRS commissioner is typically an influential voice at Treasury on key decisions affecting the IRS.)

The built-in tension in Olson's job came about by Congress's careful design.

"This is ... one thing they got right," says Scott Hodge, president of the Tax Foundation, a research group in Washington. "They gave it complete independence within the IRS."

Being an insider means Olson and her staff know the IRS intimately. Being independent means she can feel like her own boss.

Congress took care not to give the NTA powers that directly rival those of the commissioner. Essentially Olson can recommend or urge actions, not decide things on her own. But where the commissioner needs to work through administration channels (the Treasury secretary and White House), Congress calls on the NTA to make her own recommendations for legislation and IRS reform at least once a year.

By many accounts, Olson has parlayed her independent role into a powerful position. Charles Rossotti, the IRS commissioner who was instrumental in hiring her as the NTA in January 2001, says she has expanded the influence of the office by being effective and "well respected."

In some ways, Olson's job involves playing both defense (helping individuals with tax problems) and offense (pushing for changes that will help avoid taxpayer problems in the future).

Here's Olson on offense. Back in 2004, her staff began receiving a surge in complaints from taxpayers who believed they deserved income-tax refunds and felt stonewalled by the IRS. It turned out that IRS computers had flagged many of the refunds as potentially criminal. While the agency was investigating, it refused to communicate with the taxpayers, Olson recalls.

She had two big concerns. First, the evidence from cases that arrived on her desk suggested that a large percentage of the tax filers were honest people who deserved the refunds. Second, Olson worried that the no-communication approach was violating basic due-process rights.

"I started talking to everybody about it," including the commissioner, she says. "Nobody wanted to admit that this criminal investigation was flagging the wrong returns."

By late 2005, she felt her only alternative was to raise her concerns publicly. She issued a strongly worded 42-page addendum to her annual report to Congress. Within a month, Congress and the news media focused on the issues, and the IRS began to respond. In the next year's annual report, Olson could report significant improvement.

The incident stood out not only because it underscored the role that an independent NTA could play: Olson says it was also a moment of clarity for her, as she wrestled with concerns that her job would be at risk if she spoke up sharply and lost a visible battle.

"I thought, OK, I can do this," she says. "If being afraid of losing my job is going to chill my voice, then I shouldn't be in this job."

Olson has used that voice to champion a range of causes. She has called, for years and in vain, for Congress to repeal the Alternative Minimum Tax, which operates as a parallel income tax that often snares Americans by surprise. The original aim was to ensure that the rich pay a minimum amount of tax, but it has piled paperwork on many tax filers who aren't wealthy.

She has fought successfully for the IRS to impose competency tests on tax pre-parers and to reduce the incidence of fraud or incompetence that can land taxpayers in trouble. A 2011 law also imposes new penalties on preparers for mistakes.

Sometimes the issues she pursues affect relatively few taxpayers. In one of the weirdest NTA cases, she once stood up for parents who have a child who was born on the first day of January, aides say. Someone at the IRS, citing a feature of British Common Law, had determined that children "attained" their next age on the day before their birthday, thus bumping certain Jan. 1 babies off of "dependent child" status one calendar year before their parents expected.

"About six months after the problem surfaced, an assistant Treasury secretary was essentially rolling her eyes as she affirmed that your age is what you think it is," says Kenneth Drexler, one of Olson's senior assistants.

* * *

Olson pursues her mission from an office on the third floor of the mammoth IRS headquarters in downtown Washington, looking inward onto a courtyard. The IRS commissioner is just down the hall, albeit one long enough to host a lawn bowling tournament.

Her office isn't ostentatious or especially large, but it is comfortable. She has some textile art from around the world, and a couch and a couple of chairs, all of which are upholstered in fabric because, as a vegetarian, she didn't want the more conventional leather furniture.

She keeps a picture of her dog and one of her cats on her desk as well as a photo of her grandfather, a Swedish émigré, who nurtured her interest in art.

Olson is only the country's second National Taxpayer Advocate and by far the longer-serving one. Although the IRS has had an ombudsman in some form since 1979, Congress expanded the scope of the office in 1996 and created the title of National Taxpayer Advocate in 1998. Olson has held the post since 2001.

The whole intent was to make the IRS more "customer friendly." It may be a bit ridiculous to conjoin phrases like "customer service" with "IRS." After all, Americans don't get to choose whether to be customers of this agency. And the service it offers is a demand – for people to fill out forms and send in money or face penalties, including prison. It's not like the agency is offering golf lessons.

Some of the calls Olson has made during her tenure have drawn criticism. In one recent instance, she roiled high-ranking IRS officials by asserting that the agency has misled tax-payers with a program designed to make offshore tax cheats come forward voluntarily. Taxpayers with accounts in places like the Cayman Islands are not the kind who evoke the greatest public sympathy. Some tax experts say Olson's position – alleging that the IRS hasn't been straightforward in its communication – reveals her penchant for taking stands on behalf of any and all taxpayers.

But that crusading, and sometimes unpredictable, style doesn't always sit well with IRS managers who have to respond to her concerns. Some say an ideal NTA could do the job well while also taking a more collaborative tone within the agency and perhaps giving it fewer public tongue-lashings.

Others say that, whether you admire her style or not, the job should change hands more frequently. Jeff Trinca, who worked on the IRS reform that helped create the NTA post as a congressional aide, gives her mixed grades. "My druth-ers would be that a new [IRS] commissioner would essentially be able to choose who sat in that position," he says.

Some critics on the political right have argued that the nation's taxpayer advocate should not be a champion of improving tax collection. Yet that objective is high on her priority list.

She argues that the "tax gap" – the gap between what Americans technically owe in taxes and what they actually pay – should be viewed as a concern of honest taxpayers, not just the IRS. By one past estimate, each taxpayer effectively pays an extra $2,200 in taxes, on average, to subsidize noncompliance by others.

Olson is also pushing for a bigger IRS budget, saying it's the only way to improve customer service. She has estimated that even if callers who have a question for the IRS stay on hold for 15 minutes, about a quarter of them will never get to a live person. And if they do get through, responders at the IRS are increasingly under pressure to keep moving from one call to the next, leaving little time to consider each taxpayer as a human being, Olson says.

Before taking the NTA job, Olson had plenty of experience dealing with the IRS as a mechanized behemoth. In one case, a woman from Egypt came to her nonprofit tax clinic near Richmond, Va. The woman's husband had hidden income from the IRS and gotten caught.

Both husband and wife were being held liable for a large debt, but the man had fled the country. The woman was struggling to earn enough money cutting hair to provide for her two children, while also paying the IRS.

The only way the woman could get relief was if she could prove that she was an "innocent spouse." But the woman's signature on certain documents (probably forged, Olson says) made that difficult. Olson brought in financial records. She summoned handwriting experts. She produced documentation showing the woman's low comprehension of any forms she might have signed. But after 2-1/2 years, nothing happened.

"We got nowhere," Olson says.

In one desperate, final move, she resubmitted the case as a so-called offer in compromise, to be reviewed by an IRS agent. The examiner showed up in Olson's office. "The first thing he said to me was ... this woman reminds me of my mother." He described his mother escaping from a Nazi labor camp in Poland and arriving in the US without being able to speak a word of English.

Olson thought, "Finally, I have found an employee in the IRS who views this person as a human being." The woman ended up not only having the tax debt canceled, but also getting back $16,000 in refunds and interest.

* * *

Olson grew up in Philadelphia, the middle child of a marine engineer and a mom who, as a homemaker, did volunteer work to help women enter the workforce. Early on, Olson says she adopted a habit of sticking up for underdogs and questioning authority – as she puts it, "I was a really obnoxious child."

She pursued a fine-arts degree at Bryn Mawr College near Philadelphia. Her entry point into the world of finance and taxes came as a young artist, when she started preparing taxes to help earn money.

Olson was also a young mother, whose marriage ended in divorce after five years. To support herself and her son, she increasingly did accounting work. But one day in the mid-1980s she says she "just woke up" to a new view of tax work – that it's rooted in law, not just math.

Olson, living in North Carolina, enrolled in law school to better aid her clients. She drove 16 miles to attend classes at night, while working and raising her son, Lucid Olason. "She did make an uphill struggle," he says of his mom in those years. "That's a big part of who she is."

After getting her law degree, Olson was drawn, improbably, to another uphill struggle: founding a pioneering tax-law clinic. At the time, in the early '90s, pro bono help for low-income people in the US tax court was nearly nonexistent in most states. What there was came from lawyers and students who worked through law-school programs. Olson organized the Community Tax Law Project, in Richmond, Va., and began raising funds and recruiting a cadre of lawyers willing to volunteer.

Keith Fogg, who was the IRS district counsel in Richmond at the time, was often on the opposing side from Olson when tax issues came up. "I thought her idea was very good because so many people are unrepresented who go before the US tax court," says Mr. Fogg, now a professor at Villanova University in Pennsylvania. (Even today, about 7 in 10 taxpayers in the court have no lawyer.)

Fogg says Olson founded the clinic at a significant personal sacrifice, since fundraising for tax assistance isn't the same as asking for money for, say, needy children.

"I felt it was important to have her out [to events] every so often just to feed her," he says.

In the late '90s, the arc of her career in legal help intersected, in a random way, with Congress's efforts to reform the IRS. A lawyer she met during one difficult case introduced Olson to his spouse, a congressional aide who ended up inviting her to testify on Capitol Hill. Olson calls it "totally accidental that I came to the attention of Congress." And when the job of NTA became open a few years later, Olson says it was only a friend's push that got her to throw her résumé into the mix.

While the job may have come to her through a bit of serendipity, there's nothing laid back about her approach to it today. IRS Commissioner Doug Shulman, commenting via e-mail, praises Olson's "valuable insights," while experts outside the IRS commonly say she's a tireless and passionate voice for taxpayers.

"I don't know that somebody else in that position could have done a better job than she has," says Dan Pilla, a longtime tax lawyer with a national practice based in St. Paul, Minn.

Ultimately, the job of making life easier for taxpayers rests with Congress. Yet the persistent trend is that lawmakers love to tinker with the tax code, and taxpayers often love the resulting deductions and credits, which add to its complexity.

Perhaps Olson's most basic message over the years has been the need for tax simplification. She testified last year that, as of 2008, tax-payers spend about $1 on compliance costs (paying to fill out the paperwork) for every $10 they send to the federal government in tax payments. Americans spend as many as 6 billion hours a year complying with tax laws. Against that backdrop, the miracle may be that compliance is so high: Americans voluntarily pay 83 percent of the taxes they owe.

To Olson, public concerns about fairness are at least partly linked to complexity. If a tax system isn't understandable, it's not going to seem fair. "People underestimate how much complexity erodes taxpayer trust in their government," she says. "We just profoundly need tax reform."

Other experts urge the same thing, for purely economic reasons. They argue that a streamlined tax code will help spur growth, as well as make revenue collection more efficient.

While championing larger issues, Olson is never far from the granular elements of the tax code. On one typical day, in addition to meetings in her office, she buzzes to Baltimore for a town-hall meeting with the Maryland branch of her staff, known as Taxpayer Advocate Services. It's partly a pep talk, partly a chance to hear what concerns are surfacing from taxpayers.

Then it's on to deliver an early-evening talk to tax lawyers and law students. In her speech, in addition to hitting her favorite general themes, she lashes out about a specific concern: the recent IRS treatment of people with offshore accounts. Saying that some people who haven't acted as tax evaders are facing harsh penalties, she gets laughs from the audience by joking that, with so many dual citizens north of the border, "the entire population of Canada is terrified."

That prompts lawyers in the audience to pipe up about their own pet peeves, with one citing a particular oddity of the estate tax.

Olson listens intently. She seems ready to add another case to her portfolio. "Let me work on that," she says. "I commit to you that I will."