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updated 1/5/2011 4:16:20 PM ET 2011-01-05T21:16:20

A government watchdog says the Internal Revenue Service is tormenting struggling taxpayers in the midst of a slumping economy by increasing the number of liens the agency has filed against people who owe back taxes.

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, National Taxpayer Advocate Nina E. Olson said Wednesday in her annual report to Congress.

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"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. "Absent data that show liens make a meaningful contribution to revenue collection and especially in this economy, I find it unacceptable that the IRS continues to torment financially struggling taxpayers in this way."

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 facing financial problems, including increased flexibility in installment agreements and other collection efforts.

"The IRS recognizes that many taxpayers are struggling financially," Eldridge said. "The IRS has taken numerous steps to help taxpayers facing tough times in the past two years."

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 for tax reform, and the challenges facing the IRS in implementing President Barack Obama's new health care law.

Under the new 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.

Tax liens give the federal government a claim on property to help secure payment of back taxes. They are filed publicly for tax debts that are deemed uncollectable, alerting creditors and others that taxpayers owe back taxes.

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Olson criticized the IRS policy of automatically issuing liens in some cases. According to Olson's office, a lien is automatically filed if a delinquent tax debt exceeds $5,000, unless a collection employee gets a supervisor's approval not to file it.

IRS spokesman Terry Lemons, however, said taxpayers get multiple opportunities to apply for an extension, enroll in a payment plan, or even apply for a program that allows some taxpayers to pay less than the full amount they owe.

"Before you get to a lien, you're going to have many communications from the IRS," Lemons said. "You'll have multiple opportunities to talk to us."

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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.

However, Eldridge said the statistic is misleading because the number of liens dipped in 1999 because the agency was going through a massive restructuring mandated by a 1998 law.

"A better metric is comparing the current lien level of 1.1 million to earlier levels in the 1990s," Eldridge said. "The number of liens routinely topped 750,000 each year, and reached 1.4 million in 1992."

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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