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Archive for Nina Olson

NTA: IRS Free File Program Is Failing To Achieve Its Objectives And Should be Substantially Improved Or Eliminated

National Taxpayer Advocate - Nina Olson

In this week’s National Taxpayer Advocate blog, I highlight my concerns with the IRS Free File program, which I also discussed in my 2018 Annual Report to Congress and my recent testimony before the House Ways and Means Subcommittee on Oversight. I also describe my personal experience using Free Fillable Forms and make some recommendations for improving these products. This is a bit of a long post, but the topic requires some background discussion to understand how we got to where we are today.

Background

The IRS Restructuring and Reform Act of 1998 directed the IRS to set a goal of increasing the e-file rate to at least 80 percent by 2007. In 2002, the IRS entered into an agreement with a consortium of tax software companies, known as Free File, Inc. (FFI), under which the companies would provide free tax return software to a certain percentage of U.S. taxpayers, and in exchange, the IRS would not compete with these companies by providing its own software to taxpayers. The agreement has been renewed at regular intervals, and for at least the past decade, the agreement has provided that the consortium would make free tax return software available for 70 percent of taxpayers (currently, about 105 million), particularly focusing on increasing access for economically disadvantaged and underserved communities, as measured by adjusted gross income.

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The IRS Office Of Chief Counsel Is Using Email To Avoid Disclosure Of Program Manager Technical Advice

Nina Olson On The Office Of Chief Counsel

This blog highlights problems with the transparency of the IRS Office of Chief Counsel (OCC), which I discussed in the 2018 Annual Report to Congress (ARC).  I also discussed transparency in the 2006 (p.10), 2007 (p.124), 2010, and 2011 (p. 380) Annual Reports, and in the Fiscal Year Objectives Reports in 2008 (p. xxi) and 2018.

A big part of the OCC’s most recent transparency problem is that it allows its attorneys to avoid disclosure of advice to IRS program managers (called Program Manager Technical Advice or PMTA), by issuing the advice as an email, rather than a memo.  Although I do not know when the OCC created this loophole, the number of PMTA disclosures has been falling in recent years (as shown below).  Compounding the problem is that the OCC has not issued any written guidance describing what must be disclosed as PMTA and most of OCC’s attorneys have not received training on that topic in the last few years.  In addition, the OCC has no systems to monitor whether all PMTAs are timely identified, processed as PMTAs, and disclosed.

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National Taxpayer Advocate Nina Olson’s Personal Message

Nina Olson Personal Message

On this date eighteen years ago – March 1st, 2001 – I walked through the doors of the IRS headquarters building in Washington, DC to begin my tenure as National Taxpayer Advocate of the United States.  It was the beginning of an always fascinating, usually complicated, and yes, sometimes frustrating journey.  Along the way, I have been privileged – and I use that word in every sense – to have worked with extraordinary people – in the Taxpayer Advocate Service, in the IRS, in Treasury, in Congress, and most importantly, directly with taxpayers and their representatives.

In addition to celebrating my March 1st anniversary, I crossed another milestone a few weeks ago.  In the eyes of the Internal Revenue Code, I am now “elderly” – that is, I am now of the age to qualify for the additional credit for the elderly under IRC § 22.  This has caused me to reflect on how I want to proceed with the remaining stages of my life, and I have concluded that I am ready to move on to a new stage.

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National Taxpayer Advocate’s Purple Book: A Compilation Of Legislative Recommendations

Nina Olson And The Purple Book

As we review the Purple Book of Legislative Recommendations  published by Nina Olson and team at the National Taxpayer Advocates office, we bring to your attention Recommendations To Improve Assessment And Collection Procedures. This is an excellent source to understand the current challenges facing taxpayers and their interactions with the IRS.

We highly recommend you become aware of exactly what the National Taxpayer Advocates office is working on and the recommendations they are making to help taxpayers today.

A Compilation Of Legislative Recommendations

  1. Continue To Limit The IRS’s Use Of Math Error Authority
  2. Provide Additional Time For Taxpayers Outside U.S. To Request Abatement Of Math Errors
  3. Require IRS To Waive User Fees For Taxpayers Who Enter Low Cost Installment Agreements
  4. Improve The Offer In Compromise Program Accessibility By Repealing Partial Payment
  5. Modify Requirement The Office Of Chief Counsel Review Certain Offers In Compromise
  6. Require IRS To Mail Notices Quarterly To Taxpayers With Delinquent tax Liabilities
  7. Protect Retirement Funds From IRS Levies In Absence Of Flagrant Conduct By Taxpayer
  8. Toll Time Periods Requesting Return Of Levy Proceeds While Taxpayer Financially Disabled
  9. Authorize IRS To Release Levies Causing Economic Hardship For Business Taxpayers
  10. Strengthen Taxpayer Protections In Filing Notices of Federal Tax Liens
  11. Provide Taxpayer Protections Before IRS Recommends Filing Lien On Principal Residence
  12. Provide Collection Due Process Rights To Third Parties Holding Legal Title To Property
  13. Extend Time Limit For Taxpayers To Sue For Damages For Improper Collection Actions
  14. Codify Rule Taxpayers Can Request Equitable Relief Before Expiration Of Collections
  15. Direct IRS To Study Feasibility Of Using Automated Formula To Identify Hardship Cases
  16. Amend IRC 6306(d) To Exclude Taxpayer Debts With Income Less Than Federal Poverty Level

 

NTA: Recommends Taxpayers Vote On How Tax Dollars Are Spent

Nina Olson - Vote How Tax Dollars Are Spent
Require The IRS To Provide TaxPayers With A “Receipt” Showing How Their Tax Dollars Are Spent

Present Law IRC § 7523 requires the IRS to provide taxpayers with very basic information regarding federal taxes and federal spending. Specifically, the IRS is required to include pie-shaped graphs in its instructions for Forms 1040, 1040A, and 1040EZ showing the relative sizes of major budget outlay categories and major income categories. In the 2017 Form 1040 instructions booklet, the IRS published two graphs on page 103 with data from fiscal year (FY) 2016.

Reasons For Change

IRC § 7523 was enacted for tax years beginning after 1990. The purpose of the statute—namely, to help taxpayers understand the connection between the taxes they pay and the benefits they receive—is important, and it is likely that some taxpayers who perceive that connection will be more compliant with their tax obligations. However, the National Taxpayer Advocate believes the information required by IRC § 7523 is too cursory to achieve its objective. It would be more helpful to provide each taxpayer with personalized information regarding the taxpayer’s own contributions, such as the taxpayer’s marginal tax rate, effective tax rate, and tax benefits claimed.

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TAS Report To Congress: How Do Attitudes Towards Paying Taxes Vary Among Different Types Of Taxpayers?

NinaOlson2019

As part of the TAS Report to Congress the study addresses two research questions regarding taxpayers attitudes. The first question: “How do attitudes towards paying taxes vary among different types of taxpayers?” For this question, the focus is on a comparison of self-employed taxpayers (audited and unaudited) and wage earners (who did or did not experience either IRS ID theft processing procedures or who experienced the IRS questioning the legitimacy of their refund return).

The second research question is: Do attitudes among audited self-employed taxpayers vary in accordance with the type of audit and the outcome of the examination?” As wage income is usually subject to third-party reporting, wage earners tend to have relatively few opportunities for tax noncompliance in comparison with self-employed taxpayers (Kleven et al., 2011). However, it is unlikely that opportunity alone drives tax compliance behavior. Personal beliefs, social norms, and past experiences with the IRS shape taxpayer attitudes. Personal experiences might be particularly relevant for taxpayers who have been victims of tax fraud involving ID theft or who have been suspected of tax fraud. Solving these cases frequently delays legitimate refund claims substantially, which imposes financial hardship on taxpayers, potentially erodes trust in the IRS, and might adversely impact voluntary compliance. Against this background, analyzing the attitudes of different occupational groups will contribute to an understanding of the determinants of tax noncompliance.

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National Taxpayer Advocate Annual Report Highlights Most Serious Problems With The IRS

Nina Olson- Serious Problems With IRS

Every year, the National Taxpayer Advocate’s Annual Report to Congress identifies at least 20 of the nation’s most serious tax problems. These issues can affect taxpayers’ basic rights and the ways they pay taxes or receive refunds, even if they’re not involved in a dispute with the IRS.

As your voice at the IRS, the National Taxpayer Advocate uses the Annual Report to elevate these problems and recommend solutions to Congress and the highest levels of the IRS.

Tax Law Questions: The IRS’s Failure To Answer The Right Tax Law Questions  At The Right Time Harms Taxpayers, Erodes Taxpayer Rights, And Undermines Confidence In The IRS

In 2014, the IRS implemented a policy to only answer tax law questions during the filing season, roughly from January through mid-April of any year.  It justified this abrupt change in policy as a cost-savings effort in a time of budget constraints.  This change does not comport with an agency charged with administering the tax law and focused on the customer experience.

Taxpayers have ever-changing tax situations year-round.  People move, open a business, close a business, get married, get divorced, have children, and experience many other life changes that affect their tax obligations.  Forcing taxpayers into a 3.5-month window to ask questions or making it necessary for them to seek advice from a third-party source can be frustrating and costly to the taxpayer and result in eroded trust and confidence in the IRS. Read Full Discussion

Transparency Of The Office Of Chief Counsel: Counsel Is Keeping More Of Its Analysis Secret Just When Taxpayers Need More Guidance Than Ever

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Success Story: The Taxpayer Advocate Service Protects Taxpayers’ Rights In IRS Tax Lien Case

Nina Olson- Need Help From The Taxpayer Advocate Service

Every year, the Taxpayer Advocate Service (TAS) helps thousands of people with tax problems. This story is only one of many examples of how TAS helps resolve taxpayer’s tax issues. All personal details are removed to protect the taxpayer’s privacy.

TAS is an advocate for protecting taxpayers’ rights. This success story is an example of how TAS’s advocacy protected a taxpayer’s fundamental Right to a Fair and Just Tax System by negotiating with the IRS to withdraw a tax lien.

A taxpayer had an IRS balance due, but paid the tax bill. After the taxpayer paid the IRS balance, the IRS filed a Notice of Federal Tax Lien which jeopardized the taxpayer’s employment. Although the IRS released the lien, it remained a matter of public record. The IRS refused to withdraw the lien even though the IRS filed it after the taxpayer paid the balance in full. TAS got involved and negotiated with the IRS on behalf of the taxpayer to successfully obtain a lien withdrawal.

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National Taxpayer Advocate Report To Congress FY 2018

National Taxpayer Advocate Report To Congress

The Internal Revenue Code requires the National Taxpayer Advocate to submit two annual reports to the House Committee on Ways and Means and the Senate Committee on Finance. The National Taxpayer Advocate is required to submit these reports directly to the Committees without any prior review or comment from the Commissioner of Internal Revenue, the Secretary of the Treasury, or the Office of Management and Budget. The first report, due by June 30 of each year, must identify the objectives of the Office of the Taxpayer Advocate for the fiscal year beginning in that calendar year.

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Know How Getting Married Changes Your Tax Situation

Tina Olson- Know How Getting Married Changes Your Tax Situation

When you get married, your tax situation changes. Your marital status as of Dec. 31 determines your tax filing options for the entire year. If you’re married at year-end, you have two filing status choices:

  1. filing jointly with your new spouse, Married Filing Jointly, or
  2. filing separate from your spouse, Married Filing Separately

Most married couples file jointly because it is simpler and makes you eligible for many tax deductions and tax credits. However, if either spouse owes back taxes, whether federal or state, or owes certain other non-tax debts, such as delinquent child support or student loans in default, the IRS may offset your joint tax refund to satisfy the individual debts. Also, individuals who file a joint return incur “joint and several liability” explained later. Filing separately may seem like a good idea if you’re aware of prior tax and other liabilities of your spouse and don’t want to be responsible for them, but there’s potentially a downside. Filing separately may make you ineligible to claim certain tax deductions and tax credits, such as the child-care credit and the earned income tax credit (EITC). Refer to IRS Publication 501 for more information.

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IRS Fraud Detection – A Process That Is Challenging For Taxpayers To Navigate An Outdated Case Management System Resulting In Significant Delays Of Legitimate Refunds – Part 2

Nina Olson - IRS Fraud Detection - Part 2

In my last blog, I discussed issues that arose during the 2018 filing season that contributed to the delay of taxpayers’ refunds when those taxpayers’ returns were selected into the non-IDT refund fraud program, including:

  • timing issues with the matching of third-party information;
  • how the system does not consider how third-party information would affect a taxpayer’s refund, and
  • how the pre-refund wage verification program’s case management system, Electronic Fraud Detection System (EFDS), had to have third-party information uploaded manually instead of systemically.

These issues resulted in an unprecedented increase in Taxpayer Advocate Service (TAS) case receipts in 2018 as more affected taxpayers sought TAS assistance.

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IRS Fraud Detection – A Process That is Challenging For Taxpayers To Navigate With An Outdated Case Management System Resulting In Significant Delays Of Legitimate Refunds -Part 1

Nina Olson- December 2018

As we approach the filing season, I thought it would be a good idea to discuss an issue that affects many taxpayer returns, namely the IRS processes for identifying and stopping refund fraud. Attempted refund fraud has become a significant problem in our tax system. According to the most recent figures available, in calendar year (CY) 2016, identity theft (IDT), refund fraud alone, cost the government roughly $1.7 billion. I fully support the IRS’s efforts to reduce refund fraud and protect revenue. However, I have expressed concern over several years that the refund fraud false positive rate (FPR) is too high and that the IRS takes far too long to process legitimate taxpayers’ returns once it has determined that they have been inaccurately selected. For some taxpayers who rely on their tax refund to pay for necessary living expenses, their anxiety increases every day that their refund is delayed.

One of the main drivers behind these issues is the timing between when the IRS selects returns to be analyzed for possible refund fraud, and when it receives payor information that would either verify or disprove this possibility. But before we get into specific concerns surrounding the IRS’s fraud detection program, here is a little background on how the systems that select possible fraudulent returns work.

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