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Archive for Nina Olson

The Second Circuit In Borenstein Helped To Close The Gap In The Tax Court’s Refund Jurisdiction, But Only For Taxpayers In That Circuit

In 2017, the U.S. Tax Court decided the case of Borenstein v. Commissioner by applying a technical reading of a statutory rule that produced a gap in its refund jurisdiction. Because this gap may deprive taxpayers of overpayments and is inconsistent with legislative intent, TAS proposed a legislative fix in our 2018 Annual Report to Congressand 2019 Purple Book. Earlier this month, the U.S. Court of Appeals for the Second Circuit reversed the Tax Court’s decision in an opinion that includes significant commentary about principles of statutory interpretation (here). [The Federal Tax Clinic at Harvard Law School (Keith Fogg and Simona Altshuler) and the Philip C. Cook Low Income Taxpayer Clinic in Atlanta, Georgia, (Edward Afield) deserve kudos for submitting amicus briefs.]

At the risk of mild overstatement, the court effectively said, “Tie goes to the taxpayer.” While the Second Circuit’s decision solves the problem for taxpayers within its jurisdiction, the Tax Court does not have to follow the Second Circuit’s decision in cases arising in other circuits under the rule announced in Golsen. For this reason, the Tax Court or the Congress still needs to fix the problem.

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The Adoption Of A Withholding Code And The Improvement of Free File Fillable Forms Would Streamline Tax Withholding And Reporting

Nina Olson- Streamline Withholding

In last week’s blog, I discussed the potential benefits arising from an expansion of the pay-as-you-earn (PAYE) tax system to incorporate additional income items, as well as credits and deductions.  Such a step would require substantial systemic adjustments and in the recent Annual Report to Congress I recommended that Congress direct the Treasury Department to consult with the IRS and TAS to analyze and report on the feasibility of and steps necessary for expanding withholding at source to encompass seven of the most common types of income. This broader PAYE coverage on the income side could be a precursor to the incorporation of credits and deductions into the PAYE system such that the exact amount of annual tax liability would be collected throughout the course of the year, leaving no subsequent taxes to pay or refunds to collect.

In the meantime, two additional innovations could be considered that would improve the collection of tax at source and streamline the reporting of tax liabilities at year end. As I discussed in a recent blog, redesign of the Form W-4, Employee’s Withholding Allowance Certificate, has generated a range of concerns, including complexity, taxpayer burden, and employee privacy. These issues arise because the U.S. system requires employees to navigate an often-confusing and difficult process to provide employers with their personal information, including other sources of income and marital status, so that the correct amount of tax can be withheld as discussed in TAS’s in-depth 2018 study. Some other countries, such as New Zealand, however, follow an alternative course that could be beneficial for the U.S.

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National Taxpayer Advocate: Expanding Pay-As-You-Earn Tax Collection Could Bring Significant Benefits

Imagine it’s tax filing season. You’re dreading figuring out your tax liability this year, because in the last few years you’ve been earning sporadic capital gains and dividends that sometimes have led to a surprise tax bill at year-end. This year, though, is the first year that pay-as-you-earn (PAYE) tax collection has been expanded beyond wage income to cover additional types of earnings, causing your capital gains and dividends to be withheld at source, as well as some key deductions and credits, so that you don’t have to retrospectively reconcile your income, withholding, and deductions—all you need to do is fill out and file your Form 1040. There is no big bill, because withholding at source was applied on all of your income, and because it accounted in advance for the standard deduction and for the deduction you knew you would claim for student loan interest.

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NTA: The IRS Should Redesign Its Notices Using Psychological, Cognitive, And Behavioral Science Insights To Protect Taxpayer Rights, Enhance Taxpayer Understanding, And Reduce Taxpayer Burden

National Taxpayer Advocate

With the filing season in full operation, many taxpayers are receiving correspondence from the IRS that convey significant taxpayer rights and require taxpayers to take prompt action. As part of my recently released Annual Report to Congress, I included a Literature Review that investigated how notices can be improved using insights from the available psychological, cognitive, and behavioral science research. A major issue with current IRS notices is that many taxpayers have difficulty understanding them. They may be unsure about what the notice requires them to do, the steps they may need to take, or the rights they have to challenge the IRS’s determination in a notice. This, in part, is because the design of IRS notices does not take into account the findings of available literature and research regarding effective notice design.

Nor are IRS notices designed from a taxpayer rights perspective, which can prevent taxpayers from learning about or exercising their rights—for example, by relegating the segment on their rights to the last page of the notice, which they are least likely to read. In fact, notices are often designed with the goal of increasing revenue rather than adequately informing taxpayers of their rights. In the three Most Serious Problems on notices included in my 2018 Annual Report to Congress (herehere, and here), I provide both critiques of current IRS notices and suggestions for improvement. One of those suggestions is for the IRS to improve taxpayer understanding and decrease taxpayer burden by redesigning its notices using psychological, cognitive, and behavioral science insights. These suggestions are summarized below.

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IRS Efforts To Improve The EITC Improper Payment Rate Harm Taxpayers

Nina Olson- EITC

The Earned Income Tax Credit (EITC) is one of the primary forms of public assistance for low income working taxpayers.  However, the EITC is associated with a high improper payment rate.  According to the Treasury Department’s Fiscal Year (FY) 2018 Agency Financial Report, the FY 2018 EITC improper payment rate is approximately 25 percent.  A principal cause of the EITC improper payment rate is the complexity of the rules for claiming EITC, as reported by the Department of Treasury here and here.  While I recognize the importance of tracking and minimizing improper payments, I am concerned that the focus on “a number” masks both the successes and challenges in improving EITC compliance.  In fact, EITC improper payment estimates are based on audits of tax years four years in the past and do not reflect the most recent remedial measures.  Additionally, the Treasury Inspector General for Tax Administration (TIGTA) reports that the EITC improper payment rate does not take into account that for every dollar of EITC improper payments, 40 cents of EITC went unclaimed by taxpayers who appear to be eligible for the credit.

In this year’s Annual Report to Congress I reported that IRS actions to reduce the EITC improper payment rate are not sufficiently proactive and may unnecessarily burden taxpayers.  For instance, despite the acknowledged complexity of the rules for claiming EITC as a cause of improper EITC claims, IRS and Treasury legislative proposals to address EITC improper payments center on enforcement measures rather than on simplification.

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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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