In the National Taxpayer Advocate’s Fiscal Year 2021 Objectives Report to Congress, Erin M. Collins discusses starting her position in March 2020 amid a pandemic, her experience thus far, and her expectations and approach to her role as the National Taxpayer Advocate. She also discusses subjects that she thinks warrant the closest scrutiny and congressional oversight. These subjects include improving taxpayers’ experience throughout the year; protecting the rights of taxpayers impacted by COVID-19; reducing burden resulting from the implementation of the Coronavirus Aid, Relief and Economic Security (CARES) Act; implementing the Taxpayer First Act; and protecting the rights of taxpayers who receive “soft letters” requiring them provide information outside an examination.
Systemic Advocacy Objectives
TAS continues to advocate on a broad range of issues, including 11 issues TAS plans to focus on during the upcoming fiscal year. These include working with the IRS to provide taxpayers with limited English proficiency meaningful access to tax products and services; improving the clarity and content of IRS notices and correspondence; improving service to and communication with taxpayers in rural and other communities that lack high-speed internet access; and working with the IRS to refine its screening filters so fewer legitimate returns are flagged as potentially fraudulent and cause refund delays for affected taxpayers.
The IRS acted quickly to postpone over 300 filing, payment, and other time-sensitive deadlines, provide broad relief from compliance actions under its “People First Initiative,” and disburse some 160 million Economic Impact Payments (EIPs) authorized by the CARES Act. However, despite the IRS’s best efforts, there have been notable adverse taxpayer impacts, including:
- Taxpayers who filed a 2019 paper return and are entitled to refunds may be in for a long wait. The IRS had to suspend the processing of paper tax returns, and as of May 16, it estimated it had a backlog of 4.7 million paper returns. Although the IRS is reopening some of its core operations, it is not clear when it can open and log all the returns sitting in mail facilities.
- Some taxpayers whose returns were mistakenly flagged by IRS processing filters are experiencing lengthy delays in receiving their refunds. Refund delays can have a significant financial impact on low-income taxpayers, as refunds often constitute a significant percentage of their annual household incomes. Notably, some of the refund delays have been generated by claims for the Earned Income Tax Credit (EITC) or additional Child Tax Credit (CTC).
- Taxpayers who have needed help from the IRS have had difficulty obtaining it. The IRS shut down its Accounts Management telephone lines, so taxpayers could not reach a live assistor by telephone. The IRS shut down its Taxpayer Assistance Centers, making it impossible for taxpayers to obtain in-person assistance. The IRS also shut down its mail facilities, so it was unable to log or process taxpayer responses to compliance notices. The only resources readily available were IRS.gov and automated telephone lines. The IRS has begun reopening its operations, but it will take some time before they are restored to full capacity.
- IRS systems prepared over 20 million notices during the pandemic that could not be mailed due to closure of notice production centers between April 8 and May 31. The IRS is mailing these notices now. However, some collection notices bear old dates and include response deadlines that often have passed. The IRS plans to include “inserts” with these notices explaining that response deadlines have been postponed, but the report expresses concern that receiving compliance notices with response deadlines that have passed will be confusing and concerning to many taxpayers who may not read the inserts.
While the IRS generally did a commendable job implementing the CARES Act, taxpayer challenges remained. These included:
- Some taxpayers who did not receive some or all of their Economic Impact Payments (EIPs) may have to wait until next year when they file their 2020 income tax returns to claim the amounts as credits against their 2020 tax liabilities. Because Congress enacted the CARES Act both to provide emergency financial relief to taxpayers on an individual level and to boost spending on the national level, TAS will continue to urge the IRS to provide full EIPs to eligible taxpayers throughout 2020 as rapidly as possible. The report says that making taxpayers wait until next year to receive their EIPs harms the affected taxpayers and is inconsistent with congressional intent.
- Employers are struggling to determine whether they qualify for the Employee Retention Credit (ERC) and in what amounts. The ERC is a complex, refundable tax credit for which the IRS has provided considerable guidance, but several areas require further clarification. TAS will continue to advocate that the IRS further clarify the rules governing when and how employers should claim this credit.
- Businesses are facing challenges when seeking to utilize the CARES Act provision that authorizes the use of net operating losses to offset taxable income in prior years (and in some cases to receive refunds). While the IRS has provided timely guidance in the form of frequently asked questions (FAQs), TAS is concerned that FAQs are not authoritative or binding on the IRS.
The Taxpayer First Act (TFA) constitutes the most far-reaching revisions to tax administration since the IRS Restructuring and Reform Act of 1998 and included some 23 provisions recommended by the National Taxpayer Advocate. The TFA required the IRS to submit its comprehensive taxpayer service strategy to Congress by July 1, 2020. Because of disruptions caused by COVID-19, the IRS has been delayed in developing these plans, but it expects to deliver its taxpayer service strategy to Congress by the end of the year.
The IRS has taken steps to receive input from taxpayers, practitioners, and TAS and has implemented over two dozen TFA provisions. However, TAS remains concerned that it has not properly implemented a provision directing it to establish a single point of contact for identity theft victims, and it may not properly implement a provision directing it to exclude taxpayers with adjusted gross incomes at or below 200 percent of the Federal Poverty Level from assignment to private debt collection agencies by December 31, 2020.
The IRS`s use of “soft letters” to educate, inform, and encourage voluntary compliance is a useful IRS compliance and enforcement tool. However, the IRS’s soft letters have been including language aimed at compliant taxpayers that requires them to produce documents and a detailed supporting statement signed under penalties of perjury. The soft letters, which may cover more than one tax period, request information not included on a return and possibly cover years outside the statute of limitations for assessment. The information requested is akin to an IRS examination but without providing the taxpayer rights and protections afforded by an examination. One example of such a soft letter request is for a taxpayer who had reportable virtual currency transactions (Letter 6173).
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