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Tag Archive for National Taxpayer Advocate

The Taxpayers Journey Illustrated On A Map – The Roadmap Every Taxpayer Must See

NTA

The National Taxpayer Advocate who works on behalf of U.S. taxpayers recently built a road map of the taxpayers journey. If you ever wondered what a tax professional does for their clients, you should take a close look at this extraordinary map. It is a stunning illustration every taxpayer and tax professional should see.

The map below illustrates, at a very high level, the stages of a taxpayer’s journey, from getting answers to tax law questions, all
the way through audits, appeals, collection, and litigation. It shows the complexity of tax administration, with its connections
and overlaps and repetitions between stages. As you can see from its numerous twists and turns, the road to compliance isn’t
always easy to navigate. But we hope this map helps taxpayers find their way. A project of the Taxpayer Advocate Service.

The Taxpayer Roadmap 2019

 

 

The IRS’s Position On The Application Of The Religious Freedom Restoration Act To The Social Security Requirement Under Internal Revenue Code § 24(h)(7) Has The Effect of Denying Child Tax Credit Benefits To The Amish

Nina Olson On Amish

As part of the Tax Cuts and Jobs Act (TCJA) passed in December 2017, the Child Tax Credit (CTC) (Internal Revenue Code (IRC) § 24) was amended to require a Social Security number (SSN) for all qualifying children for whom the credit is being claimed. The stated purpose for the TCJA amendment was to prevent taxpayers who are not eligible to obtain a work-eligible SSN from improperly or fraudulently claiming the CTC or the American Opportunity Tax Credit (AOTC). This requirement raised concerns for some taxpayers—most notably the Amish—some of whom will refrain from obtaining SSNs for their children altogether or for themselves until later in life, due to their deeply held religious beliefs. Prior to this amendment, IRC § 24 only required that a taxpayer identification number (TIN) be provided, and the IRS developed a procedure that allowed Amish taxpayers to claim the dependent exemption under IRC § 151 and the CTC without placing an identifying number on the dependent line of the return. These procedures, described below, have been in place for over 30 years.

After I raised this issue back in the summer of 2018, and after the IRS reversed course several times, IRS Chief Counsel issued program manager technical advice (PMTA) on March 29, 2019, concluding “… the [IRS] need not provide administrative relief for these taxpayers.”  The IRS revised its guidance on April 15, 2019, to reflect the Chief Counsel’s advice and is disallowing the CTC where qualifying children do not have SSNs on the basis of religious beliefs. Under the TCJA, the maximum CTC for 2018 was $2,000 per child. However, without an SSN, the taxpayer can only receive a partial $500 credit allowed for a dependent—a significant reduction of 75 percent.

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The National Taxpayer Advocate’s Remarks On The Role Of Trust and Taxpayer Advocate Service In Fostering Tax Compliance (Part 1)

Nina Olson Final Words Part1

Volume 1, which I present to you today, includes an analysis of the 2019 Filing Season, an assessment of the impact of the recent government shutdown on the Taxpayer Advocate Service (TAS), 12 Areas of Focus, and a discussion of TAS advocacy initiatives, casework, and research studies.

Volume 2, IRS Responses and National Taxpayer Advocate’s Comments Regarding Most Serious Problems Identified in 2018 Annual Report to Congress, and Volume 3, Making the EITC Work for Taxpayers and the Government: Improving Administration and Protecting Taxpayer Rights, will be published next month.

Volume 2 will contain the IRS’s general responses to each of the administrative recommendations we identified in our 2018 Annual Report to Congress. Volume 3 will contain a comprehensive assessment of the Earned Income Tax Credit (EITC) and will make recommendations designed to increase the participation rate of eligible taxpayers and reduce overclaims by ineligible taxpayers.  During the spring, Professor Leslie Book of the Villanova School of Law, a leading EITC expert, served as a “professor in residence” with TAS, and Margot Crandall-Hollick, an EITC expert with the Congressional Research Service, worked with TAS on a detail.  Together with TAS’s EITC experts, including former Low Income Taxpayer Clinic attorneys and researchers, they conducted a broad review of existing EITC research and drafted a comprehensive set of recommendations to assist Congress and the IRS in improving the program.

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Why We Should Repeal The Flora Rule Or Find Another Way To Give Taxpayers Who Cannot Pay The Same Access To Judicial Review As Those Who Can (Part 3 of 3)

Two weeks ago, I discussed how the Flora rule blocks access to judicial review by low income taxpayers and those subject to “assessable penalties.” Last week, I discussed why the policy justification for the Flora rule has faded and why the theoretical ability to petition other courts does not always provide real access to judicial review. In this week’s blog, I discuss the solutions that policymakers should consider. More details are available in my 2018 Annual Report to Congress.

Repeal The Flora Rule

Because Flora is obsolete, I agree with those who have suggested the Flora rule should be repealed (e.g., Steve Johnson here on p. 271). Such a repeal would allow taxpayers to file suit in district court or the U.S. Court of Federal Claims after paying a small fraction of the liability. If Congress prefers a more tailored approach, however, it should consider one or more of the following options:

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Why We Should Repeal The Flora Rule Or Find Another Way To Give Taxpayers Who Cannot Pay The Same Access To Judicial Review As Those Who Can (Part 2 of 3)

Nina Olson- Judicial Review Part 2

In the previous blog post, I discussed how the Flora rule harms low income taxpayers who were not part of the tax system when it was established and sometimes eliminates judicial review for those subject to “assessable penalties,” most of which also did not exist at the time. This week, I discuss the policy justification for the Flora rule, why it has faded, and why the theoretical ability to petition other courts does not provide real access to judicial review for some taxpayers.

The Justification For The Flora Rule Has Faded

As we discussed last week, in 1958 in Flora I and again in 1960 in Flora II, the U.S. Supreme Court held that taxpayers must have “fully paid” an assessment before filing suit in U.S. district court or the U.S. Court of Federal Claims. In Flora I the Court said a policy basis for the full payment rule was to protect the “public purse” and cited dicta in earlier decisions, such as Cheatham, which was decided in 1875. This dictum said the rule was needed to protect the very “existence of government” from a “hostile judiciary.” Although the Flora decisions did not repeat the “existence of government” rationale, it relied heavily on CheathamCheatham is cited seven times in Flora I and 20 times in Flora II.

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Why We Should Repeal The Flora Rule Or Find Another Way To Give Taxpayers Who Cannot Pay The Same Access To Judicial Review As Those Who Can (Part 1 of 3)

Nina Olson Flora Rule

Taxpayers have the right to appeal a decision of the IRS in an independent forum. Consistent with this right, in the 2018 Annual Report to Congress (ARC) I recommended legislation to provide all taxpayers with a realistic opportunity for judicial review of IRS determinations.

The so-called “Flora rule”—named after a Supreme Court case decided in 1960—limits access to judicial review by those who cannot “fully pay” what the IRS says they owe. In this blog, I explain how the rule is obsolete and harms low income taxpayers who were not part of the tax system in 1960. I also explain how the rule sometimes eliminates judicial review for those subject to “assessable penalties,” most of which did not exist in 1960.

What is the Flora rule?

In general, 28 U.S.C. § 1346(a)(1) authorizes a taxpayer to file suit in a U.S. district court or the U.S. Court of Federal Claims to recover “any … tax,” “any penalty,” or “any sum.”  The statute places no explicit limits on how much the taxpayer must have paid before filing suit. In 1958 in Flora I and again in 1960 in Flora II, however, the U.S. Supreme Court held that taxpayers must have “fully paid” an assessment (called the “Flora” or “full payment” rule) before doing so.
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The IRS Is Not Doing Enough To Protect Taxpayers Facing Economic Hardship

The Taxpayer Bill of Rights (TBOR) grants taxpayers the rights to privacy and to a fair and just tax system. The Internal Revenue Service’s official explanation of these rights, in Publication 1, states in part: “Taxpayers have the right to expect that any IRS …enforcement action will comply with the law and be no more intrusive than necessary,” and “to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely.”

At the time the TBOR was codified in IRC § 7803(a), Congress had already created statutory remedies for violations of these rights, including protections to prevent individual taxpayers from experiencing economic hardship while owing a tax liability. For instance, under IRC § 6343(a)(1)(D), the IRS must release a levy if it determines that the levy is creating an economic hardship for the taxpayer. Treasury regulation § 301.6343-1(b)(4) explains that an economic hardship occurs when collection action will “cause an individual taxpayer to be unable to pay his or her reasonable basic living expenses.”

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IRS Examinations – The IRS Should Promote Voluntary Compliance And Minimize Taxpayer Burden In The Selection And Conduct Of Audits

National Taxpayer Advocate

In February of 2019, I released the 2018 Annual Report To Congress in which, among other things, I discuss the influence of tax audits on taxpayers’ attitudes and perceptions, and specifically focus on the three primary types of traditional or “real” IRS audits, which can occur through correspondence, at the taxpayer’s home or business, or at an IRS office. In my 2017 Annual Report to Congress and a related blog post around nine months ago, I described IRS audit rates and the distinction between “real” and “unreal” audits. This blog, however, provides an overview of traditional or “real” audit programs, along with some of my findings.

Why are IRS audits important?

The IRS is authorized to examine books, papers, records, or other data and take testimony to determine the correctness of any return and the liability of any person for tax under Internal Revenue Code (IRC) § 7602(a). The IRS’s primary purpose in selecting tax returns for examination or audit is to promote the highest degree of voluntary compliance. IRS audits are intended to detect and correct noncompliance of audited taxpayers, as well as create an environment to encourage non-audited taxpayers to comply voluntarily.

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National Taxpayer Advocate: Tax Responsibilities Of US Citizens And Resident Aliens Living Abroad

Nina Olson-National

If you’re a U.S. citizen or resident alien, the rules for filing income tax returns and paying estimated tax are generally the same whether you’re in the United States or abroad. No matter where you live, your worldwide income is subject to U.S. tax.

To understand and fulfill your tax responsibilities as a U.S. Citizen and resident alien living abroad, there are a few things you need to do:

  • Figure out if you’re required to file – this generally depends on your income, filing status, and age.
  • Consider which exclusions and deductions for income and housing that you may qualify for.
  • Know how your type of employment may affect your tax liability.
  • Have what you need and know where to file your tax return.

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IRS Has Made Some Improvements, Math Error Notices Continue To Be Unclear And Confusing, Thereby Undermining Taxpayer Rights And Increasing Taxpayer Burden

Nina Olson - Math Errors IRS

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. In my April 3rd blog post, I discussed a Literature Review in my 2018 report to Congress that investigated how notices can be improved using insights from the available psychological, cognitive, and behavioral science research. As I noted, 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. In this blog, I will focus on math error notice unclarity, which I identified as one of the Most Serious Problems.

What is the IRS’s math error authority?

Congress has granted the IRS “math error authority,” which allows the IRS to make certain summary adjustments to a taxpayer’s return. If the changes lead to a greater amount of tax, the IRS would make an assessment. These “math error” changes can be made when the IRS determines that the taxpayer has made a mathematical or clerical error that is obvious to fix by looking at the face of the return. The types of issues Congress has allowed to be resolved with math error authority have progressively increased over the years, as a result of IRS lobbying, with the IRS now making summary changes for more and more complex issues. A past TAS research study on math errors committed on individual tax returns found that some of these summary changes have led the IRS to incorrectly deny tax benefits to some taxpayers.

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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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