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Tag Archive for National Taxpayer Advocate

NTA Suggests Greater Transparency – Great Ideas!

Annette Nellen - Greater Transparency For Taxpayers

The IRS National Taxpayer Advocate’s Annual Report to Congress released in February ( IR-2019-11 (2/12/19) + Report) includes the 2nd edition of the “Purple Book” with 59 legislative recommendations to improve taxpayer rights and tax administration. Two of the recommendations aim to strengthen taxpayer rights. They also improve the transparency of the tax system, which is a principle of good tax policy.

The two recommendations:

1. Codify as Section 1 of the Internal Revenue Code:
a. The Taxpayer Bill of Rights (at present, see Section 7803(a)(3)).
b. A Taxpayer Rights Training Requirement, and
c. The IRS Mission Statement

2. Require the IRS to issue all taxpayers a “receipt” that shows how their tax dollars are spent.

For details, see links and all 59 recommendations here.

These are great ideas as they bring greater attention to these important items to help taxpayers better understand the tax system and the federal budget.

I recommend they go farther:

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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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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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The Offshore Voluntary Disclosure Programs Still Lack Focus #3 Transparency, Violating the Right to Be Informed

Offshore Voluntary Disclosure Program

TAXPAYER RIGHTS IMPACTED

■ The Right to Be Informed

■ The Right to Quality Service

■ The Right to Challenge the IRS’s Position and Be Heard

■ The Right to Privacy

■ The Right to a Fair and Just Tax System

DISCUSSION

Beginning in 2009, the IRS established a series of Offshore Voluntary Disclosure Programs (OVDPs), which allow certain people who have not reported all of their foreign assets and income to settle with the IRS by paying taxes, interest, penalties, plus a “miscellaneous offshore penalty” (MOP). It also established a “streamlined” program for those who could certify their violations were not willful. These programs are governed by frequently asked questions (FAQs) posted on the IRS website. 2 The Large Business and International (LB&I) Division Withholding and International Individual Compliance (WIIC) Director can approve minor changes to the FAQs, but the Commissioner or Deputy Commissioner must approve significant ones. 3 IRS examiners interpret the FAQs with assistance from technical advisors and Small Business/Self-Employed (SB/SE) Counsel.  They may also access training materials and job aids posted to a secure SharePoint intranet site.

The IRS Does Not Disclose Interpretations of OVDP Frequently Asked Questions (FAQs)

Chief Counsel Advice from (or coordinated with) national office attorneys must be disclosed under IRC § 6110. 6 Other “instructions to staff” that affect the public must be disclosed under the Freedom of Information Act (FOIA). 7 However, the IRS does not disclose its interpretations of FAQs. For example, when the IRS first established the 2009 OVDP, it did not disclose how it interpreted FAQ #35, which addressed how to compute the “offshore penalty.” The guidance memo was only disclosed in response to a Taxpayer Advocate Directive. 8 Practitioners have highlighted other undisclosed and counterintuitive FAQ interpretations.9

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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 An Outdated Case Management System Resulting In Significant Delays Of Legitimate Refunds – Part 1

Nina Olson - IRS Fraud Detection

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.

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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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As The IRS Redesigns Form W-4, Employee’s Withholding Allowance Certificate, Stakeholders Raise Important Questions

Nina Olson NTA W2 Form

The IRS is re-designing Form W-4, Employee’s Withholding Allowance Certificate. The changes to this form will affect nearly every employee and employer, potentially more than once a year. When a person starts a new job or his or her tax situation changes (e.g., due to a birth, a pay raise, a marriage, or a home purchase), he or she may be required by IRC § 3402(f)(2) to fill out a new Form W-4 and give it to his or her employer. The employer uses the number of “allowances” claimed on the Form W-4 to compute (based on IRS tables) how much of each paycheck to withhold and send to the IRS.

If employees claim too many allowances, they will have too little tax withheld (i.e., be under-withheld) and also violate IRC § 3402, whereas if they claim too few allowances, they will have too much tax withheld (i.e., be over-withheld). They can avoid an underpayment penalty under IRC § 6654 if either (1) they owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, or (2) the amount withheld is at least 90 percent of their tax liability for the current year or 100 percent (or 110 percent for higher income taxpayers) of their tax liability shown on their tax return for the prior year, whichever is smaller.

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When Evaluating The Pilot Program On The Participation Of Counsel And Compliance, IRS Appeals Should Be Transparent

Nina Olson, National Taxpayer Advocate

Over the years, I have expressed significant concern with the continuing erosion of taxpayers’ right to appeal an IRS decision in an independent forum. (IRC § 7803(a)(3)). Of late, one of the major challenges to this right and to the independence of Appeals has been Appeals’ express desire to include IRS Counsel and Compliance in conferences regardless of whether taxpayers consent to this expanded participation. I have blogged about this before and also raised the subject in my Fiscal Year 2019 Objectives Report to Congress. Nevertheless, the issue continues to exist and I believe it is important to revisit the concerns and suggest a transparent, data-driven way forward.

In October 2016, Appeals revised its Internal Revenue Manual (IRM) guidance to encourage the inclusion of Counsel and Compliance in conferences (IRM 8.6.1.4.4). Beyond my own misgivings, this emphasis generated substantial uneasiness within the tax practitioner community.

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National Taxpayer Objectives Report To Congress For 2019

Nina Olson-National Taxpayer Advocate 2019

The advocate states in the current environment, it is critical for the IRS to direct its resources where they have the greatest positive effect on achieving tax compliance, particularly voluntary tax compliance.  Over the long run, voluntary compliance is the least expensive form of compliance to maintain.  It is also the least burdensome from the taxpayer’s perspective.  Importantly, voluntary tax compliance is heavily linked to customer service and the customer experience.

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Letter To TaxConnections Begs For Help From National Taxpayer Advocate Or Tax Professionals

Tax Question - Taxpayer Needs Help From Taxpayer Advocate

TaxConnections Offline Message Left on 16 Oct 2018, 05:47 PM 

To whom it may concern,

I am sending this letter because I was not informed by the IRS about the wages on my 1040 that did not match the information reported to the IRS back in March of 2018. There was never a letter sent to me about this matter.The only thing I received was a letter stating my identity was being checked for fraud and I had to send information pertaining my identity. I did that and still never heard anything back. According to https://taxpayeradvocate.irs.gov/reports/fy-2018-objectives-report-to-congress/news-release National Taxpayer Advocate Nina E. Olson praises the IRS for running a generally successful filing season, including reducing the incidence of identity theft, implementing new accelerated Form W 2 reporting requirements, and matching Forms W 2 against tax returns claiming refunds. Ms. Olson says taxpayers who require assistance from the IRS are continuing to face significant challenges obtaining it. I am one of these people and my rights have been violated in the: #1 TAXPAYER BILL OF RIGHTS.

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