In my most recent Annual Report to Congress, I published a study in support of the Service Priorities Project (SPP), a joint effort between Taxpayer Advocate Service (TAS) and IRS Wage & Investment (W&I). The goal of the SPP is to produce a matrix to help the IRS identify where to allocate its taxpayer service resources. To assist the IRS in determining service priorities, the matrix presents data on taxpayer needs and preferences as well as more traditional IRS “efficiency” concerns. While W&I initially worked with TAS in the development of the SPP, ultimately I felt that the additions to the Taxpayer Experience Survey did not address the missing data needed to complete the SPP matrix. I directed TAS Research to develop a study and fill in the gaps of the SPP. The result, A Further Exploration of Taxpayers’ Varying Abilities and Attitudes Toward IRS Options for Fulfilling Common Taxpayer Needs, revealed several areas that I’d like to highlight today. Read more
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Taxpayer Advocate Service Survey Confirms Need To Maintain And Enhance A Robust Omni-Channel Taxpayer Service Strategy
National Taxpayer Advocate Nina E. Olson testified before the House Subcommittee on Health Care, Benefits, and Administrative Rules and Subcommittee on Government Operations Committee on Oversight and Government Reform on Oversight today at a hearing entitled, “Continued Oversight Over the Internal Revenue Service.”
As you know, I lead the Taxpayer Advocate Service (TAS), an independent organization within the IRS that advocates for taxpayers. TAS has two main functions – “case advocacy” and “systemic advocacy.” In most years our case advocacy operations
assist more than 200,000 taxpayers in resolving account problems with the IRS.2 On the systemic side, TAS identifies problems that are harming groups of taxpayers, and we make administrative and legislative recommendations to mitigate those problems.
IRS Rolls Out Passport Certification Program, Refusing To Adopt Taxpayer Protections And Exclude Taxpayers Working With TAS
On Jan. 22, 2018, the IRS began implementation of the passport certification program. IRC § 7345 authorizes the IRS to certify a taxpayer’s seriously delinquent tax debt to the Department of State for the purposes of passport denial, limitation, or revocation. A seriously delinquent tax debt is an assessed, individual tax liability exceeding $51,000 for which either a notice of federal tax lien has been filed or a levy has been made. IRC § 7345(b)(2) provides exceptions for current installment agreements (IAs), offers in compromise (OICs), and Collection Due Process (CDP) hearings. In addition, the IRS has created certification exclusions, such as for taxpayers in currently not collectible (CNC) hardship status and those with pending IAs and OICs. IRM 18.104.22.168.19.4 includes the full list of current discretionary exclusions. Read more
Last week I read that the Taxpayer Advocate Service’s (TAS) case load has been growing substantially and this once great department inside the Internal Revenue Service does not have the resources to continue to handle its current inventory levels without adversely impacting its ability to provide effective service.
As a result, Internal Revenue Service memorandum TAS-13-0913-009 was produced to reissue guidance to TAS’s case-acceptance criteria for certain categories of Systemic Burden cases.
So I tried to get a case file opened yesterday and was basically told that unless you are unemployed and destined for homelessness as a result you will essentially NOT meet the Read more
Tax identity theft has grown exponentially over the past several years. Identity theft has topped the Internal Revenue Service’s “Dirty Dozen” annual list of tax scams for both 2012 and 2013, and also appeared on the list in 2011. According to the National Taxpayer Advocate Service, identity theft grew by more than 650 percent between fiscal years 2008 and 2012. Unfortunately, the predictions are that this trend will continue, even in the face of growing safeguards that are currently being put into place by the IRS, tax practitioners and taxpayers themselves. An audit report released in August 2012 by the Treasury Inspector General for Tax Administration estimated that during the next five years, the IRS could lose a projected $21 billion to fraudulently claimed tax refunds related to identity theft. This figure, according to TIGTA, takes into account the new fraud controls that the IRS has put in place that the agency touts as having saved $20 billion of fraudulent refunds on 2012 returns alone.
Impact On Individual And Businesses
Generally, identity theft as encountered by the IRS, typically involves a taxpayer’s stolen Social Security number that is then used to file a tax return and claim a fraudulent refund. When the legitimate taxpayer then files their return, the IRS rejects it. The taxpayer must correct the situation to obtain their refund, which in many cases can consume a considerable amount of time, effort and expense. In best-case scenarios, a six-month delay has been common. Identity theft usually plays out differently when a business taxpayer’s identity is stolen. Similar to return filings for individuals, the theft can occur in the form of a fraudulently claimed tax refund, but often involves more subtle schemes that remain undetected until the business receives a notice from a government agency related to unpaid employment taxes, erroneously claimed tax credits, unreported merchant payment card income, and similar business transaction-generated subterfuge. Read more
Edited and posted by Harold Goedde CPA, CMA, Ph.D.
Nina Olsen is the IRS’s National Taxpayer Advocate. Since 2001, she has led the Taxpayer Advocate Service (TAS), a nationwide organization of approximately 2,000 taxpayer advocates who help U.S. individual and business taxpayers resolve problems and work with the IRS to correct systemic and procedural problems. In this capacity, she reports to Congress annually on the most serious problems taxpayers face in dealing with the IRS and proposes solutions. Recently, she took time to talk to Journal of Accountancy Senior Editor Paul Bonner about her work with TAS and taxpayer issues, especially those of taxpayers represented by CPAs.
Bonner: For taxpayers represented by CPAs who come to TAS with their problems, what can CPAs do to help their clients’ chances of getting a favorable outcome?
Olson: About 35% to 40% of our cases have representatives. In fact, Congress anticipated and wrote into the law, in Sec. 7811, that one of the definitions of a significant hardship [for which the Office of the Taxpayer Advocate may issue a taxpayer assistance order] is where the cost of representation in a particular issue is great and would incur a significant hardship. You can see that happen where a representative is trying to solve a problem by staying on the phone with the IRS and running up billable hours. If it’s a simple problem that isn’t getting resolved, then, of course, they should go to the Taxpayer Advocate Service.
And then we have others, I have to say, that once they get through to TAS, their case advocate is their new best friend. They get that case advocate’s number, and they come to them for every single problem. We are a resource for you, but it’s a limited resource, and people should exercise their judgment as to whether it’s necessary.
Bonner: What kinds of issues should taxpayers and representatives come to you with?
Olson: We see very simple cases where there’s just no one at home at the IRS who will engage with the CPA to hear the facts, to hear what needs to be done. And we also see a lot of what I call the “not my job” syndrome, where the CPA knows precisely what needs to be done to correct this account; they have all the information that makes it very clear why this account needs to be adjusted, and yet there’s no one in the IRS who will accept responsibility for doing it because it requires this function to do this little thing and another function to do another thing. That is precisely the kind of case that you should go to TAS about, because then we operate as the traffic cop, and we’ll stick with the case and get it all the way through.
And then we have cases on which there is a fundamental disagreement, whether on the facts of the case, the law, or its application to the facts. First, we try to exercise independent judgment. Once we can figure out with the taxpayer or the taxpayer’s representative or CPA what we think is the right answer in that case, we should be advocating that answer, and that means taking it all the way up the chain. A lot of these are cases of first impression, where the IRS has a general rule, and you’re trying to fit a set of circumstances to the general rule, and it doesn’t fit. So you have to come up with a new rule or an exception to the general rule, knowing that the front line of the IRS isn’t necessarily going to tackle that one. It’s going to unfortunately have to go up a chain. That’s fine, as long as we’re doing our job, as long as we’re advocating for what we think is the right answer, not walking away from it, and saying, “Well, the IRS says this, and there’s nothing more we can do.” Until it lands on my desk and until the commissioner has overturned what I say, there’s always something more we can do.
Bonner: Haven’t you had to restrict the kinds of cases you can accept in recent years, just to deal with caseloads?
Olson: We went through several really difficult years going up to 2011, where between the economic stimulus payment, making work pay credit, and first-time home buyer credit, our inventories for the first time reached 300,000 cases. Meanwhile, my staffing was declining, just because of the IRS budget situation, so my people really were struggling to keep up. We took a hard look at our inventory and decided that some cases that we were accepting met the criteria, but we actually didn’t need to be involved. The IRS would get the right answer; it was just taking longer than it used to, because it had more work as well. Where there’s no economic hardship or harm involved, we don’t need to be involved, so we identified four categories of cases where we said we’re not going to take them unless the taxpayer insists, where there’s no economic emergency, no economic harm involved, it’s just that the systems are moving slowly: processing original returns, amended returns, and refund claims, and problems with the return posting. It was a hard decision, but we really had to say TAS needs to be involved in those cases where only TAS can make a difference.
Bonner: All the same, taxpayer assistance orders are increasing. How effective are they?
Olson: We have a really high relief rate in general for our cases. Our taxpayer assistance orders also have a very high relief rate; over 80% of the orders are agreed to. We’ve issued almost 500 for 2012, and that’s by far the highest number we’ve ever issued. I myself have 26 taxpayer assistance orders about to be issued on return preparer fraud alone—cases where the IRS is refusing to issue refunds to taxpayers who have been victims. That’s a very high number; that’s more than I’ve ever had elevated to me in the entire history of the Taxpayer Advocate Service.
Olson: In the fraud cases, where the preparer has absconded with all or part of the taxpayer’s refund, they believe it’s between the taxpayer and the preparer, and the taxpayer should sue the preparer to get that money back. And we’re saying these are altered returns, they are not valid returns, they are not the returns the taxpayer signed, and therefore you need to let the taxpayer file the correct return, and you need to issue a new refund to the taxpayer. And then the IRS needs to go after the preparer.
Identity theft cases have increased by over 650% since 2008 and now make up about a quarter of our case receipts, which is just astonishing. The IRS itself has seen this great influx of these cases, and it’s been struggling to figure out how to handle it. It has never done what we have recommended since 2004, that it have a centralized place to act as traffic cop, to monitor all identity theft cases, and make sure that the functions are working on them in the correct order and things are moving through quickly. In fact, the IRS is now going backward; it has decided it will have 21 units embedded in its different functions, all with their own little unit to work identity theft cases. On the one hand, I think that’s not a bad idea, to have people in each function who are experts. But, on the other hand, will the taxpayer fall between the cracks, which is what we’ve been seeing over the past few years? So I am not sanguine about what’s going to happen with identity theft next year, and I think that TAS will continue to get a high volume of cases. The IRS about a month ago was telling employees to tell taxpayers it will be six months before they can resolve these cases. That’s harming the taxpayers, and so we really objected to that.
Bonner: How does it affect your own operations when Congress extends provisions late in the tax year, some of them retroactively?
Olson: For the IRS, it’s having to decide how to program their machines. When you don’t have a law enacted, how do you program them? Several years ago, the IRS took the position they couldn’t program their machines for the AMT [alternative minimum tax] patch, because they didn’t know what the law was and so they had to delay the filing season. Now the IRS has informed the Hill that it’s programming with the best guess as to what it thinks it will be, and then if it’s wrong, they’ll have to delay the filing season to program the changes that actually turn out. So the norm becomes that we’re getting late-year tax legislation, and the IRS is adapting to it, which is just an insane norm to adapt to. No one should run their business in this way, much less the government.
Also, TAS and other IRS offices are theoretically using December to train our employees for the upcoming filing season. But we don’t know what’s going to be in the law, so we have to reserve the first two weeks of January, which is not a good time to be training, immediately before people are going to be applying what they learn.
Third, the IRS always has glitches in whatever it has to program at the last minute. Some of those glitches are significant, and it generates huge numbers of cases in TAS, so we see spikes during the filing season, waves of things that we start seeing showing up in our case receipts that are indicating that there is a programming or processing glitch. We’ve developed a culture of taxpayers who expect their refunds immediately; we’ve done that to sell e-filing. So now, when there are glitches with it, the taxpayers are frantic because they’ve lived their lives thinking they’re going to get this large chunk of money very quickly within a short time of filing their returns. So it creates stress.
Bonner: Let’s talk about liens. Are you seeing effects from the IRS’s Fresh Start relief initiative?
Olson: We’re seeing fewer liens being filed, and we are seeing more lien withdrawals being done. We’ve had a multi-year study about the impact of lien filing on taxpayers and on their ability to comply in the future, both to pay the existing debt and not incur future tax debts and to file in the future. Also what it does to their income in the future, does it have a negative impact? And we’ve found, in fact, that in most instances, it does. What the Fresh Start did was, instead of saying, file a lien at $5,000 debt, file it at $10,000. My concern about that is, you still end up not having anyone who can look at a taxpayer’s facts and circumstances and say, “Your debt is over $10,000, but you have the ability to pay the full thing, and you don’t have any history of noncompliance, and the reason you have this debt is because there was a medical emergency. And so why should we destroy your credit rating and your future ability to earn income? It will make you have to pay higher interest when you buy a car or whatever, for this one-off instance.” There’s nobody in the IRS on the collections side who can truly have that kind of conversation.
We are also seeing a lack of things like business installment agreements, where Fresh Start was supposed to make things a little bit easier for businesses. The amount of debt attributable to employment tax has mushroomed over the last few years, and we think because business employment taxes are being channeled first to the automated collection system rather than being promptly sent out to the revenue officers. They go out to the queue and sit there for a year to two, while taxes are pyramiding, and by the time they get in the revenue officers’ hands, the taxes are so large, there’s no way that the business can get out of that mound of debt.
Bonner: Many of our members have expressed frustration with correspondence audits. What should they know?
Olson: Systemically, I issued a taxpayer advocate directive after I covered the correspondence exam in the 2011 annual report, in which we did a really comprehensive study. The IRS began assigning core exam cases to individuals who worked them all the way through, making outbound calls in the correspondence exam function, making appointments, and other changes. The IRS also agreed to convene a group that has been studying the correspondence exam process. We’re represented on it, and we have made sure they have talked to taxpayers, to taxpayer representatives, and low-income taxpayer clinics. I have some reason to be modestly optimistic that there will be some positive recommendations coming out of this.
One of the things that we’re really pushing, when the IRS actually makes a contact with the taxpayer, to keep that case with that employee, so the taxpayer doesn’t have to keep explaining the same thing over and over again.
Another promising thing I am very optimistic about is a project we call virtual service delivery. It has been tested this past year in some of the walk-in sites for VITA [Volunteer Income Tax Assistance] and in two low-income taxpayer clinics, and for certain hearings. Next year, the IRS has agreed to roll this technology out to many more sites, and correspondence exam is testing it. So taxpayers in certain locations could make an appointment to come in to an IRS location and bring their documentation and see their correspondence exam person by camera on a computer screen. We’re working to get better camera technology so a taxpayer could hold up their documentation and that could be shown on the screen for the IRS employee to see in real time and decide whether it was sufficient. I am very hopeful about that technology, which can actually make correspondence exams like office exams. To me, the next step is that we make similar software available to practitioners. It would be in a form of encryption so that no one could hack into that hearing and get confidential taxpayer information. And then the third step would be to make this available to taxpayers themselves.
Bonner: What do you think is the biggest challenge facing the next IRS commissioner?
Olson: I really think that the biggest challenge for the tax system, and therefore for the commissioner, is the lack of trust and respect for the tax system as a whole. The complexity of the tax law has not helped, and the failure to fund the IRS appropriately has not helped. But somehow we need to just convince people that taxes really are the price we pay for a civilized society. Then, in the organization itself, I just see that it is more and more siloed. It has moved too far away from having people know what’s going on in the communities where taxpayers live. In getting rid of the districts and the regions, it moved away from its geographic presence completely and replaced it with this centralized structure. I think we are over a hump in our computer system modernization, and we’ve proven we can do it, so I think the next commissioner just really needs to ride that to make sure we don’t go backward. And then to focus on how we communicate with taxpayers, can we really use this virtual world to have face-to-face communications? I just think that it’s really important that our employees realize they’re talking to taxpayers and not pieces of paper.
[Paul Bonner, senior editor, tax. Journal of Accountancy, January 17, 2013]
CIRCULAR 230 DISCLOSURE: Pursuant to regulations governing practice before the IRS, any tax advice contained herein is not intended or written to be used and cannot be used by the taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.