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The IRS Can Do A Better Job Providing Military Taxpayers With Accurate And Up-To-Date Information About Tax Issues They Are Facing



Nina Olson, Tax Advocate, Tax Blog, Washington D.C., USA, TaxConnections

As we near the end of the 2018 filing season, it is worth reflecting on the challenges taxpayers face in complying with complex tax law provisions. In my 2017 Annual Report to Congress, I identified IRS customer service and information provided to military taxpayers as one of the Most Serious Problems facing taxpayers. In this blog, I will discuss the needs and preferences of military taxpayers and recap some of my recommendations on how the IRS can substantially improve its service to this taxpayer population.

There are about 2.1 million military service members, including reservists and National Guard personnel, and 2.7 million family members (of which approximately 106,000 are in dual military marriages and considered military dependents also). The vast majority are enlisted personnel. The 2016 Department of Defense (DoD) Demographics Report provides the following data.

Figure 1 depicts the marital status of the active duty enlisted force. Overall, half (50 percent) of service members are married. The “Other” category includes widowed spouses.

Figure 1, Marital Status of 2016 U.S. Active Duty Enlisted Personnel
Source: 2016 Demographics Profile of the Military Community  

NTA Blog Military - Figure 1 Marital Status

Figure 2 depicts the age breakdown of all active duty enlisted service members in the Department of Defense. Overall, 50 percent of the total force is 25 years or younger.

Figure 2, Age of 2016 U.S. Active Duty Enlisted Personnel
Source: 2016 Demographics Profile of the Military Community  

NTA Blog Military: Figure 2 - Active Duty

Figure 3 depicts the education level of active duty enlisted personnel. The highest education attained by over 90 percent of these service members (91.2 percent) is a high school diploma or some college credits, while less than ten percent hold a bachelor’s degree or higher.

Figure 3, Education Level of 2016 U.S. Active Duty Enlisted Personnel
Source: 2016 Demographics Profile of the Military Community  

NTA Blog Military: Figure 3 - Education Level

While the majority of active duty service members are stationed in the United States and U.S. territories, over 350,000 service personnel and family members are stationed around the world, as depicted in Figure 4.

Figure 4, Active Duty Service and Family Members Stationed Outside of the U.S. by Continent
Source: 2016 Demographics Profile of the Military Community

Continent  Service Members  Family Members Total Personnel
Africa and Middle East 8,625 11,721 20,346
Asia 66,789 73,048 139,837
Australia and Oceania 4,972 6,099 11,071
Europe 61,135 83,878 145,013
North America*, Central America, and the Caribbean 1,801 2,580 4,381
South America 241 433 674
Ship Afloat** 20,897 24,087 44,984
International Total*** 164,460 201,846 366,306

Military taxpayers need outreach and education, fine-tuned for a diverse array of tax issues, including:

  • Extensions of tax filing deadlines, especially for those serving overseas;
  • Combat zone income exclusions;
  • Tax abatement for service members who die in combat zones or qualified hazardous duty areas;
  • Individual retirement account (IRA) contributions from tax-free combat pay;
  • Tax return signature authority without a power of attorney;
  • Unique capital gains exclusions for service members who sell their homes;
  • Deductions for relocation expenses, travel expenses for reservists, and military uniforms;
  • Waivers for early withdrawals from IRAs; and
  • Rules relating to service members choosing to include their nontaxable combat pay as earned income for purposes of Earned Income Tax Credit.

I have described these tax issues in detail in my 2017 Annual Report to Congress. Many of these questions remain unanswered as the IRS does not have employees assigned solely to assist service members or dedicated telephone lines for military taxpayers to call with questions. This includes over 350,000 service personnel and family members stationed abroad, who need to call the IRS toll-free line in the United States, waiting between 10 and 30 minutes to get through to the IRS. Those lucky enough to reach a telephone assistor cannot be confident the IRS employees on the other end of the line understand their military-related issue. Moreover, as I discussed in an earlier blogseveral weeks ago, since 2014, the IRS has limited the scope of questions it answers over the phone. For instance, the IRS has designated questions about transportation and travel expenses of military personnel as well as uniforms as out-of-scope for its Customer Service Representatives using the Interactive Tax Law Assistance when responding to telephone tax law inquiries.

I am concerned that the IRS’s service to the military is generally limited to posting information on the web and providing tax software to military partners who prepare tax returns at installations around the world. Moreover, in my 2017 Annual Report to Congress, we identified several pages on the IRS website with inaccurate or missing information regarding military issues, including an obsolete reference to a $6,000 tax-free death benefit to survivors, when the correct amount is $100,000. We are pleased that in response to the Report, the IRS has corrected many of these items. However, the IRS website still lacks adequate information for service members. For example, deployed military members can exceed the $18,500 annual Elective Deferral Limit under IRC § 415 and invest as much as $55,000 in an IRA when serving in a combat zone. This is important information missing from the IRS website. To address these shortcomings among others, I recommended that the IRS routinely revise its tax information for the military on IRS.gov and dedicate an employee to regularly updating this complicated area of tax law.

I commend the IRS for partially addressing my concern about the lack of information on the Combat-Injured Veteran Tax Fairness Act of 2016. Until recently, the IRS had no information about this significant legislation, which gives veterans who sustained career-ending combat injuries additional time to claim refunds if they had taxes improperly withheld from their severance pay. The IRS website now contains a short paragraph explaining the legislation on the Information for Veterans page. However, veterans need much more. Currently, the IRS has not posted instructions on the procedures combat-injured veterans are to follow, the status of the legislation’s implementation, or important details about who might be eligible for a tax refund. The Executive Director of the Armed Forces Tax Council estimates that of 300,000 veterans who received the disability severance payment, DoD has identified 133,000 who may qualify for refunds. These refunds can make a profound and positive difference in the well-being of injured veterans.

As stated above, the IRS primarily relies on Volunteer Income Tax Assistance (VITA) volunteers to help with tax return preparation at military installations worldwide. Nevertheless, for the first time in many years, the IRS refused to send Stakeholder Partnership, Education and Communication (SPEC) employees to South Korea to deliver VITA training for the 2018 tax filing season, citing personal safety concerns for their employees. I was baffled by this decision that would deprive VITA volunteers who serve approximately 20,000 service members and 23,800 U.S. civilians living in South Korea of adequate training. The DoD as well as the Department of State continue to actively assign and move employees and families to South Korea and has deemed it safe to do so. Ironically, the 2018 Olympics, held less than two months ago in Pyeongchang, South Korea – just 60 miles from the heavily fortified border with North Korea – had nearly 3,900 athletes and team officials participating from 93 countries, and sold approximately one million tickets to spectators. I am pleased to report that the IRS has reversed its decision and will send SPEC trainers to South Korea.

You can read more about my concerns associated with IRS’s inadequate assistance to the military and my recommendations to improve it in the Most Serious Problem: Military Assistance: The IRS Needs to The IRS’s Customer Service and Information Provided to Military Taxpayers Falls Short of Meeting Their Needs and Preferences. In the meantime, I am committed to filling in the gaps by delivering accurate up-to-date information to the service members and their families. I selected the topic: Advocating for Military Clients for TAS presentations at the IRS Nationwide Tax Forums to educate tax professionals about unique tax issues facing this taxpayer population. TAS is also working on developing comprehensive educational material dedicated to military tax issues for posting on www.TaxpayerAdvocate.irs.gov.

Have a question? Contact Nina Olson and the National Taxpayer Advocate Team.

Your comments are always welcome!

Nina Olson

Nina Olson

Nina E. Olson, the National Taxpayer Advocate (NTA), is the voice of the taxpayer within the IRS and before Congress. She leads the Taxpayer Advocate Service (TAS), an independent organization inside the IRS that helps taxpayers resolve problems and works for systemic change to mitigate problems experienced by groups of taxpayers.

2 thoughts on “The IRS Can Do A Better Job Providing Military Taxpayers With Accurate And Up-To-Date Information About Tax Issues They Are Facing

  1. While this does not apply to active military personnel, it is an issue for the private, military contractors of which there are many and of which are mostly made up of retired military or service men who resigned to work for private contractors.

    Through the Service’s centralized examination project regarding the Foreign Earned Income exclusion, the Service is doing their best to narrow the rules for individuals that qualify for that exclusion.

    In a recent examination I had, the amount of information that is being requested covers an IDR of 8 or more pages; and most items that are requested aren’t needed since a taxpayer selects only one of the several categories that are at issue.

    In my case, the Service disallowed the exclusion for 3 years. Within the RAR, their cited positions were so far from the law at issue, and the facts were distorted and many assumtions were made even though the facts were presented. It was a mind boggling examination to a Representative that was met with skepticism of the process by the taxpayer.

    Then the Revenue Agent and manager would not allow the taxpayer to proceed to appeals citing that we did not provide all of the requested information, which they were unwilling to walk through the IDR to point out what was not provided. They then issued a Stat Notice.

    The Taxpayer Advocate, who was on board shortly after the RAR was issued, and at least a month before the Stat Notice was issued, was unable to help get us our appeal rights, therefore, as a CPA, I was forced to walk him through the tax court procedures (he couldn’t afford an attorney for this) so that he could file his own petition.

    After that, I prepped him for the appeal conference that he requested within the petition.

    He held a telephone conference with the AO, who simply asked him to tell his story, which he did…afterwards, she stated that she could not understand why the Service made the proposed disallowance, and quickly entered into the tax court record that no additional tax and penalties were owed.

    The stain of this treatment will unfortunately be passed on to his co-workers, of which there is several dozen of simalar situated American taqxpayers, some holding thier own examination letters by the time this was wrapped up.

  2. Kat Jennings says:

    Thank God for great guys like you Eric willing to go all the way for the men and woman who protect our country. You did a fantastic job and we appreciate hearing stories of the extraordinary tax guys and gals out there protecting taxpayers.
    Kat Jennings, TaxConnections CEO

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