Archive for National Taxpayer Advocate

Taxpayer Advocate Services (TAS) Cases Demonstrate The Harm Caused By IRS Policies On Passport Certification

Nina Olson- IRS Passport Certification

My last blog on passport issues discussed the IRS’s continued refusal to exclude already open TAS cases from passport certification and my efforts to advocate for these taxpayers in the form of almost 800 Taxpayer Assistance Orders (TAOs) and a Taxpayer Advocate Directive that I plan to further elevate to the Commissioner. Today, I want to provide an update on TAS cases and discuss some examples that show how the IRS’s refusal to provide a stand-alone notice prior to certification harms taxpayers.

Internal Revenue Code (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 (adjusted for inflation) for which either a notice of federal tax lien has been filed or a levy has been made. The law requires only two forms of notice to taxpayers:  language in Collection Due Process (CDP) hearing notices and a notice sent “contemporaneously” with the certification the IRS sends to the Department of State.

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IRS Administration Of The Section 965 Transition Tax Contravenes Congressional Intent And Imposes Unintended Burden On Taxpayers

Nina Olson, National Taxpayer Advocate On Section 965 Transition Tax

When Congress passes legislation as comprehensive and technical as the Tax Cuts and Jobs Act (TCJA), drafting and implementation glitches inevitably arise. This week, I will discuss one that largely affects corporate taxpayers, particularly shareholders of Controlled Foreign Corporations. Spoiler alert: This is a case where Congress enacted a provision with a transition rule intended to be extremely taxpayer-favorable, and the IRS is administering the provision in a way that seemingly runs contrary to congressional intent. It relates to the administration of Internal Revenue Code (IRC) § 965(h). Some of the background is a bit technical, so bear with me.

Prior to tax reform, the United States imposed a relatively high maximum federal corporate income tax rate of 35 percent. According to the House Ways and Means Committee, “many domestic companies were reluctant to reinvest foreign earnings in the United States, when doing so would subject those earnings to high rates of corporate income tax rates.” As a result, those companies “accumulated significant untaxed and undistributed foreign earnings.” In other words, they left their earnings parked overseas.

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IRS Continues To Close Taxpayer Assistance Centers, Despite Taxpayer Advocate Service And Congressional Concerns

Nina Olson, National Taxpayer Advocate

For many years I have reported on the state of service at IRS Taxpayer Assistance Centers (TACs), formerly known colloquially as walk-in sites. In my previous blog, I described my concerns about the IRS appointment system and the message the signs on the doors of TACs send to taxpayers.

I recently learned, that despite my concerns, and concerns from Congress, the IRS has closed nine additional TACs since publication of my 2017 Annual Report to Congress. In December, I reported that the IRS operated 371 TACs. Today the IRS operates only 362 TACs, a reduction of over two percent since my report.

In March, Congress passed the Consolidated Appropriations Act, 2018. In conjunction with that Act, the Senate Committee on Appropriations specifically directed the IRS to produce a report and a study relating to TACs as well as a study relating to improving service to targeted populations.

First, the Committee expressed agreement with the concerns I have expressed and generally directed the IRS to report on steps being taken to prevent TAC closures as follows:

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National Taxpayer Advocate Report: Landmark Tax Legislation

Nina Olson, Landmark Tax Legislation

Twenty years ago this week, the IRS Restructuring and Reform Act of 1998 was enacted. This landmark legislation created significant taxpayer rights – including the office of the National Taxpayer Advocate and Local Taxpayer Advocate offices, Low Income Taxpayer Clinics (more on that in next week’s blog); Collection Due Process hearings (the first time taxpayers had meaningful access to courts to challenge the appropriateness of IRS lien and levy actions), “innocent spouse” relief expansion to provide for separate liability and equitable relief; expansion of offer in compromise relief on grounds of economic hardship, equity, and public policy; protection against lifestyle and repetitive audits. Some provisions are only now being clarified, as in the Graev and Chai line of cases. Other provisions still have not been properly implemented, such as the requirement that a specific employee’s name, phone number, and unique identifying number be placed on manually-generated correspondence. Nevertheless, RRA 98 changed tax administration as we know it, and, in my opinion, moved the United States in the forefront of taxpayer protections.

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NTA: Real Vs. Unreal Audits And Why This Distinction Matters

Nina Olson, Real Vs. Unreal Tax Audits

Around five months ago, in my 2017 Annual Report to Congress, I identified IRS audit rates and the distinction between “real” and “unreal” audits, as the fourth Most Serious Problem facing taxpayers. I had previously written about this topic in my 2011 and 2016 Annual Reports to Congress, and discussed it in a blog post six years ago.

So, what’s the deal with “real vs. “unreal” audits and why should you care?  I need to first give you a little background. Under section 7602 of the Internal Revenue Code (IRC), the IRS has the authority to examine any books, papers, records, or other data that may be relevant to ascertain the correctness of any return. I call these types of examinations, which can occur through correspondence, at the taxpayer’s home or business, or at an IRS office, “real” or traditional audits.

However, “real” audits don’t quite end the story. The IRS has several other types of compliance contacts with taxpayers that it does not consider to be “real” audits. These types of contacts, which I call “unreal” audits, include math error corrections, Automated Underreporter (AUR) (a document matching program), identity and wage verification, and Automated Substitute for Return (ASFR) (a non-filer program). Why are these types of contacts, which constitute the majority of IRS compliance contacts, important?  First of all, they require taxpayers to provide documentation or information to the IRS and may feel very much like a “real” examination to taxpayers. More importantly, “unreal” audits lack taxpayer protections typically found in “real” audits, such as the opportunity to generally seek an administrative review with the IRS Office of Appeals (Appeals) or the statutory prohibition against repeat examinations. And in case you are curious, the IRS is planning for the increased use of “unreal” audits through automated means with its “Future State” Initiative.

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Taxpayer Advocate Service Survey Confirms Need To Maintain And Enhance A Robust Omni-Channel Taxpayer Service Strategy

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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Effective Use Of The Offer In Compromise (OIC) Program Will Save Valuable IRS Resources While Bringing Finality To Taxpayers

When a taxpayer can’t afford to pay a tax liability in full, Internal Revenue Code (IRC) § 7122 authorizes the IRS to accept less than the full amount due in the form of an offer in compromise (OIC). As a condition of acceptance for an OIC, the taxpayer must agree to remain compliant with his or her filing and paying requirements for the five years following the acceptance of the OIC. So, although the IRS agrees to settle a tax debt for less than the full amount due, the IRS secures future filing and payment compliance for the next five years, hopefully developing better taxpayer habits, while also collecting an amount that it is unlikely to collect otherwise. On the other hand, the taxpayer is no longer saddled with a debt that cannot be satisfied in full. Read More

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Finance On New Tax Issues You May Encounter This Tax Season

National Taxpayer Advocate Nina Olson recently spoke with Yahoo! Finance on new tax issues taxpayers may face during the filing season this year. During the brief interview, Ms. Olson highlights the scope of what the Taxpayer Advocate Service does to help taxpayers experiencing IRS tax issues find resolution. Additionally, she offers recommendations on how to navigate the tax landscape this year in order to be in compliance with the tax law.

The National Tax Advocate further warns taxpayers of newly formed tax scams and how to detect these tax thieves when contacted. The NTA concluded the interview with details on how to claim newly restored tax benefits, if eligible, recently extended by Congress for tax year 2017. Read More

Written by | Posted in IRS • National Taxpayer Advocate • Tax Season

Earned Income Tax Credit (EITC) – How A Simple Educational Letter Can Help Avert Noncompliance

Can a simple educational letter to taxpayers who appear to have erroneously claimed the earned income tax credit (EITC) actually avert future noncompliance? Based on recent TAS research studies, the answer appears to be yes.

As readers of this blog already know, the EITC is a refundable credit designed to provide financial support to low income working taxpayers, especially those with children in the household. Because it focuses on household composition, the administration of the credit is very complex. While the IRS can generally establish the age of the child from various government databases, and sometimes the parent-child relationship, it cannot easily establish other relationships nor can it independently determine with whom the child lived for over half the year, as the law requires. Read More

Written by | Posted in Earned Income Tax Credit • EITC • National Taxpayer Advocate

Nonresident Aliens Still Facing Hardships In Obtaining Refunds Of Withheld Tax

Imagine how you would feel if you were expecting your tax refund to arrive imminently, and checked the mailbox or your bank account day after day, only to be disappointed. Finally, you receive the hoped-for letter from the IRS, which you open eagerly. Disappointed to find no refund check enclosed, you read a letter that in part says, “We’re holding the portion of your refund that relates to the withholding credit you claimed…while we review it. Our review can take up to 6 months from the date we received your return or the due date of the return, whichever is later.” Read More

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The National Taxpayer Advocate “Purple Book”: A Summary Presentation Of Our Top 50 Legislative Recommendations

Last week, we issued the National Taxpayer Advocate’s annual report to Congress. As some of you probably noticed, we also issued the first-ever edition of the National Taxpayer Advocate “Purple Book.” In this week’s blog, I will explain why we developed the Purple Book and what it’s intended to accomplish.

Section 7803(c)(2)(B) of the Internal Revenue Code requires the National Taxpayer Advocate to issue an annual report to Congress that, among other things, proposes legislative recommendations to resolve systemic taxpayer problems. Read More

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Taxpayer Advocate Criticizes Hardships Faced By Nonresident Aliens Trying To Obtain Refunds Of Withheld Tax

In a scathing blog published this past week, National Taxpayer Advocate Nina Olson criticized the significant roadblocks that meet nonresident aliens (“NRAs”) trying to rightfully obtain refunds of withheld tax from the IRS. The roadblocks stem from a recent general freeze by the IRS on credits claimed on Forms 1040NR, U.S. Nonresident Alien Income Tax Return, which do not match with the information provided on Forms 1042-S filed by withholding agents.

The Taxpayer Advocate is an independent office within the IRS tasked with helping people resolve tax issues with the IRS and recommending changes that will prevent future problems. It’s always interesting to hear the point of view of the office responsible for taking the IRS to task for its missteps in handling taxpayer issues. Read More

Written by | Posted in IRS • National Taxpayer Advocate • Withheld Tax
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