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Full Report

The Annual Report to Congress creates a dialogue at the highest levels of government to address taxpayers’ problems, protect taxpayers’ rights, and ease taxpayers’ burden.

The report identifies at least 20 of the most serious problems facing taxpayers and offers recommendations to fix them. Some of the issues, like tax reform and IRS’s need to expand its various taxpayer services, affect virtually every American taxpayer. Others, like the Alternative Minimum Tax, refund delays, and tax-related identity theft, impact large groups of taxpayers.

The Taxpayer Advocate Service (TAS), led by the National Taxpayer Advocate, is your voice at the IRS. Some of the problems discussed in this report were first identified when taxpayers came to TAS for help in resolving problems with the IRS.

TAS is an independent organization within the IRS. The National Taxpayer Advocate delivers this report directly to the tax-writing committees in Congress (the House Committee on Ways and Means and the Senate Committee on Finance), with no prior review by the IRS Commissioner, the Secretary of the Treasury, or the Office of Management and Budget.

See the links below for specific sections of the report.

VOLUME ONE

Introduction

The Right to Quality Service

    1. TAXPAYER SERVICE: Taxpayer Service Has Reached Unacceptably Low Levels and Is Getting Worse, Creating Compliance Barriers and Significant Inconvenience for Millions of Taxpayers
    2. TAXPAYER SERVICE: Due to the Delayed Completion of the Service Priorities Initiative, the IRS Currently Lacks a Clear Rationale for Taxpayer Service Budgetary Allocation Decision
    3. IRS LOCAL PRESENCE: The Lack of a Cross-Functional Geographic Footprint Impedes the IRS’s Ability to Improve Voluntary Compliance and Effectively Address Noncompliance
    4. APPEALS: The IRS Lacks a Permanent Appeals Presence in 12 States and Puerto Rico, Thereby Making It Difficult for Some Taxpayers to Obtain Timely and Equitable Face-to-Face Hearings with an Appeals Officer or Settlement Officer in Each State
    5. VITA/TCE FUNDING: Volunteer Tax Assistance Programs Are Too Restrictive and the Design Grant Structure Is Not Adequately Based on Specific Needs of Served Taxpayer Populations

The Right to a Fair and Just Tax System: Complexity

    1. HEALTH CARE IMPLEMENTATION: Implementation of the Affordable Care Act May Unnecessarily Burden Taxpayers
    2. OFFSHORE VOLUNTARY DISCLOSURE (OVD): The OVD Programs Initially Undermined the Law and Still Violate Taxpayer Rights
    3. PENALTY STUDIES: The IRS Does Not Ensure Penalties Promote Voluntary Compliance, as Recommended by Congress and Others
    4. COMPLEXITY: The IRS Does Not Report on Tax Complexity as Required by Law
    5. COMPLEXITY: The IRS Has No Process to Ensure Front-Line Technical Experts Discuss Legislation with the Tax Writing Committees, as Requested by Congress
    6. WORKLOAD SELECTION: The IRS Does Not Sufficiently Incorporate the Findings of Applied and Behavioral Research into Audit Selection Processes as Part of an Overall Compliance Strategy

The Right to Be Informed: Access to the IRS

    1. ACCESS TO THE IRS: Taxpayers Are Unable to Navigate the IRS and Reach the Right Person to Resolve Their Tax Issues
    2. CORRESPONDENCE EXAMINATION: The IRS Has Overlooked the Congressional Mandate to Assign a Specific Employee to Correspondence Examination Cases, Thereby Harming Taxpayers
    3. AUDIT NOTICES: The IRS’s Failure to Include Employee Contact Information on Audit Notices Impedes Case Resolution and Erodes Employee Accountability
    4. VIRTUAL SERVICE DELIVERY: Despite a Congressional Directive, the IRS Has Not Maximized the Appropriate Use of Videoconferencing and Similar Technologies to Enhance Taxpayer Services

The Right to Be Informed: Adequate Explanations

    1. MATH ERROR NOTICES: The IRS Does Not Clearly Explain Math Error Adjustments, Making it Difficult for Taxpayers to Understand and Exercise Their Rights
    2. NOTICES: Refund Disallowance Notices Do Not Provide Adequate Explanations

The Rights to Privacy and to a Fair and Just Tax System

    1. COLLECTION DUE PROCESS: The IRS Needs Specific Procedures for Performing the Collection Due Process Balancing Test to Enhance Taxpayer Protections
    2. FEDERAL PAYMENT LEVY PROGRAM: Despite Some Planned Improvements, Taxpayers Experiencing Economic Hardship Continue to Be Harmed by the Federal Payment Levy Program
    3. OFFERS IN COMPROMISE: Despite Congressional Actions, the IRS Has Failed to Realize the Potential of Offers in Compromise
    4. OFFERS IN COMPROMISE: The IRS Does Not Comply with the Law Regarding Victims of Payroll Service Provider Failure
    5. MANAGERIAL APPROVAL FOR LIENS: The IRS’s Administrative Approval Process for Notices of Federal Tax Lien Circumvents Key Taxpayer Protections in RRA 98
    6. STATUTORY NOTICES OF DEFICIENCY: Statutory Notices of Deficiency Do Not Include Local Taxpayer Advocate Office Contact Information on the Face of the Notices

Introduction

National Taxpayer Advocate Legislative Recommendations with Congressional Action

Taxpayer Bill of Rights

    1. TAXPAYER RIGHTS: Codify the Taxpayer Bill of Rights and Enact Legislation that Provides Specific Taxpayer Protections 

The Right to Quality Service

    1. ACCESS TO APPEALS: Require that Appeals Have At Least One Appeals Officer and Settlement Officer Located and Permanently Available within Every State, the District of Columbia, and Puerto Rico
    2. RETURN PREPARATION: Require the IRS to Provide Return Preparation to Taxpayers in Taxpayer Assistance Centers and Via Virtual Service Delivery
    3. VIRTUAL SERVICE DELIVERY (VSD): Establish Targets and Deadlines for the Development and Implementation of VSD in Brick & Mortar Locations, in Mobile Tax Assistance Units, and Over the Internet

The Right to a Fair and Just Tax System: Complexity

    1. SECTION 501(c)(4) POLITICAL CAMPAIGN ACTIVITY: Enact an Optional “Safe Harbor” Election That Would Allow IRC § 501(c)(4) Organizations to Ensure They Do Not Engage in Excessive Political Campaign Activity
    2. FOREIGN ACCOUNT REPORTING: Legislative Recommendations to Reduce the Burden of Filing a Report of Foreign Bank and Financial Accounts (FBAR) and Improve the Civil Penalty Structure
      • PENALTIES: Improve the Proportionality of the Civil FBAR Penalty
      • PENALTIES: Require the Government to Prove Actual Willfulness Before Imposing the Penalty for Willful FBAR Violations
      • CLOSING AGREEMENTS: Authorize the IRS to Modify Closing Agreements to Treat Taxpayers Who Correct Violations Early the Same As (or Better Than) Those Who Correct Them Later
      • FBAR FORMS: Reduce the Burden of Foreign Account Reporting
    1. FILING STATUS: Clarify the Definition of “Separate Return” in IRC § 6013 and Allow Taxpayers Who Petition the Tax Court to Change Their Filing Status to Married Filing Jointly in Accordance with the Tax Court’s Rules of Practice and Procedure
    2. ERRONEOUS REFUND PENALTY: Amend Section 6676 to Permit “Reasonable Cause” Relief

The Right to Be Informed: Access to the IRS

    1. ACCESS TO THE IRS: Require the IRS to Publish a Public Phone Directory and Report on Implementing an Operator System Similar to “311” Lines
    2. IRS CORRESPONDENCE: Codify § 3705(a)(1) of RRA 98, Define “Manually Generated,” and Require Contact Information on Certain Notices in All Cases

The Right to Be Informed: Adequate Explanation

    1. ANNUAL NOTICES: Require the IRS to Provide More Detailed Information on Certain Annual Notices it Sends to Taxpayers

The Rights to Appeal and to Challenge the IRS’s Position and Be Heard

    1. EO JUDICIAL AND ADMINISTRATIVE REVIEW: Allow IRC § 501(C)(4),(C)(5), or (C)(6) Organizations to Seek a Declaratory Judgment to Resolve Disputes About Exempt Status and Require the IRS to Provide Administrative Review of Automatic Revocations of Exempt Status
    2. STANDARD OF REVIEW: Amend IRC § 6330(d) to Provide for a De Novo Standard of Review of Whether the Collection Statute Expiration Date Is Properly Calculated by the IRS
    3. APPELLATE VENUE IN NON-LIABILITY CDP CASES: Amend IRC § 7482 to Provide That the Proper Venue to Seek Review of a Tax Court Decision in Collection Due Process Cases Lies with the Federal Court of Appeals for the Circuit in Which the Taxpayer Resides

The Rights to Privacy and to a Fair and Just Tax System

    1. OFFERS IN COMPROMISE: Authorize the National Taxpayer Advocate to Determine Whether an Offer in Compromise Submitted by a Victim of Payroll Service Provider Fraud Is “Fair and Equitable”
    2. MANAGERIAL APPROVAL FOR LIENS: Require Managerial Approval Prior to Filing a Notice of Federal Tax Lien in Certain Situations
    3. MANAGERIAL APPROVAL: Amend IRC § 6751(b) to Require IRS Employees to Seek Managerial Approval Before Assessing the Accuracy Related Penalty Attributable to Negligence under IRC § 6662(b)(1)
    4. CONTACT INFORMATION ON STATUTORY NOTICES OF DEFICIENCY: Revise IRC § 6212 to Require the IRS to Place Taxpayer Advocate Service Contact Information on the Face of the Statutory Notice of Deficiency and Include Low Income Taxpayer Clinic Information with Notices Impacting that Population
    5. LATE-FILED RETURNS: Clarify the Bankruptcy Law Relating to Obtaining a Discharge

Introduction

Significant Cases

    1. Accuracy-Related Penalty Under IRC § 6662(b)(1), (2), and (3)
    2. Trade or Business Expenses Under IRC § 162 and Related Sections
    3. Summons Enforcement Under IRC §§ 7602, 7604, and 7609
    4. Gross Income Under IRC § 61 and Related Sections
    5. Appeals From Collection Due Process Hearings Under IRC §§ 6320 and 6330
    6. Failure to File Penalty Under IRC § 6651(a)(1), Failure to Pay Amount Shown as Tax on a Return Under IRC § 6651(a)(2), and Failure to Pay Estimated Tax Penalty Under IRC § 6654
    7. Civil Actions to Enforce Federal Tax Liens or to Subject Property to Payment of Tax Under IRC § 7403
    8. Frivolous Issues Penalty Under IRC § 6673 and Related Appellate-Level Sanctions
    9. Charitable Deductions Under IRC § 170 513
    10. Passive Activity Losses (PAL) Under IRC § 469

Volume Two: TAS Research and Related Studies

    1. Low Income Taxpayer Clinic Program: A Look at Those Eligible to Seek Help from the Clinics
    2. Estimating the Impact of Audits on the Subsequent Reporting Compliance of Small Business Taxpayers: Preliminary Results
    3. Identity Theft Case Review Report: A Statistical Analysis of Identity Theft Cases Closed in June 2014