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Recent Coverage

Recommendations to Congress

The Annual Report to Congress includes recommendations for new federal tax laws or changes to current ones.

The National Taxpayer Advocate (NTA) places a high priority on working with the tax-writing committees in Congress. In addition to submitting legislative proposals in each Annual Report, the NTA meets regularly with members of Congress and their staffs, and testifies at hearings on the problems faced by taxpayers to give Congress an opportunity to receive and consider the taxpayer’s perspective.

Report Features:

Codify the Taxpayer Bill of Rights

The IRS does not appear to have responded directly to its Congressional mandate to ensure that an Appeals Officer is regularly available in every state, as twelve states have no permanent Appeals presence. The IRS contends it can provide convenient access to Appeals through circuit riding, but these cases often take at least 6 months longer to resolve than cases in permanent field offices. 

This situation violates the right to appeal an IRS decision in an independent forum, the right to quality service, the right to challenge the IRS’s position and be heard, and the right to a fair and just tax system. The National Taxpayer Advocate recommends Congress require Appeals to have at least one Appeals Officer and Settlement Officer located and permanently available in every state, the District of Columbia, and Puerto Rico.

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The IRS has eliminated tax return preparation service at Taxpayer Assistance Centers (TACs) and directs low income, disabled, and elderly taxpayers to Free File software or volunteer preparation sites. By ending free return preparation, the IRS has made it more difficult for taxpayers to find this important service. This may cause taxpayers to not file at all, which decreases filing compliance, or to seek assistance from paid preparers that imposes new burdens, including transportation costs and preparers’ fees. 

Failing to offer return preparation by IRS employees undermines the right to quality service. The National Taxpayer Advocate recommends that Congress require the IRS to provide return preparation for low income, disabled, and elderly taxpayers in TACs and by virtual service, and provide sufficient funding for return preparation in TACs.

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Video conferencing and virtual service delivery (VSD) are indispensable means of facilitating important taxpayer rights. Without access to VSD, taxpayers in remote areas have limited options for face-to-face interactions with IRS employees. However, despite the directives of Congress and the successes of other agencies, the IRS is still operating as a 20th century business, primarily relying on mail, phone conversations, and taxpayer visits to brick and mortar locations. The IRS has generally not moved beyond the pilot phase of VSD, while its taxpayer digital communications (TDC) initiative remains in conceptual stages. 

The National Taxpayer Advocate recommends that Congress pass legislation to establish targets and timelines for VSD, and provide funding, or require the IRS to allocate funding, to continue implementing VSD in brick and mortar locations, in mobile units, and over the Internet.

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Organizations exempt from tax under IRC § 501(c)(4) may engage in political campaign activity, but only if they are “primarily engaged in promoting in some way the common good and general welfare of the people of the community.” Statutes and regulations do not quantify “primarily,” nor is there a “safe harbor” for determining whether political activities fall within limits. Under the Taxpayer Bill of Rights, taxpayers have the right to be informed, i.e., to know what they need to do to comply with the tax laws. 

The National Taxpayer Advocate recommends Congress enact an optional “safe harbor” election that would allow 501(c)(4) organizations to use a numerical test, based solely on their expenditures, to determine how much political activity they can undertake without jeopardizing their exempt status.

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A U.S. citizen or resident with foreign accounts exceeding $10,000 can be subject to disproportionate civil penalties for failure to report the accounts on a Report of Foreign Bank and Financial Accounts (FBAR) by June 30 of the following year. Although the penalty was aimed at bad actors, benign actors who inadvertently failed to file an FBAR fear being penalized for willful violations because the government may rely on circumstantial evidence. 

The National Taxpayer Advocate has offered proposals to improve the proportionality of the civil FBAR penalty, require the government to prove actual willfulness, treat taxpayers who correct violations early the same as (or better than) those who correct them later, and reduce the burden of foreign account reporting.

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Many small businesses outsource payroll and related tax duties to third-party payroll service providers. If a provider embezzles funds it should have paid to the IRS, the business owner remains responsible for unpaid tax, interest, and penalties. The IRS has authority to accept these taxpayers’ offers to compromise their tax debts for less than the full amount under certain conditions, including whether the offer will be seen within the community as a “fair and equitable solution.”

However, in two other areas of the Internal Revenue Code, Congress has explicitly designated the National Taxpayer Advocate as the one to decide if an action is in the best interest of the taxpayer, and should authorize the National Taxpayer Advocate to make such determinations in payroll service provider fraud cases.

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In the IRS Restructuring and Reform Act of 1998, Congress required the IRS to adopt procedures in which an employee’s decision to file a Notice of Federal Tax Lien (NTFL) would, “where appropriate,” be approved by a supervisor. However, the IRS has deemed it is rarely “appropriate” to require such approval. The IRS has actually eased the requirements by granting lower-graded employees the authority to file NFTLs without managerial review – and requires employees to obtain their managers’ approval if they determine not to file an NFTL in certain cases. 

The National Taxpayer Advocate recommends that Congress require IRS employees to obtain managerial approval prior to filing an NFTL where the lien is likely to cause a hardship, will do little to protect the government’s interest, or will impair the taxpayer’s ability to pay the tax.

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The IRS Restructuring and Reform Act of 1998 provides that statutory notices of deficiency sent to taxpayers shall include the taxpayer’s right to contact a local Taxpayer Advocate office, along with the office location and phone number. However, a TAS review found most of these notices do not include the local contact information on the face of the notices. 

To be sure the IRS adequately informs taxpayers of their right to contact TAS at a critical point in the a controversy, the National Taxpayer Advocate believes the IRS should place TAS contact information on the face of the notice rather than include it as an insert. For notices that are likely to impact the low income taxpayers, the IRS should also provide Low Income Taxpayer Clinic contact information on the face of the notice.

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