NTA Blog: National Taxpayer Advocate Releases Annual Report to Congress, Discusses Tax Reform Implementation and Unveils “Purple Book”

January 10, 2018

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Today, the National Taxpayer Advocate’s 2017 Annual Report to Congress is public!  The report is a year-round endeavor of my office, and this year it clocks in with three volumes of over 900 pages total.  The Report’s size and comprehensiveness are in many ways dictated by the statute that requires the National Taxpayer Advocate to prepare this report.  Internal Revenue Code § 7803(c)(2)(B)(ii) requires the National Taxpayer Advocate to identify at least 20 of the most serious problems encountered by taxpayers and to make administrative and legislative recommendations to mitigate those problems, as well as discussing the 10 most litigated issues.

In Volume 1 of this year’s report, we have identified 21 Most Serious Problems, made 11 Legislative Recommendations, and discussed the 10 Most Litigated Issues, along with significant stand-alone decisions.  Volume 2 includes seven research studies and two Literature Reviews.  And then there is the National Taxpayer Advocate’s “Purple Book” – so named because we are a non-partisan office and purple is a blend of red and blue (and my favorite color).  The Purple Book is a compendium of 50 legislative recommendations for strengthening taxpayer rights and improving tax administration that we and others have made over the years.  Since the House Ways and Means Committee has expressed interest in passing IRS reform legislation, we thought this compilation might be helpful.

Because this Report was almost complete by the time Congress passed tax reform, I did not identify the IRS’s ability to implement this legislation as a Most Serious Problem.  But as I discuss in my Preface to the Annual Report, it is clear the IRS will face significant challenges.  Even before tax reform was enacted, the IRS projected that during the 2018 filing season, it would only answer 60 percent of the calls from taxpayers seeking a live assistor, and for the full Fiscal Year 2018, it would answer less than 40 percent of those calls.  When the Tax Reform Act of 1986 was enacted, the IRS call volume went up by 14 percent.  And when the 2008 Economic Stimulus Payment was enacted, the Accounts Management phone lines experienced a 125 percent increase in calls between FY 2007 and FY 2008 – an additional 85 million calls in one year!

A big-picture preliminary IRS estimate from earlier this year says it will take about $495 million in additional funding over the next two years to do the requisite programming and systems update, updating and creating forms and publications, issuing regulations and other guidance and training employees.  It has identified 131 filing season systems that are impacted by the new law.  The Information Technology challenges alone are daunting, and folks need to start work on them now in order to be ready for the 2019 filing season.

In my Preface, I describe how the “Present State” of the IRS creates challenges for tax reform implementation.  For example, over the last few years, the IRS made some penny-wise, pound-foolish decisions about taxpayer service offerings that now will come back to haunt it (yes, I am mixing metaphors, but you get my meaning).  Since 2014, the IRS only answers “basic” tax law questions on the phone and in the Taxpayer Assistance Centers, and it discontinues that service each year after the last day of the filing season, which this year is April 17th.

Think about it.  Taxpayers will most likely wonder about how tax reform will affect them for 2018 after they have completed their 2017 tax returns.  It would be only natural for them to call the IRS to see if certain provisions they have benefitted from on their 2017 returns will be available in 2018.  But as it stands now, if they call on April 18th, they will get a recording directing them to the irs.gov website.  Leaving aside that a taxpayer will have to search through almost 140,000 webpages, a TAS research study we include in Volume 2 found that there are 41 million taxpayers who do not have broadband access in their homes, and 14 million that don’t have any internet access in their homes.  Try searching almost 140,000 pages on your mobile device while sitting in a café or library with wifi.

And then there is the depletion of the Taxpayer Education and Outreach functions of the IRS, who should be out and about meeting with as many grassroot groups as possible, not only explaining to taxpayers key provisions of the law, but also hearing from taxpayers what they are concerned or confused about.  As I show in a chart in the Preface, the workforce for Stakeholder Liaison and Stakeholder, Partnership, Education, and Communications (SPEC) has declined by 35 percent since FY 2011.  Today there are only about 400 employees whose job it is to educate the almost 150 million individual and self-employed taxpayers.

Finally, as we discuss in the Most Serious Problem on IRS Training, there is the heavy lift for the IRS of training its own employees.  Yet training expenditures have declined by 75 percent since FY 2009.  Today, the IRS spends only $489 per employee on training, down from $1,450 in FY 2009.  The Wage & Investment Operating Division, whose employees answer the phones, help taxpayers in the TACs, and conduct outreach and education to individual taxpayers, spends only $87 per employee for training.  Obviously, it will require much more in the way of resources to get IRS employees up to speed on provisions of the new law that affect virtually every U.S. taxpayer, whether individual or business, domestic or international.

This is just a fraction of the issues we discuss in this year’s Report.  Here’s how I suggest you approach the Report.  Read the Preface, and then peruse the Table of Contents.  If you find something that piques your interest, take a look at the Executive Summary write-up, and if it is something you want to delve more deeply into, go the full Most Serious Problem discussion.  Please don’t overlook the Legislative Recommendations, Most Litigated Issues, Research Studies, and Literature Reviews. 

There is a lot of good information throughout this Report, but it is a bit overwhelming.  (I have personal knowledge of this fact – I’ve read and edited each page at least 4 times.)  To assist readers going forward, over the next several months we will discuss different parts of the Report in the NTA Blog.  So, stay tuned!

And, Happy New Year!