National Taxpayer Advocate Releases Annual Report to Congress Addressing Impact of Shutdown, Urging for Multi-Year Funding for IT Modernization and Improving Taxpayer Service

February 12, 2019

National Taxpayer Advocate Nina E. Olson releases her 2018 Annual Report to Congress, describing challenges the IRS is facing as a result of the recent government shutdown and recommending that Congress provide the IRS with additional multi-year funding to replace its core 1960s-era information technology (IT) systems. Ms. Olson notes IT funding as her top legislative recommendation. The resource-challenged IRS quickly opened the 2019 tax filing season following the 35-day government shutdown. The National Taxpayer Advocate's report voices the impact to taxpayers resulting from the record long closure, the decline of available tax law resources due to budget cuts, while simultaneously focusing on areas where IRS customer service and taxpayer compliance can improve with existing resources. “Providing taxpayers with timely and accurate answers to their tax-law questions is a core IRS function.” writes Ms. Olson. Throughout the report she makes known her proposals to Congress where action is necessary to enhance these efforts.

The Preface of the report emphasizes fundamental matters from the Advocate’s perspective. Here she expresses concerns over modernizing the interpretation of the Anti-Deficiency Act and its shortcomings, which can have an impact on taxpayers during a government shutdown. The strict interpretation of the Anti-Deficiency Act limits the ability for taxpayers to receive the tax help they need, specifically when an economic hardship happens at a time while government operations pause due to a shutdown. Taxpayers’ inability to reach an IRS assistor or receive assistance from the Taxpayer Advocate Service during a government shutdown translates into taxpayers experiencing real harm. In her report, Ms. Olson says “The IRS’s authority to collect revenue is not unconditional. It is conditioned on statutory protections, and a lapse in appropriations does not eliminate those protections.” The report recommends amendment of the Act to ensure taxpayer protections and rights enacted by Congress remain available when the IRS takes enforcement action against a taxpayer during a shutdown or has taken enforcement action just prior to a shutdown.

The National Taxpayer Advocate’s report unveils the top 20 Most Serious Problems taxpayers face when dealing with the IRS, ranking the IRS’s Failure to Answer the Right Tax Law Questions at the Right Time as number one this year, among Navigating the IRS, Free File, False Positive Rates, Improper Earned Income Tax Credit Payments, Economic Hardship, Examination, and the Collection process to name just a few. The Most Serious Problems section also features a new component this year, titled “The Taxpayers Journey.” The visual roadmap follows a taxpayer’s interactions sequentially through a complex tax system from start to finish. “The Taxpayer Journey” illustrates several issues, including the ability of taxpayers to obtain answers to tax-law questions, return filing, audits, collection actions, and Tax Court litigation.

Ms. Olson also presents the second edition of a report that presents 58 legislative recommendations designed to strengthen taxpayer rights and improve tax administration, “The 2019 Purple Book.”

The National Taxpayer Advocate’s “2019 Purple Book” further examines strengthening overall taxpayer rights, improvement of the tax filing process, improvement of assessment and collection procedures, reformation of penalty and interest provisions, strengthening taxpayer’s appeal rights, enhancement of confidentiality and disclosure protections, strengthening the Office of The Taxpayer Advocate, strengthening taxpayer rights in judicial proceedings, along with several other recommendations of improving the taxpayer experience.

In Volume 2 of the 2018 Annual Report to Congress, the National Taxpayer Advocate highlights TAS Research and Related Studies, examining current tax trends and exploration of modern-day data and concepts, shaping influence towards a progressive approach of tax administration.

Volume 2 of the report includes research studies evaluating: (1) the potential for a Pay-As-You-Earn (PAYE) withholding system to simplify and improve U.S. tax administration; (2) an assessment of how the IRS uses its Allowable Living Expense standards when determining a taxpayer’s ability to pay; (3) an analysis of how taxpayers respond to the penalty for substantial understatement of tax; (4) an analysis of the impact IRS audits have on taxpayer attitudes and perceptions, as reflected in a national survey; (5) an assessment of the IRS’s offer-in-compromise program for business taxpayers; and (6) a further analysis of the effectiveness of notices of federal tax lien and alternative IRS letters on individual tax debt resolution.

The full National Taxpayer Advocate report also provides recommendations for administrative change, including ten recommendations for legislative change, analysis of the ten tax issues most frequently litigated in the federal courts, and presents six research studies and one literature review. Read the Preface, the 2019 Purple Book, the Taxpayer's Journey Road Map and the full 2018 Report to Congress for the complete analysis.

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