NTA Blog: The IRS’s Continued Refusal to Exclude Already Open TAS Cases From the Passport Certification Program Violates Taxpayer Rights
Subscribe to the NTA’s Blog and receive updates on the latest blog posts from National Taxpayer Advocate Nina E. Olson. Additional blogs from the National Taxpayer Advocate can be found at www.taxpayeradvocate.irs.gov/blog.
In January, I wrote my third blog about the IRS’s new program to certify the seriously delinquent tax debts of taxpayers for the purposes of passport denial, limitation, or revocation. At that point, the IRS had just begun implementing the program, and I expressed serious concerns about how the IRS’s refusal to exclude taxpayers with already open TAS cases would infringe upon their rights. As of the writing of this blog, the IRS has still refused to exclude these taxpayers from certification. Today, I want to walk through what my office has been doing over the last few months to elevate this issue to the highest levels of IRS leadership and how the IRS has responded.
As background, Section 7345 of the Internal Revenue Code (IRC) authorizes (but does not require) 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. IRC § 7345(b)(2) provides exceptions for current installment agreements (IAs), offers in compromise (OICs), and Collection Due Process hearings. Because the statute provides the IRS with discretion to not certify taxpayers who meet the definition of a seriously delinquent tax debt, the IRS has created some certification exclusions, such as for taxpayers in currently not collectible (CNC) hardship status and those with pending IAs and OICs. See IRM 188.8.131.52.19.4 for a full list.
The legislative history of IRC § 7345 says that Congress intended to “permit revocation of a passport only after the IRS has followed its examination and collection procedures under current law and the taxpayer’s administrative and judicial rights have been exhausted or lapsed.” The right to receive assistance from TAS is one such administrative right, which Congress expressly provided when it codified IRC §§ 7803(c)(A)(i) and 7811. Certifying taxpayers who have already come to TAS before certification and are actively working to resolve their tax liabilities will harm taxpayers who are voluntarily trying to come into compliance. Yet, one of the primary goals of the passport statute is to encourage taxpayer compliance. A Senate report states: “The Committee believes that tax compliance will increase if issuance of a passport is linked to payment of one’s tax debts.”
On Jan. 16, 2018, one week prior to implementation of the passport program, I issued almost 800 Taxpayer Assistance Orders (TAOs) ordering the IRS not to certify taxpayers whom my office identified as eligible for passport certification and who had an open TAS case. The Small Business/Self-Employed (SB/SE) Operating Division Commissioner appealed these TAOs, and so I sustained the TAOs to the Deputy Commissioner for Services and Enforcement. Although the Deputy Commissioner agreed to exclude the taxpayers who were the subjects of the TAOs, she indicated that the exclusion of already open TAS cases would not apply prospectively to any new TAS cases – that is, any taxpayers who opened a case with TAS after Jan. 22 but before they were certified would be certified if they met the definition of a seriously delinquent tax debt and did not qualify for another exclusion.
On April 6, I issued a Taxpayer Advocate Directive (TAD), which ordered the IRS to exclude TAS cases that were already open prior to certification and continue to exclude them while they remained open. TAOs and TADs have some key differences. IRC § 7811(a) provides the authority to issue a TAO requesting action with respect to a single taxpayer who is suffering or is about to suffer a significant hardship. The National Taxpayer Advocate can delegate the authority to issue a TAO, which she has done to certain TAS employees, including Local Taxpayer Advocates. Only the National Taxpayer Advocate, the Commissioner of Internal Revenue, or the Deputy Commissioner of Internal Revenue may rescind or modify a TAO that the National Taxpayer Advocate issues. TADs have a slightly different function. TADs mandate that functional areas of the IRS make certain administrative or procedural changes to improve a process or grant relief to groups of taxpayers, or even all taxpayers. Bases for granting relief include: protecting the rights of taxpayers, ensuring equitable treatment, and providing an essential service to taxpayers. Currently, the authority for issuing TADs is not derived from statute and is provided by Delegation Order 13-3. The authority to issue a TAD is granted solely to the National Taxpayer Advocate and cannot be redelegated. A TAD may only be appealed to the Deputy Commissioner for Services and Enforcement. For a discussion of why Congress should codify the TAD process, see my legislative recommendation included in the 2018 Purple Book.
On April 17, the SB/SE Commissioner responded to my TAD, disagreeing with and appealing all requested actions within the TAD. The response stated: “Categorically excluding all open TAS cases from certification would result in the inconsistent application of the law to similarly situated taxpayers.” The IRS’s response also asserted that the purpose of the statute would be defeated if a taxpayer was excluded while working with TAS, but did not ultimately come into compliance.
I elevated the TAD to the Deputy Commissioner for Services and Enforcement, reiterating my reasons for excluding already open TAS cases and responding to each of the arguments raised by the SB/SE Commissioner. Specifically, TAS taxpayers are not similarly situated as other taxpayers because by law, they must be experiencing or be about to experience a “significant hardship” as a result of IRS actions or inaction and thus should be treated differently. The IRS’s policy of excluding taxpayers who are working to come into compliance by submitting a pending offer in compromise or installment agreement, but not excluding taxpayers actively working with TAS to try to resolve their liabilities, results in the inconsistent treatment of taxpayers. The IRS’s refusal to exclude already open TAS cases violates the taxpayer’s right to a fair and just tax system, which states “[t]axpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS’s has not resolved their tax issues properly and timely through its normal channels.” Additionally, the IRS will create rework for itself because it will unnecessarily certify and then have to decertify taxpayers.
On May 17, the Deputy Commissioner rescinded the TAD in its entirety. Each of these documents will be published in the appendix to my forthcoming FY 2019 Objectives Report to Congress that will be published at the end of June. I also plan to raise the issue and bring the TADs to the attention of the Acting Commissioner of Internal Revenue, requesting that he reconsider the IRS’s decision not to exclude already open TAS cases.
In late April, I also issued an Interim Guidance Memorandum (IGM) to all my employees, instructing Local Taxpayer Advocates (LTAs) to issue TAOs ordering the IRS to exclude from certification all taxpayers they identify as eligible for certification who do not meet another exclusion, and who have an open TAS case at the time of certification. Additionally, the IGM instructs LTAs to issue TAOs for taxpayers who were certified prior to coming to TAS and who will meet an exclusion as a result of TAS’s assistance. These TAOs will order the IRS to take timely actions that will result in the taxpayer meeting a criterion for decertification. I am also instructing the LTAs to issue TAOs ordering expedited decertification where the taxpayer qualifies for decertification, has an urgent need for a passport, and meets the expedited criteria set out in the IRM.
In my next blog on passport issues, to be posted in June after we publish the Objectives Report to Congress, I’ll share some data regarding passport cases, including TAS cases, and provide an update on TAS’s ongoing advocacy for these taxpayers.
The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate is appointed by the Secretary of the Treasury and reports to the Commissioner of Internal Revenue. However, the National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.