Each year, I submit the National Taxpayer Advocate Annual Report to Congress with recommendations for administrative actions the IRS can take to resolve the most serious problems encountered by taxpayers. The IRS is statutorily required to respond to our recommendations, and while most of its responses are good, some are bad, and some concerning. Of the 78 recommendations I made in the 2023 Annual Report to Congress, the IRS adopted 63 in full or in part. I am very appreciative of the IRS’s efforts to incorporate TAS’s recommendations on behalf of taxpayers.
In its responses to the recommendations, the IRS has outlined several exciting, anticipated technology, policy, and procedural improvements that should lead to a better taxpayer experience and the protection of important taxpayer rights. In this blog, I will highlight some of these positive IRS responses. Then, in two upcoming blogs, I will highlight several instances where the IRS’s responses to our recommendations were bad, and in the case of recommendations focusing on the experience of international taxpayers, concerning.
First-Time Abatement
TAS Recommendation: Program information technology systems to systemically apply first-time abatement (FTA) to all eligible taxpayers beginning in Filing Season 2024 while also providing taxpayers the ability to substitute a reasonable cause defense when substantiated by the taxpayer.
IRS Response: “We are actively working to program our information technology systems to systematically apply FTA to all eligible taxpayers by January 1, 2026, in time for filing season 2026…. The IRS is also developing the process by which taxpayers will be able to change FTA to reasonable cause when reasonable cause criteria are met.”
FTA is a little known administrative relief option available for over a million taxpayers in 2022, but it is disproportionately applied for “those in the know.” The IRS should automatically apply the administrative penalty waiver to all eligible taxpayers because doing so reduces taxpayer burden and expense, ensures fairness for taxpayers and small businesses unaware of the benefit, and improves efficiency for the IRS. Although the IRS has not committed to complete this project in Filing Season 2024 as TAS recommended, it is making progress toward automating FTA by Filing Season 2026; we encourage the IRS to try to update its systems for Filing Season 2025. Providing the ability to substitute reasonable cause defense for FTA at the same time as automating FTA will ensure taxpayer fairness by not forcing taxpayers to use their once-in-three-years FTA waiver when the reasonable cause defense applies.
Online Accounts
TAS Recommendation: Add increased capabilities and functionality to individual online accounts (IOLAs), including the ability to track submissions through the entire process, submit offers in compromise online, and calculate payoffs for any balances due, to provide individuals with robust self-service options available at the convenience of the taxpayer.
IRS Response: “While we do not yet have the functionality to allow users to track submissions through the entire process as recommended, we are tentatively planning to develop and deploy numerous IOLA enhancements to support transparency. These include the ability to view one’s audit status (May 2024), refund tracking (June 2024), Amended Return tracking (September 2024), and Status Tracking Notifications (December 2024). In addition, we are planning to develop and deploy IOLA functionality allowing taxpayers to submit an Offer in Compromise (OIC) online. Using an incremental approach, we plan to incorporate an OIC Eligibility check (August 2024), add OIC related payment options (September 2024), and provide OIC Pre-Qualifier and OIC Submission tools (November 2024)…. [T]he introduction of a Lien Payoff calculator in IOLA (June 2024), will further expand our ability to provide customers with current and accurate payoff balances.”
Bringing the IRS into the 21st century by expanding digital functionality is necessary to improve the taxpayer experience and raise taxpayers’ overall satisfaction and trust in the IRS. Therefore, it is a positive development that the IRS is working toward expanding the capabilities and functionalities available within IOLAs. Providing additional features within IOLAs will improve the taxpayer experience, expedite self-service issue resolution, and preserve in-person and telephone assistance options for taxpayers who prefer or require live assistance. I am also eager to see the IRS build increased functionality for business and Tax Pro online accounts. Providing taxpayers and practitioners with robust online service options is key to building better service and transparency with the goal of increasing compliance and freeing up resources to assist taxpayers who need in-person or telephone assistance.
International and Overseas Taxpayer Issues
TAS Recommendation: Revise Notice 97-34 or issue guidance to make the administrative $100,000 threshold subject to the same inflation adjustments as the $10,000 threshold set forth in IRC § 6039F.
IRS Response: “The IRS, with IRS Chief Counsel and the Department of Treasury, agree with the TAS recommendation and are working on proposed regulations under IRC section 6039F (REG-124850-08 and RIN 1545-BI04), which, when finalized, will fully implement the recommendation. The NPRM is anticipated to be published by end of 2024.”
Making the large gifts from foreign persons administrative threshold in Notice 97-34 subject to the same inflation adjustments as the $10,000 threshold set forth in IRC § 6039F will alleviate the disparity between the penalties and ensure taxpayer fairness.
TAS Recommendation: Provide a toll-free international telephone line or alternative free service dedicated solely to taxpayers abroad.
IRS Response: “We agree to explore the feasibility of adding chatbot and live chat services dedicated to issues unique to international taxpayers and provide an update by September 30, 2024. The update will include a plan of implementing feasible options…. The IRS has established interactive chatbot services that provide procedural and tax law assistance. While the IRS does not currently have chatbot or live chat services dedicated to issues unique for international taxpayers, the IRS agrees to explore the feasibility of adding these services as an alternate form of assistance.”
TAS is pleased that the IRS is willing to look for ways to improve the customer experience for the millions of U.S. taxpayers abroad. Taxpayers abroad face vast difficulties in complying with their U.S. tax obligations, and ensuring that this population has access to direct communication with the IRS is essential for supporting their unique needs and lessening their compliance challenges.
Conclusion
I encourage you to review all of the IRS responses. I am pleased to highlight these examples where the IRS has adopted our recommendations made in the 2023 National Taxpayer Advocate’s Annual Report to Congress, as they will lead to a better taxpayer experience and the protection of important taxpayer rights. However, not all the IRS’s responses bode well for taxpayers. Now that we have highlighted the good, stay tuned to talk about the bad and the concerning.
Resources
The views expressed in this blog are solely those of the National Taxpayer Advocate. 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.