TAS and the IRS’s Wage & Investment Division (W&I) are developing a new methodology that will enable the IRS to allocate its limited resources in a way that optimizes taxpayer services. The IRS’s rationale for cutting these services in response to budget reductions has been questioned by the GAO and the Treasury inspector general. However, a lack of data has delayed the new methodology, and it is unclear if the IRS will devote sufficient resources to finish it.

The National Taxpayer Advocate urges W&I to work with TAS to complete the research and data collection necessary to make this tool effective as quickly as possible, and help the IRS deliver the world-class taxpayer service that taxpayers deserve.

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In the IRS Restructuring and Reform Act of 1998, Congress required the IRS to ensure that an Appeals Officer is regularly available within each state. The IRS relies on “circuit riding” to provide Appeals Officers and Settlement Officers to states lacking a permanent Appeals presence. However, circuit riding Appeals cases consistently take longer to resolve than face-to-face Appeals cases conducted in permanent field offices. These cases have significantly lower agreement rates, substantially higher levels of disagreement, and are more likely to yield dissatisfied taxpayers.

The National Taxpayer Advocate recommends that the IRS expand Appeals duty locations in a way that ensures that at least one Appeals Officer and one Settlement Officer are permanently stationed within every state, the District of Columbia, and Puerto Rico.

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In January 2014, the IRS stopped providing free tax return preparation service at its local Taxpayer Assistance Centers and directed taxpayers to Free File software or Volunteer Income Tax Assistance and Tax Counseling for the Elderly (VITA or TCE) sites. However, these volunteer programs may be unable to meet the needs of rural, elderly, disabled, English as a second language (ESL), American Indian, and low income taxpayers — as well as those whose questions the IRS considers “out of scope.” The IRS also reduced VITA funding by $1 million in FY 2014.

The National Taxpayer Advocate recommends that the IRS increase VITA funding, remove VITA and TCE program grant restrictions for specific tax forms, and provide free tax preparation assistance in areas with limited access to volunteers.

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In 2015, individual taxpayers filing 2014 federal tax returns must report that they have “minimal essential coverage” or are exempt from the responsibility to have this coverage under the Affordable Care Act. The Act also provides tax credits for low income individuals and for small businesses. Although the IRS has made tremendous progress implementing these areas of the law, TAS has identified numerous concerns, including employee training, verifying data, and outreach to taxpayers.

Among other recommendations, the National Taxpayer Advocate urges the IRS to educate taxpayers early and repeatedly about the requirement to update their information throughout the year with the Exchange if they receive the advance Premium Tax Credit; and provide more guidance to employers on how to calculate full-time equivalents for meeting the minimum essential coverage requirements.

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Before 2014, the IRS generally required those who failed to report offshore income and file a related information return (or FBAR) to enter into an offshore voluntary disclosure (OVD) settlement program and pay a penalty designed for bad actors. Some “benign actors” with inadvertent violations ended up paying a disproportionate amount. The IRS now allows benign actors to pay a smaller penalty, but will not allow those with signed closing agreements to benefit from the most recent changes, thereby punishing taxpayers who came in early. This erodes taxpayers’ right to pay no more than the correct amount of tax, challenge the IRS’s position and be heard, appeal an IRS decision in an independent forum, be informed, and to a fair and just tax system.

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Taxpayers often face difficulty in reaching the right person at the IRS to resolve their problems. The IRS does not answer phone calls at its local offices, and taxpayers also have problems on the IRS’s nationwide toll-free line, where callers must navigate an extended phone tree without being given the option to speak to a live person. The IRS has a directory that provides tax practitioners with the numbers of key offices, but this is not available to the public. The IRS’s phone system fails to incorporate useful aspects of “311” systems, which combine intelligent automation, live interaction, and an in-depth information database to address some calls, and transfer others. When taxpayers cannot speak to someone at their local IRS office or find the right person to talk to, their right to quality service is compromised.

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Some IRS units overlook or simply ignore Congress’s 1998 mandate to assign one employee to each taxpayer case when practical, and when advantageous to the taxpayer. The Correspondence Examination program, which handles about 70% of individual taxpayers’ audits, has no way to determine when a taxpayer should have one employee assigned to an exam, despite longstanding concerns. IRS systems automatically route a taxpayer’s call to the next available examiner — who may not be the one working on the case. Nearly two-thirds of calls to the unit are repeat calls, which may mean taxpayers cannot get answers, or receive inconsistent information and service. This situation violates the taxpayer’s rights to quality service, to be informed, to challenge the IRS’s position and be heard, and to pay no more than the correct amount of tax.

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Outsourcing payroll and related tax duties to payroll service providers (PSPs) is a common business practice. However, if a PSP mismanages or embezzles funds it should have paid to the IRS or the state, the client employer is still responsible for unpaid tax, interest, and penalties, effectively paying the tax once to the failed PSP and again to the IRS. Congress recently enabled the IRS to give special consideration to an offer in compromise request from a victim of fraud or bankruptcy by a PSP. In practice, the IRS has not embraced this authority and has consistently underutilized this tool to provide relief to victims.

The National Taxpayer Advocate recommends that the IRS change its internal guidance and train employees on processing offers by victims of PSP failure.

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