Research Studies

For the National Taxpayer Advocate, thorough research and analysis of current tax issues and trends is a vital part of the Annual Report. Taxpayer Advocate Service research projects yield accurate, insightful data that inform her as she advocates for taxpayers, and strengthen her authority and arguments before the IRS and Congress.

In a TAS study of a representative sample of organizations whose Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, was approved, 37% do not meet the legal requirements for exempt status under section 501(c)(3). To the extent these organizations’ receipts should be treated as taxable, or contributions to them are deducted by the donor, they are improperly subsidized by other taxpayers. The skeletal Form 1023-EZ, the brevity of the annual report required of these organizations, and the probability that the organizations will not have a website all result in a disturbing lack of information about them.

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The Taxpayer Advocate Service explored how the rate of collection changes as the number of years since Taxpayer Delinquent Account (TDA) issuance increases. The IRS assigns unpaid liabilities to TDA status after sending the taxpayer a series of notices, usually within six months. Although the IRS has 10 years to collect a liability from its assessment, the collection industry believes that liabilities must be collected within three years to recover any significant amount. Our analysis showed that dollars collected typically decreased by over 50% from the first year to the second year and 30% from the second to the third year.

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In Fiscal Year 2014, the direct effect of IRS audits on sole proprietorships was over $3 billion. However, we do not know as much about the effect of these audits on subsequent taxpayer reporting behavior. Our preliminary estimates indicate that taxpayers receiving an additional audit assessment report substantially more income following an audit, with a mean increase in overall income reporting of 120% three years later. Nevertheless, taxpayers not receiving an additional audit assessment actually reduce their reported income following an audit, with a mean decrease of 35% three years later. We discuss the potential reasons for the divergent responses among taxpayers with and without an additional tax assessment.

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TAS commissioned a new survey to study Hispanic taxpayers who may have limited English proficiency. Demographically, TAS found Hispanics tended to have lower household incomes, less college education, and were younger. The majority also spoke Spanish at home and owned a smart phone. The study found that Hispanics may have limited interaction with the IRS due to their reliance on unenrolled tax return preparers to prepare returns and answer IRS questions, but tended to have greater awareness of their rights and trust in the IRS. TAS has opportunities for creating greater awareness about TAS among Hispanics, and this study will continue to inform the ways TAS serves all taxpayers.

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