PREFACE: Introductory Remarks by the National Taxpayer Advocate

TAXPAYER RIGHTS ASSESSMENT: IRS Performance Measures and Data Relating to Taxpayer Rights

Most Serious Problems Encountered by Taxpayers

Introduction

Significant Challenges in Tax Administration

1. PRIVATE DEBT COLLECTION: The IRS’s Private Debt Collection Program Is Not Generating Net Revenues, Appears to Have Been Implemented Inconsistently with the Law, and Burdens Taxpayers Experiencing Economic Hardship
2. TELEPHONES: The IRS Needs to Modernize the Way It Serves Taxpayers Over the Telephone, Which Should Become an Essential Part of an Omnichannel Customer Service Environment
3. ONLINE ACCOUNTS: The IRS’s Focus on Online Service Delivery Does Not Adequately Take into Account the Widely Divergent Needs and Preferences of the U.S. Taxpayer Population
4. AUDIT RATES: The IRS Is Conducting Significant Types and Amounts of Compliance Activities that It Does Not Deem to Be Traditional Audits, Thereby Circumventing Taxpayer Protections and Misrepresenting the Extent of Its Compliance Activity and Return on Investment
5. EXEMPT ORGANIZATIONS: Form 1023-EZ, Adopted to Reduce Form 1023 Processing Times, Increasingly Results in Tax Exempt Status for Unqualified Organizations, While Form 1023 Processing Times Increase
6. PASSPORT DENIAL AND REVOCATION: The IRS’s Program for Certifying Seriously Delinquent Tax Debts Is Likely to Deprive Taxpayers of Passports without Regard to Taxpayer Rights

The Right to Quality Service

7. EMPLOYEE TRAINING: Changes to and Reductions in Employee Training Hinder the IRS’s Ability to Provide Top Quality Service to Taxpayers
8. TAXPAYER RIGHTS: The IRS Does Not Effectively Evaluate and Measure its Adherence to the Taxpayer’s Right to a Fair and Just Tax System
9. OUTREACH AND EDUCATION: The IRS Is Making Commendable Strides to Develop Digitized Taxpayer Services, But It Must Do More to Maintain and Improve Traditional Outreach and Education Initiatives to Meet the Needs of U.S. Taxpayers
10. TAXPAYER ASSISTANCE CENTERS (TACs): Cuts to IRS Walk-In Sites Have Left the IRS With a Substantially Reduced Community Presence and Have Impaired the Ability of Taxpayers to Receive In-Person Assistance
11. VITA/TCE PROGRAMS: IRS Restrictions on Volunteer Income Tax Assistance (VITA) and Taxpayer Counseling for the Elderly (TCE) Programs Increase Taxpayer Burden and Adversely Impact Access to Free Tax Preparation for Low Income, Disabled, Rural, and Elderly Taxpayers

The Right to a Fair and Just Tax System: Special Taxpayer Populations

12. EARNED INCOME TAX CREDIT (EITC): The IRS Continues to Make Progress to Improve Its Administration of the EITC, But It Has Not Adequately Incorporated Research Findings That Show Positive Impacts of Taxpayer Education on Compliance
13. MILITARY ASSISTANCE: The IRS’s Customer Service and Information Provided to Military Taxpayers Falls Short of Meeting Their Needs and Preferences
14. SHARING ECONOMY: Participants in the Sharing Economy Lack Adequate Guidance from the IRS
15. INTERNATIONAL: The IRS’s Approach to Credit and Refund Claims of Nonresident Aliens Wastes Resources and Burdens Compliant Taxpayers
16. INDIVIDUAL TAXPAYER IDENTIFICATION NUMBERS (ITINs): The IRS’s Failure to Understand and Effectively Communicate with the ITIN Population Imposes Unnecessary Burden and Hinders Compliance

The Right to an Independent Administrative Appeal

17. APPEALS: The IRS Office of Appeals Imposes Unreasonable Restrictions on In-Person Conferences for Campus Cases, Even as It Is Making Such Conferences More Available for Field Cases
18. APPEALS: The IRS’s Decision to Expand the Participation of Counsel and Compliance Personnel in Appeals Conferences Alters the Nature of Those Conferences and Will Likely Reduce the Number of Agreed Case Resolutions

Revenue Protection Challenges

19. IDENTITY THEFT: As Tax-Related Identity Theft Schemes Evolve, the IRS Must Continually Assess and Modify Its Victim Assistance Procedures
20. FRAUD DETECTION: The IRS Has Made Improvements to Its Fraud Detection Systems, But a Significant Number of Legitimate Taxpayer Returns Are Still Being Improperly Stopped by These Systems, Resulting in Refund Delays
21. REFUND ANTICIPATION LOANS: Increased Demand for Refund Anticipation Loans Coincides with Delays in the Issuance of Refunds

LEGISLATIVE RECOMMENDATIONS

Introduction

National Taxpayer Advocate Legislative Recommendations With Congressional Action

1. TIMING OF REFUNDS: Direct the IRS to Study the Impact of Delaying the Issuance of Refunds to Allow Sufficient Time to Process Information Reports and Perform Document-Matching
2. ELECTRONIC MAILBOX RULE: Revise the Mailbox Rule to Include All Time-Sensitive Documents and Payments Electronically Transmitted to the IRS
3. EQUITABLE DOCTRINES: Make the Time Limits for Bringing Tax Litigation Subject to the Judicial Doctrines of Forfeiture, Waiver, Estoppel, and Equitable Tolling and Clarify That Dismissal of an Untimely Petition Filed in Response to a Statutory Notice of Deficiency Is Not a Decision on the Merits of a Case
4. COLLECTION DUE PROCESS (CDP): Amend IRC § 6330 to Allow the Tax Court Jurisdiction to Determine Overpayments
5. COLLECTION DUE PROCESS AND INNOCENT SPOUSE NOTICES: Amend IRC §§ 6320, 6330, and 6015 to Require That IRS Notices Sent to Taxpayers Include a Specific Date by Which Taxpayers Must File Their Tax Court Petitions and Provide That a Petition Filed by Such Specified Date Will Be Treated as Timely
6. USER FEES: Prohibit User Fees That Reduce Revenue, Increase Costs, or Erode Taxpayer Rights
7. INTERNATIONAL PENALTIES: Provide Uniformity for the Reasonable Cause Exception to Initial and Continuation Penalties for the Failure to File Information Returns Under IRC §§ 6038, 6038A, 6038D, 6677, and 6679
8. NATIONAL RESEARCH PROGRAM (NRP) AUDITS: Compensate Taxpayers for “No Change” NRP Audits and Waive Assessment of Tax, Interest, and Penalties Resulting from Such Audits
9. VOLUNTARY WITHHOLDING AGREEMENTS: Amend Internal Revenue Code Section 3402(p) to Allow Voluntary Withholding for Independent Contractors
10. CANCELLATION OF STUDENT LOANS: Amend IRC §§ 108(a) and 6050P to Provide That Gross Income Does Not Include, and Creditors Are Not Required to Report, Income from the Cancellation of Certain Student Loans
11. VICTIMS OF TERRORIST ATTACKS: Amend IRC § 692 to Grant the President the Authority to Issue a Declaration That an Event Qualifies as a “Specified Terrorist Attack”

THE MOST LITIGATED ISSUES

Introduction

Significant Cases

1. Accuracy-Related Penalty Under IRC § 6662(b)(1) and (2)
2. Trade or Business Expenses Under IRC § 162 and Related Sections
3. Summons Enforcement Under IRC §§ 7602, 7604, 7609
4. Appeals from Collection Due Process (CDP) Hearings Under IRC §§ 6320 and 6330
5. Gross Income Under IRC § 61 and Related Sections
6. Failure to File Penalty Under IRC § 6651(a)(1), Failure to Pay an Amount Shown as Tax on Return Under IRC § 6651(a)(2), and Failure to Pay Estimated Tax Penalty Under IRC § 6654
7. Civil Actions to Enforce Federal Tax Liens or to Subject Property to Payment of Tax Under IRC § 7403
8. Charitable Contribution Deductions Under IRC § 170
9. Family Status Issues Under IRC §§ 2, 24, 32, and 151
10. Relief from Joint and Several Liability Under IRC § 6015

TAS Case Advocacy

Appendices

1. Study of Financial Circumstances of Taxpayers Who Entered Into Installment Agreements and Made Payments While Their Debts Were Assigned to Private Collection Agencies
2. Study of Subsequent Filing Behavior of Taxpayers Who Claimed Earned Income Tax Credits (EITC) Apparently In Error and Were Not Audited But Were Sent an Educational Letter From the Taxpayer Advocate Service,
   Part 2: Validation of Prior Findings and the Effect of an Extra Help Phone Number and a Reminder of Childless-Worker EITC
3. A Study of the IRS Offer in Compromise Program
4. A Further Exploration of Taxpayers’ Varying Abilities and Attitudes Toward IRS Options for Fulfilling Common Taxpayer Service Needs
5. Audits, Identity Theft Investigations, and Taxpayer Attitudes: Evidence From a National Survey
6. Do Taxpayers Respond to the Substantial Understatement Penalty? A Preliminary Analysis of Bunching below the Substantial Understatement Penalty Threshold
7. An Analysis of Tax Settlement Programs as Amnesties

Literature Reviews

8. Improving Telephone Service Through Better Quality Measures
9. Fostering Taxpayer Engagement Through Geographic Presence

Introduction

1. Strengthen Taxpayer Rights

1. Enact the Taxpayer Bill of Rights As a Freestanding Provision in the Internal Revenue Code
2. Require the IRS to Provide Annual Taxpayer Rights Training to Employees
3. Codify the IRS Mission Statement
4. Require the IRS to Provide Taxpayers with a Receipt Showing How Their Tax Dollars Are Being Spent

 2. Improve the Filing Process

5. Authorize the Volunteer Income Tax Assistance Grant Program
6. Authorize the IRS to Establish Minimum Competency Standards for Federal Tax Return Preparers
7. Require the IRS to Utilize Scannable Code or Similar Technology to Process Individual Income Tax Returns Prepared Electronically but Filed on Paper
8. Clarify that IRS Employees May Help Taxpayers Locate a Specific Low Income Taxpayer Clinic
9. Extend the Time for Small Businesses to Make Subchapter S Elections
10. Require Employers Filing More Than Five Forms W-2, 1099-MISC, and 941 to File Electronically and Provide a Breakdown By Employee of the Amounts Reported On Form 941
11. Authorize the IRS to Work with Financial Institutions to Reverse Misdirected Deposits
12. Revise the “Mailbox Rule” to Apply to Electronically Submitted Documents and Payments in the Same Manner as It Applies to Mailed Submissions
13. Amend IRC § 6654(c)(2) to Adjust Estimated Tax Payment Deadlines to Occur Quarterly
14. Harmonize Reporting Requirements for Taxpayers Subject to Both FBAR and FATCA by Eliminating Duplication and Excluding Accounts a U.S. Person Maintains in the Country Where He or She is a Bona Fide Resident

3. Improve Assessment and Collection Procedures

15. Strengthen Taxpayer Protections in the Filing of Federal Tax Liens
16. Codify the Rule That Taxpayers Can Request Equitable Relief Under Internal Revenue Code Section 6015(f) Any Time Before Expiration of the Period of Limitations on Collection
17. Authorize the IRS to Release Levies That Cause Economic Hardship for Business Taxpayers
18. Extend the Time Limit for Taxpayers to Sue for Damages for Improper Collection Actions
19. Protect Retirement Funds from IRS Levies in the Absence of “Flagrant Conduct” by a Taxpayer
20. Toll the Time Periods for Requesting the Return of Levy Proceeds While the Taxpayer or a Pertinent Third Party is Financially Disabled
21. Require the IRS to Waive User Fees for Taxpayers Who Enter into Low-Cost Installment Agreements and Evaluate the Potential Revenue and Compliance Costs of Future User Fee Increases
22. Hold Taxpayers Harmless When the IRS Returns Funds Levied from a Retirement Plan or Account
23. Modify the Requirement That the Office of Chief Counsel Review Certain Offers-in-Compromise
24. Continue to Limit the IRS’s Use of “Math Error Authority” to Clear-Cut Categories Specified by Statute
25. Amend IRC § 7524 to Require the IRS to Mail Notices at Least Quarterly to Taxpayers with Delinquent Tax Liabilities
26. Provide Additional Time for Taxpayers Outside the United States to Request Abatement of a Math Error Assessment Equal to the Time Extension Allowed in Responding to a Notice of Deficiency
27. Improve Offer in Compromise Program Accessibility by Repealing the Partial Payment Requirement
28. Amend IRC § 7403 to Provide Taxpayer Protections Before Lien Foreclosure Suits on Principal Residences
29. Amend IRC §§ 6320 and 6330 to Provide Collection Due Process Rights to Third Parties Holding Legal Title to Property Subject to IRS Collection Actions
30. Clarify that Taxpayers May Raise Innocent Spouse Relief as a Defense in Collection Proceedings and in Bankruptcy Cases

 4. Reform Penalty and Interest Provisions

31. Convert the Estimated Tax Penalty into an Interest Provision for Individuals, Trusts, and Estates
  32. Apply One Interest Rate Per Estimated Tax Underpayment Period for Individuals, Estates, and Trusts
33. Reduce the Federal Tax Deposit Penalty Imposed on Certain Taxpayers Who Make Timely Tax Deposits
34. Authorize A Penalty for Tax Return Preparers Who Engage in Fraud or Misconduct By Altering a Taxpayer’s Tax Return
35. Require Written Managerial Approval Before Assessing the Accuracy-Related Penalty for “Negligence”
  36. Compensate Taxpayers for “No Change” National Research Program Audits and Waive Assessment of Tax, Interest, and Penalties Resulting from Such Audits

 5. Strengthen Taxpayer Rights Before the Office of Appeals

37. Require That At Least One Appeals Officer and One Settlement Officer Be Located and Permanently Available in Each State, the District of Columbia, and Puerto Rico
38. Require Taxpayers’ Consent Before Allowing IRS Counsel or Compliance Personnel to Participate in Appeals Conferences

6. Enhance Confidentiality and Disclosure Protections

39. Limit Redisclosures and Unauthorized Uses of Tax Returns and Tax Return Information Obtained Through Section 6103-Based “Consent” Disclosures
40. Authorize the Treasury Department to Issue Guidance Specific to IRC § 6713 Regarding the Disclosure or Use of Tax Return Information by Preparers

7. Strengthen the Office of the Taxpayer Advocate

41. Codify the National Taxpayer Advocate’s Authority to Issue Taxpayer Advocate Directives
42. Clarify the Taxpayer Advocate Service’s Access to Files, Meetings, and Other Information
43. Clarify That the National Taxpayer Advocate May Hire Legal Counsel
44. Authorize the National Taxpayer Advocate to File Amicus Briefs
45. Require the IRS to Address the National Taxpayer Advocate’s Comments in Final Rules
46. Authorize the Office of the Taxpayer Advocate to Assist Certain Taxpayers During a Lapse in Appropriations
47. Clarify the Authority of the National Taxpayer Advocate to Make Personnel Decisions to Protect the Independence of the Office of the Taxpayer Advocate
48. Repeal Statute Suspension Under IRC § 7811(d) for Taxpayers Seeking Assistance From the Taxpayer Advocate Service
49. Establish Compensation of the National Taxpayer Advocate by Statute and Eliminate Eligibility for Cash Bonuses

 8. Miscellaneous Provisions

50. Authorize Independent Contractors and Service Recipients to Enter into Voluntary Withholding Agreements Without Risk They Will Be Used to Challenge Worker Classification Determinations