Research and Related 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.

Pursuant to its private debt collection (PDC) initiative, since April 2017 the IRS has outsourced the collection of certain tax debt to private collection agencies (PCAs). PCAs may offer taxpayers who cannot pay their debts in full an installment agreement (IA), not to exceed five years. PCAs do not gather any financial information from taxpayers and have no obligation or incentive to inquire whether taxpayers are in economic hardship. The Taxpayer Advocate Service (TAS) studied the financial circumstances of 2,102 taxpayers who, between April 10, 2017 and September 28, 2017, entered into an IA while their debts were assigned to a PCA and made a payment on which the PCA received a commission.

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This study corroborates and expands upon a 2016 study, described in the National Taxpayer Advocate’s 2016 Annual Report to Congress, of taxpayers who were sent an educational letter from TAS in January of 2016. The letter was sent to taxpayers who appeared to have erroneously claimed the Earned Income Tax Credit (EITC) on their 2014 returns. The letter explained the requirements for claiming EITC and identified the error the taxpayer appeared to have made. The 2016 study explored the extent to which the letter affected taxpayers’ subsequent compliance. 

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Internal Revenue Code (IRC) section 7122 authorizes the IRS to accept less than the full amount of tax, penalties, or interest due. As a condition of acceptance for an offer in compromise (OIC), the taxpayer must agree to remain compliant with his or her filing and paying requirements for the five years following the acceptance of the OIC. Therefore, although the IRS agrees to settle a tax debt for less than the full amount due, the IRS secures future filing and payment compliance for the next five years. As a result, the IRS benefits by obtaining an extensive period of compliance, hopefully developing better taxpayer habits, which extend into the foreseeable future, while also collecting an amount that it is unlikely to collect otherwise. On the other hand, the taxpayer is no longer saddled with a debt that cannot be satisfied.  

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Since fiscal year (FY) 2010, the National Taxpayer Advocate has expressed concerns that the overall quality of the Internal Revenue Service’s (IRS) taxpayer service has eroded.  Over the long term, this erosion could increase taxpayer burden, weaken taxpayers’ faith in the tax system, and undermine voluntary compliance. The basic purposes of this report were to: determine the population’s access and use of the internet and broadband; determine the ability and desire of taxpayers to use different services and delivery channels; and identify how issue resolution affects taxpayer satisfaction.

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This report presents preliminary results from a study of taxpayer attitudes and how they are influenced by IRS audits and ID theft investigations. The analysis explores how attitudes among self-employed taxpayers are shaped by different types of audits and different audit outcomes. It also investigates how taxpayer attitudes differ among wage earners who have experienced an ID theft investigation and those who have not. The results are preliminary, and the analysis will need to be further refined to understand how attitudes regarding interactions with the IRS ultimately impact future taxpayer behavior.

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The “economic deterrence” model of tax compliance suggests that higher penalties should produce more compliance. However, there is relatively little real-world evidence that marginal changes to tax penalty rates affect compliance. TAS plans to fill this gap by studying the extent to which taxpayers respond to the economic incentive provided by the substantial understatement penalty.

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Research generally suggests that broad and frequent one-size-fits-all amnesties can reduce government revenues in the long run. They can reduce future compliance by eroding perceptions of fairness, revealing noncompliance norms, or diluting economic deterrence. However, the IRS and tax agencies around the world routinely adopt amnesties, such as programs to address mass-marketed tax schemes or undisclosed and untaxed funds held in other countries (i.e., offshore voluntary disclosure programs or OVDPs). This discussion reviews amnesty research to identify when and how tax administrators can use settlement programs to minimize unnecessary burden, disputes, and improve future compliance. 

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To provide telephone service that meets the needs of taxpayers in the twenty-first century, the IRS should follow the best practices used in the private sector and other government agencies and evaluate its telephone service in terms of taxpayer satisfaction. Telephone service should become an essential part of an omnichannel service environment, which would allow taxpayers to contact the IRS through the channel of their choice and receive a consistently high quality of service. TAS’s review of the relevant literature shows that metrics assessing call quality, such as First Contact Resolution, are more indicative of caller satisfaction than call efficiency metrics. Taking a relationship-oriented approach to taxpayer service, rather than simply a transactional approach, will help bolster the IRS’s reputation and improve voluntary compliance.

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A prior TAS research study showed that local norms were the most influential factors of tax compliance. Thus, geographic presence in local communities and in-person two-way communication are particularly important in outreach activities.  Even though digital communications may appear to be a low-cost option in the short-term, this literature explores how it has disadvantages, including a greater use of shortcuts such as browsing for keywords and multitasking on a larger scale. 

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