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.

Pay-as-you-earn (PAYE) systems are designed to collect the correct amount of tax throughout the course of the year as taxpayers earn the associated income.The U.S. has a simple PAYE system, which applies withholding predominantly on wage income.  By contrast, other countries, such as the United Kingdom (U.K.) and New Zealand, have a broader PAYE system collecting tax on a range of payments beyond simple wages. The U.K. has been so successful at this expansion that approximately two-thirds of British taxpayers end each year having already fully and accurately satisfied their tax liabilities.

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Internal Revenue Code (IRC) § 7122(d)(2)(A) requires that the IRS “develop and publish schedules of national and local allowances designed to provide that taxpayers entering into a compromise have an adequate means to provide for basic living expenses.”  However, the statute also allows for deviations.  It instructs the IRS to review each taxpayer’s situation on a case-by-case basis and not use the Allowable Living Expense (ALE) standards if “such use would result in the taxpayer not having adequate means to provide for basic living expenses.”[1]  The resulting ALE standards, which represent how much money the IRS believes a taxpayer needs to meet necessary expenses, have come to play a crucial role not just in offer in compromise cases but all types of collection cases.

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The “economic deterrence” model of tax compliance suggests that higher or more certain penalties should produce more compliance.  This study aims to explore the extent to which taxpayers respond to the substantial understatement penalty.

An accuracy-related penalty applies to various understatements, including “substantial” understatements and those due to negligence.  If the understatement exceeds the substantial understatement threshold, a penalty applies even if the IRS does not determine the taxpayer was negligent.

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This report presents results from a survey study of non-farm self-employed (Schedule C) taxpayers. The analysis explores how taxpayer attitudes and perceptions are shaped by different types of audits and audit outcomes. It also investigates whether certain groups of taxpayers share specific attitudinal postures towards paying taxes and the IRS and, if so, how audits influence membership within these groups.

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An offer in compromise (OIC) is an agreement between a taxpayer and the government that settles a tax liability for payment of less than the full amount owed. The IRS has authority to accept offers pursuant to Internal Revenue Code (IRC) § 7122.  TAS Research conducted this analysis to study how business taxpayers (Business Master File (BMF)) use the Offer in Compromise (OIC) program and the impact of the OIC program on future compliance of business taxpayers.  

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A federal tax lien (FTL) arises when the IRS assesses a tax liability and sends the taxpayer notice and demand for payment, and the taxpayer does not fully pay the debt within ten days.  However, an FTL is not sufficient to protect the government’s interest in the taxpayer’s assets against other creditors.  To establish its interest in property with respect to other competing interests, the IRS must file a Notice of Federal Tax Lien (NFTL). NFTLs establish priority of the government’s interest in a taxpayer’s property with respect to certain creditors by putting the public, including third-party creditors, on notice of an existing statutory lien.

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