Full Report

Full Report

The Annual Report to Congress creates a dialogue at the highest levels of government to address taxpayers’ problems, protect taxpayers’ rights, and ease taxpayers’ burden.

Learn more about the Annual Report to Congress


PREFACE: Introductory Remarks by the Acting National Taxpayer Advocate

The Most Serious Problems Encountered by Taxpayers

Introduction

1. CUSTOMER SERVICE STRATEGY: The IRS Needs to Develop a Comprehensive Taxpayer Service Strategy That Puts Taxpayers First, Incorporates Research on Taxpayer Needs and Preferences, and Focuses on Measurable Results

2.  INFORMATION TECHNOLOGY MODERNIZATION: The IRS Modernization Plan’s Goal to Improve the Taxpayer Experience Is Commendable, But the IRS Needs Additional Multi-Year Funding to Bring It to Fruition

3.   IRS FUNDING: The IRS Does Not Have Sufficient Resources to Provide Quality Service

4.   PROCESSING DELAYS: Refund Fraud Filters Continue to Delay Taxpayer Refunds for Legitimately Filed Returns, Potentially Causing Financial Hardship

5.   FREE FILE: Substantial Free File Program Changes Are Necessary to Meet the Needs of Eligible Taxpayers

6.  RETURN PREPARER STRATEGY: The IRS Lacks a Comprehensive Servicewide Return Preparer Strategy

7.  APPEALS: The Inclusion of Chief Counsel and Compliance Personnel in Taxpayer Conferences Undermines the Independence of the Office of Appeals

8. MULTILINGUAL NOTICES: The IRS Undermines Taxpayer Rights When It Does Not Provide Notices in Foreign Languages

9. COMBINATION LETTERS: Combination Letters May Confuse Taxpayers and Undermine Taxpayer Rights

10. OFFER IN COMPROMISE: The IRS’s Administration of the Offer in Compromise Program Falls Short of Congress’s Expectations

 
Status Updates

1. PRIVATE DEBT COLLECTION: Forthcoming Changes to the Private Debt Collection Program Will Better Protect Low-Income Taxpayers and Achieve a Program That More Appropriately Respects Taxpayer Rights

2. AUTOMATED SUBSTITUTE FOR RETURN: The IRS Has Revised the Selection Criteria for Its Reinstated Automated Substitute for Return Program, But Some Concerns Remain Unaddressed


Most Litigated Issues

Introduction

Significant Cases

1. Trade or Business Expenses Under IRC § 162 and Related Sections

2. Appeals From Collection Due Process (CDP) Hearings Under IRC §§ 6320 and 6330

3. Accuracy-Related Penalty Under IRC § 6662(b)(1) and (2)

4. Gross Income Under IRC § 61 and Related Sections

5. Summons Enforcement Under IRC §§ 7602, 7604, and 7609

6. Civil Actions to Enforce Federal Tax Liens or to Subject Property to Payment of Tax Under IRC § 7403

7. 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

8. Itemized Deductions Reported on Schedule A (Form 1040)

9. Charitable Contribution Deductions Under IRC § 170

10. Frivolous Issues Penalty Under IRC § 6673 and Related Appellate-Level Sanctions


TAS CASE ADVOCACY


TAS Research and Related Studies

1. Study of Subsequent Compliance of Taxpayers Who Received Educational Letters from the National Taxpayer Advocate

2. Study of Two-Year Bans on the Earned Income Tax Credit, Child Tax Credit, and American Opportunity Tax Credit

3. Audit Impact Study: The Specific Deterrence Implications of Increased Reliance on Correspondence Audits

4. Study of the Extent to Which the IRS Continues to Erroneously Approve Form 1023-EZ Applications

APPENDICES

INTRODUCTION

STRENGTHEN TAXPAYER RIGHTS

  1. Codify the Taxpayer Bill of Rights, a Taxpayer Rights Training Requirement, and the IRS Mission Statement as Section 1 of the Internal Revenue Code
  2. Provide the IRS With Sufficient Funding to Meet Taxpayer Needs and Improve Federal Tax Compliance
  3. Require the IRS to Provide Taxpayers with a “Receipt” Showing How Their Tax Dollars Are Being Spent

IMPROVE THE FILING PROCESS

  1. Revise e-Filing Procedures So That Taxpayers Are Informed of e-Filing Errors and Are Not Subject to Failure-to-File Penalties When Those Errors Are Timely Corrected
  2. Treat Electronically Submitted Tax Payments and Documents as Timely If Submitted Before the Applicable Deadline
  3. Authorize the IRS to Establish Minimum Competency Standards for Federal Tax Return Preparers
  4. Require the IRS to Set a Goal to Increase Usage of the Free File Program to Ten Percent of All Individual Taxpayers and Replace Free File With an Alternative Approach If That Goal Is Not Attained by Filing Season 2025
  5. Require That Electronically Prepared Paper Tax Returns Include a Scannable Code
  6. Extend the Time for Small Businesses to Make Subchapter S Elections
  7. Adjust Estimated Tax Payment Deadlines to Occur Quarterly
  8. Harmonize Reporting Requirements for Taxpayers Subject to Both the Report of Foreign Bank and Financial Accounts and the Foreign Account Tax Compliance Act by Eliminating Duplication and Excluding Accounts a U.S. Person Maintains in the Country Where He or She Is a Bona Fide Resident

IMPROVE ASSESSMENT AND COLLECTION PROCEDURES

  1. Continue to Limit the IRS’s Use of “Math Error Authority” to Clear-Cut Categories Specified by Statute
  2. Require Independent Managerial Review and Written Approval Before the IRS May Assert a Multi-Year Ban Against Claiming Certain Tax Credits and Clarify That the Tax Court Has Jurisdiction to Review the Assertion of a Ban
  3. 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
  4. 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 Other User Fee Increases
  5. Improve Offer in Compromise Program Accessibility by Repealing the Partial Payment Requirement and Restructuring the User Fee
  6. Modify the Requirement That the Office of Chief Counsel Review Certain Offers in Compromise
  7. Require the IRS to Mail Notices at Least Quarterly to Taxpayers With Delinquent Tax Liabilities
  8. Clarify When the Two-Year Period for Requesting Return of Levy Proceeds Begins
  9. Protect Retirement Funds From IRS Levies, Including So-Called “Voluntary” Levies, in the Absence Of “Flagrant Conduct” by a Taxpayer
  10. Toll the Time Periods for Requesting the Return of Levy Proceeds While the Taxpayer or a Pertinent Third Party Is Financially Disabled
  11. Authorize the IRS to Release Levies That Cause Economic Hardship for Business Taxpayers
  12. Provide Taxpayer Protections Before the IRS Recommends the Filing of a Lien Foreclosure Suit on a Principal Residence
  13. Provide Collection Due Process Rights to Third Parties Holding Legal Title to Property Subject to IRS Collection Actions
  14. Extend the Time Limit for Taxpayers to Sue for Damages for Improper Collection Actions
  15. Direct the IRS to Study the Feasibility of Using an Automated Formula to Identify Taxpayers at Risk of Economic Hardship

REFORM PENALTY AND INTEREST PROVISIONS

  1. Convert the Estimated Tax Penalty into an Interest Provision for Individuals, Trusts, and Estates 
  2. Apply One Interest Rate Per Estimated Tax Underpayment Period for Individuals, Estates, and Trusts
  3. Reduce the Federal Tax Deposit Penalty Imposed on Certain Taxpayers Who Make Timely Tax Deposits
  4. Extend Reasonable Cause Abatement of the Failure-to-File Penalty to Taxpayers Who Rely on Return Preparers to e-File Their Returns
  5. Authorize a Penalty for Tax Return Preparers Who Engage in Fraud or Misconduct by Altering a Taxpayer’s Tax Return
  6. Clarify the Parameters for Written Managerial Approval Required for Penalty Assessments Under IRC § 6751(b)
  7. Compensate Taxpayers for “No Change” National Research Program Audits

STRENGTHEN TAXPAYER RIGHTS BEFORE THE OFFICE OF APPEALS

  1. 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
  2. Require Taxpayers’ Consent Before Allowing IRS Counsel or Compliance Personnel to Participate in Appeals Conferences

ENHANCE CONFIDENTIALITY AND DISCLOSURE PROTECTIONS

  1. Authorize the Treasury Department to Issue Guidance Specific to IRC § 6713 Regarding the Disclosure or Use of Tax Return Information by Preparers
  2. Allow a Period of Notice and Comment on New Intergovernmental Agreements and Require That the IRS Notify Taxpayers Before Their Data Is Transferred to a Foreign Jurisdiction

STRENGTHEN THE OFFICE OF THE TAXPAYER ADVOCATE

  1. Clarify That the National Taxpayer Advocate May Hire Legal Counsel to Enable Her to Advocate More Effectively For Taxpayers
  2. Clarify the Authority of the National Taxpayer Advocate to Make Personnel Decisions to Protect the Independence of the Office of the Taxpayer Advocate
  3. Clarify the Taxpayer Advocate Service’s Access to Files, Meetings, and Other Information
  4. Authorize the National Taxpayer Advocate to File Amicus Briefs
  5. Require the IRS to Address the National Taxpayer Advocate’s Comments in Final Rules
  6. Authorize the Office of the Taxpayer Advocate to Assist Certain Taxpayers During a Lapse in Appropriations
  7. Repeal Statute Suspension Under IRC § 7811(d) for Taxpayers Seeking Assistance from the Taxpayer Advocate Service

STRENGTHEN TAXPAYER RIGHTS IN JUDICIAL PROCEEDINGS

  1. Authorize the Tax Court to Order Refunds or Credits in Collection Due Process Proceeding
  2. Repeal Flora: Give Taxpayers Who Cannot Pay the Same Access to Judicial Review as Those Who Can
  3. Provide That the Time Limits for Bringing Tax Litigation Are Subject to the Judicial Doctrines of Forfeiture, Waiver, Estoppel and Equitable Tolling
  4. Provide That the Scope of Judicial Review of Determinations Under IRC § 6015 Is De Novo
  5. Clarify That Taxpayers May Raise Innocent Spouse Relief as a Defense in Collection Proceedings and in Bankruptcy Cases
  6. Clarify That Taxpayers May Seek Innocent Spouse Relief in Refund Suits
  7. Fix the Donut Hole in the Tax Court's Jurisdiction to Determine Overpayments by Non-Filers with Filing Extensions

MISCELLANEOUS RECOMMENDATIONS

  1. Exclude Taxpayers in Specified Circumstances From the Requirement to Provide a Social Security Number for Their Children to Claim the Child Tax Credit
  2. Allow Members of Certain Religious Sects That Do Not Participate in Social Security and Medicare to Obtain Refunds of Their Remitted Employment Taxes
  3. Require the IRS to Specify the Information It Needs in Third Party Contact Notices
  4. Increase the Individual Low Income Taxpayer Clinic Grant Cap and Index It for Inflation
  5. Establish the Position of IRS Historian Within the Internal Revenue Service to Record and Publish Its History
  6. Amend the Combat-Injured Veterans Tax Fairness Act of 2016 to Allow Veterans of the Coast Guard to File Claims for Credit or Refund for Taxes Improperly Withheld from Disability Severance Pay
  7. Authorize Independent Contractors and Service Recipients to Enter Into Voluntary Withholding Agreements Without Risk That the Agreements Will Be Used to Challenge Worker Classification Determinations

ADDITIONAL REFERENCE MATERIALS