Most Serious Problems
Section 7803 (c)(2)(B)(ii) of the Internal Revenue Code, as amended by the Taxpayer First Act (TFA), requires the National Taxpayer Advocate to submit this report each year and to include in it, among other things, a description of the ten most serious problems encountered by taxpayers as well as administrative and legislative recommendations to mitigate those problems. Previously, the report was required to contain a description of at least 20 of the most serious problems facing taxpayers. This year’s report, per the TFA, includes the 10 Most Serious Problems. These issues can affect taxpayers’ basic rights and the ways they pay taxes or receive refunds, even if they’re not involved in a dispute with the IRS.
As your voice at the IRS, the National Taxpayer Advocate uses the Annual Report to elevate these problems and recommend solutions to Congress and the highest levels of the IRS.
Customer Service Strategy: The IRS Needs to Develop a Comprehensive Customer Service Strategy That Puts Taxpayers First, Incorporates Research on Customer Needs and Preferences, and Focuses on Measurable Results
The Taxpayer First Act requires the IRS to create and submit a comprehensive customer service strategy to Congress by July 1, 2020. As the IRS develops this strategy, the National Taxpayer Advocate has identified several concerns with the IRS’s current approach to customer service that the new plan should address.
INFORMATION TECHNOLOGY MODERNIZATION: The IRS’s Modernization Business Plan’s Stated Goal to Improve the Taxpayer Experience Is Commendable, But the IRS Needs Additional Multiyear Funding to Bring it to Fruition
Aging IRS information technology (IT) infrastructure continues to plague the IRS and directly impact taxpayers. To address the IRS’s failing IT infrastructure and its need for updated technology, the IRS developed its Integrated Modernization Business Plan (Plan), which aims to improve “the taxpayer experience, by modernizing core tax administration systems, IRS operations and cybersecurity.” While the Plan does not address all of the IRS’s IT issues, for the IRS to make any progress in modernizing its systems, its efforts must be fully funded.
IRS FUNDING: The IRS Does Not Have Sufficient Resources to Provide Quality Service
Due to antiquated technology, a smaller workforce, and an increasing workload, the IRS cannot provide quality service without additional funding.
PROCESSING DELAYS: Refund Fraud Filters Continue to Delay Taxpayer Refunds for Legitimately Filed Returns, Potentially Causing Financial Hardship
The IRS has designed a number of filters to assist in the detection and prevention of non-identity theft (non-IDT) refund fraud (the Pre-Refund Wage Verification Program or PRWVH). Despite improvements to this program for filing season 2019, issues persisted that affected both taxpayers and TAS, including: delays in releasing legitimate refunds; false positive rates (FPR) as high as 71 percent; and inadequate information as to the reasons for refund delays and what steps taxpayers can take to expedite the process.
FREE FILE: Substantial Free File Program Changes Are Necessary to Meet the Needs of Eligible Taxpayers
To increase electronic filing (e-filing), the IRS partners with Free File, Inc. (FFI), a group of private-sector tax return preparation software providers, to offer free federal tax preparation software products accessible through IRS.gov to approximately 105 million eligible taxpayers. While the rate of e-filing has approached 90 percent for tax year 2018 individual returns, less than two percent (or about 2.5 million returns) were filed using Free File program software products. In addition, data on repeat usage suggests that taxpayers who use Free File have generally been dissatisfied with it.
RETURN PREPARER STRATEGY: The IRS Lacks a Comprehensive Servicewide Return Preparer Strategy
Considering that about 80 million tax year 2018 individual tax returns were prepared by return preparers, and preparers interact with most functions of the IRS, the development of a comprehensive return preparer strategy is long overdue.
APPEALS: The Inclusion of Chief Counsel and Compliance Personnel in Taxpayer Conferences Undermines the Independence of the Office of Appeals
The Office of Appeals’ (Appeals) emphasis on including Counsel and Compliance in certain conferences fundamentally alters the role of Appeals and runs counter to the congressional priority of an independent Appeals process. Currently, Appeals is not gathering sufficient quantitative and qualitative data to adequately evaluate the success of a pilot program to study the effects of this inclusion.
MULTILINGUAL NOTICES: The IRS Undermines Taxpayer Rights When It Does Not Provide Notices in Foreign Languages
Persons with limited English proficiency (LEP) do not speak English as their primary language and have a limited ability to read, speak, write, or understand English. Although Executive Order 13166 requires all federal agencies to develop and implement a system allowing LEP persons to meaningfully access services, LEP taxpayers frequently do not receive IRS notices in their preferred languages, impairing their right to be informed. Even when the IRS has a notice already translated into Spanish, taxpayers often have no simple way to request it or notate their accounts to reflect their preference.
COMBINATION LETTERS: Combination Letters May Confuse Taxpayers and Undermine Taxpayer Rights
The IRS uses the Combination Letter, which combines the Initial Contact Letter and the 30-Day Letter, in hundreds of thousands of correspondence audits. In fiscal years (FYs) 2015 to 2019, the IRS used the Combination Letter in approximately 16 percent, or about 500,000, audits. When the IRS combines two letters with very different functions, taxpayers may experience insufficient time for responses, confusion, insufficient understanding and a lower likelihood of response compared to others receiving two separate letters.
Offer in Compromise: The IRS’s Administration of the Offer in Compromise Program Falls Short of Congress’s Expectations
When Congress granted the IRS broad authority to use offers in compromise (OICs) to accept less than the full amount due for some taxpayers, it urged the IRS to educate the public about OICs and adopt a liberal acceptance policy to provide an incentive for taxpayers to continue to file tax returns and pay their taxes. TAS research studies have shown that in 40 percent of returned and rejected OICs, the IRS never collects the amount offered by the taxpayer, much less the reasonable collection potential (RCP) it calculated. The National Taxpayer Advocate remains concerned that the IRS’s administration of the OIC program falls short of Congress’s expectations.
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