FY 2017 Objectives Report To Congress

Preface: National Taxpayer Advocate’s Introductory Remarks, Including an Update on the National Taxpayer Advocate Public Forums on Taxpayer Needs and Preferences

In my 2015 Annual Report to Congress, I identified the IRS’s Future State plan as the Number One Most Serious Problem for taxpayers. Also in my Report, I announced that over the next year I would be holding Public Forums on Taxpayer Needs and Preferences throughout the country, some co-hosted by some Members of Congress, particularly those serving on committees actively engaged in IRS oversight. It has been my great privilege to host eight of these Public Forums to date, and we have several more planned through the end of the calendar year. I and my small team have been welcomed into communities large and small; our Congressional co-hosts were actively engaged in the planning and promotion of the Forums as well as attending and participating in them.

Although the National Taxpayer Advocate has been charged by Congress to be the voice of the taxpayer inside the IRS, what we heard at the Public Forums were the voices of real taxpayers and their real representatives. They are compelling, articulate, and clear about what they need in order to comply with the tax laws.

I’ve organized these comments around several of the concerns about the IRS Future State plans that either I identified in the 2015 Annual Report or consistently arose in the Public Forums. They are:

I continue to be concerned that the IRS’s design for the Future State ignores or dismisses the significant body of data that shows large portions of the taxpaying public is either unable or unwilling to engage with government online services for anything other than the most routine tasks, if those.” ~ Nina Olson, National Taxpayer Advocate

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Review of the 2016 Filing Season

The National Taxpayer Advocate’s mid-year report to Congress  says the IRS delivered a generally successful 2016 filing season, answering 73 percent of taxpayer telephone calls with an average wait time of 11 minutes, nearly doubling calls answered and reducing wait times by half from the previous filing season. But there are some key customer service areas where the IRS is not meeting taxpayer needs. First, IRS plans to eliminate walk-in service at all 376 Taxpayer Assistance Centers (TACs) and now will require advance appointments.  Second, IRS's Taxpayer Protection Program (TPP), which aims to block identity-theft returns, had a false-positive rate of more than 36 percent in 2015, stopped more than 760,000 returns filed by legitimate taxpayers in 2015, causing refund delays and administrative hassles. Third, IRS has ended an online program through which taxpayers could submit tax-law questions and receive responses via email, eliminating an important service channel for the nearly nine million US citizens living abroad. Fourth, IRS continues restrictions on answering tax-law questions during filing season and answers none after filing season on phones and in TACs.

Read the Full Filing Season Review

Selected Areas of Focus

IRS Implementation and Enforcement of Withholding on Certain Payments to Foreign Persons Is Burdensome, Error-Ridden, and Fails to Protect the Rights of Affected Taxpayers

While implementing FATCA and similar international withholding provisions, the IRS withheld refunds from tens of thousands of U.S. taxpayers who were entitled to them. Much of the problem was attributable to the way the IRS attempted to match the Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, filed by the withholding agent against the Form 1042-S filed by the taxpayer with his or her income tax return. In one case, the IRS disallowed the refund claims of tens of thousands of foreign students at U.S. universities and colleges, most of who were fully entitled to those refunds. In the coming year, TAS will advocate for the IRS to improve the accuracy of its data-matching procedures to reduce the number of freezes placed on legitimate international refund claims.

The IRS Plan for Implementing the Private Debt Collection Program Includes Practices That Will Harm Taxpayers and Tax Administration

In late 2015, Congress passed legislation that generally requires the IRS to assign delinquent tax accounts it is not actively seeking to collect to private debt collection agencies. TAS will be actively involved in the implementation of the program to ensure the program rules follow the law without infringing on taxpayer rights; to seek a definition of the statutory term “potentially collectible inventory” that excludes the accounts of taxpayers who are experiencing economic hardship; and to urge the IRS to require the PCAs to disclose the portions of their operational plans, calling scripts, and training materials that affect taxpayers so the National Taxpayer Advocate, Congress and the public can evaluate whether their collection tactics are reasonable.

Despite Insufficient Internal Guidance, the IRS Continues to Levy on Retirement Accounts and Has Completed a Pilot for Levying on Thrift Savings Plan Accounts Through the Automated Collection System

Congress has enacted numerous laws that promote retirement savings. These laws further the public policy of ensuring individuals have sufficient assets on which to live after they retire. The IRS is permitted to levy on retirement assets but does not do so as a matter of policy unless it determines a taxpayer has acted flagrantly in seeking to evade the collection of the tax. At present, the IRS does not have a clear definition of the word “flagrant,” but rather lists examples of flagrant conduct. TAS is working with the IRS to develop a definition of “flagrant” that allows levies to be made in extreme cases but continues to shield retirement assets in cases where a taxpayer is simply unable to pay.

As the IRS Develops an Online Account System, It Risks Imposing Undue Burden on Taxpayers Who Require More Personalized Services

The National Taxpayer Advocate has long advocated that the IRS develop online taxpayer accounts as a valuable addition to the IRS’s taxpayer service offerings. As discussed in the context of the Future State development, however, the Advocate believes taxpayers should still have the option to work with IRS personnel by phone or in person. In addition, the IRS envisions granting account access to tax return preparers, most of who are not currently licensed. During the coming year, TAS plans to work with the IRS to ensure it maintains adequate security protocols to protect taxpayer information, restricts taxpayer account access to credentialed preparers, and continues to provide telephone and face-to-face service to taxpayers who need or prefer to speak with an IRS employee.

Earned Income Tax Credit Reform Could Reduce Its Improper Payment Rate While Not Impairing Participation by Eligible Taxpayers

The Earned Income Tax Credit (EITC), one of the government’s largest means-tested, anti-poverty programs has a high improper payments rate. At the same time, eligible taxpayers often have difficulty proving their eligibility due to the complexity of the law, the difficulty in providing traditional documentation, and the IRS’s reluctance to accept alternative documentation sources. In her 2016 Annual Report to Congress, the National Taxpayer Advocate plans to expand on prior recommendations to reform the eligibility requirements and administration of the EITC in order to reduce improper payments while maintaining a high participation rate among eligible individuals. TAS also plans to work with the IRS to develop flexible guidance for acceptance of alternative documentation sources.

The IRS Re-Engineering of Its Identity Theft Victim Assistance Procedures Is a Step in the Right Direction But Does Not Go Far Enough

The problem of stolen identity refund fraud requires that the IRS improve both its detection of fraudulent returns and its procedures to assist taxpayers who have been victimized by identity theft. The IRS has made significant strides in both areas, but as discussed above, the false positive rate in the Taxpayer Protection Program (TPP) remains high.  During the 2016 filing season, TPP filters stopped about 1.8 million returns, and taxpayers who called the TPP telephone line to verify their identities were told it would take about nine weeks for the IRS to release their refunds.  During the coming year, TAS will work with the IRS to improve victim assistance, including by shortening the time to resolve cases and issue refunds. In addition, TAS will continue to urge the IRS to assign a single employee to work with identity-theft victims whose cases involve multiple issues or span multiple tax years.

MORE AREAS OF FOCUS

Volume 2

IRS Responses and National Taxpayer Advocate's Comments Regarding Most Serious Problems Identified in 2015 Annual Report to Congress

In her 2015 Annual Report to Congress the National Taxpayer Advocate identified, analyzed, and offered recommendations to assist the IRS and Congress in resolving 24 of the most serious problems (MSPs) encountered by taxpayers. Volume II of this report includes the IRS formal comments on our recommendations, together with the National Taxpayer Advocate’s analysis of and responses to the comments.

READ VOLUME 2