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PREFACE: Introductory Remarks by the National Taxpayer Advocate, Including an Analysis of the Initial Effects of the Government Shutdown

TAXPAYER RIGHTS ASSESSMENT: IRS Performance Measures and Data Relating to Taxpayer Rights

The Most Serious Problems Encountered by Taxpayers: The Taxpayer’s Journey

Introduction

The Taxpayer’s Journey: Roadmaps of the Taxpayer’s Path Through the Tax System

The Prefiling Stage: Taxpayer Access to Information

1. TAX LAW QUESTIONS: The IRS’s Failure to Answer the Right Tax Law Questions at the Right Time Harms Taxpayers, Erodes Taxpayer Rights, and Undermines Confidence in the IRS
2. TRANSPARENCY OF THE OFFICE OF CHIEF COUNSEL: Counsel Is Keeping More of Its Analysis Secret, Just When Taxpayers Need Guidance More than Ever
3. NAVIGATING THE IRS: Taxpayers Have Difficulty Navigating the IRS, Reaching the Right Personnel to Resolve Their Tax Issues, and Holding IRS Employees Accountable

The Return Filing Process: Balancing Ease and Efficiency with Revenue Protection

4. FREE FILE: The IRS’s Free File Offerings Are Underutilized, and the IRS Has Failed to Set Standards for Improvement
5. FALSE POSITIVE RATES: The IRS’s Fraud Detection Systems Are Marred by High False Positive Rates, Long Processing Times, and Unwieldy Processes Which Continue to Plague the IRS and Harm Legitimate Taxpayers
6. IMPROPER EARNED INCOME TAX CREDIT PAYMENTS: Measures the IRS Takes to Reduce Improper Earned Income Tax Credit Payments Are Not Sufficiently Proactive and May Unnecessarily Burden Taxpayers
7. RETURN PREPARER OVERSIGHT: The IRS Lacks a Coordinated Approach to Its Oversight of Return Preparers and Does Not Analyze the Impact of Penalties Imposed on Preparers

The Examination Process: Minimizing Taxpayer Burden in the Selection and Conduct of Audits

INTRODUCTION TO THE EXAMINATION PROCESS: Promoting Voluntary Compliance and Minimizing Taxpayer Burden in the Selection and Conduct of Audits

8. CORRESPONDENCE EXAMINATION: The IRS’s Correspondence Examination Procedures Burden Taxpayers and are Not Effective in Educating the Taxpayer and Promoting Future Voluntary Compliance
9. FIELD EXAMINATION: The IRS’s Field Examination Program Burdens Taxpayers and Yields High No-Change Rates, Which Waste IRS Resources and May Discourage Voluntary Compliance
10. OFFICE EXAMINATION: The IRS Does Not Know Whether Its Office Examination Program Increases Voluntary Compliance or Educates the Audited Taxpayers About How to Comply in the Future
11. POST-PROCESSING MATH ERROR AUTHORITY: The IRS Has Failed to Exercise Self-Restraint in Its Use of Math Error Authority, Thereby Harming Taxpayers

The Notice Function: IRS Written Communication with Taxpayers

INTRODUCTION TO NOTICES: Notices Are Necessary to Inform Taxpayers of Their Rights and Obligations, Yet Many IRS Notices Fail to Adequately Inform Taxpayers, Leading to the Loss of Taxpayer Rights

12. MATH ERROR NOTICES: Although the IRS Has Made Some Improvements, Math Error Notices Continue to Be Unclear and Confusing, Thereby Undermining Taxpayer Rights and Increasing Taxpayer Burden
13. STATUTORY NOTICES OF DEFICIENCY: The IRS Fails to Clearly Convey Critical Information in Statutory Notices of Deficiency, Making it Difficult for Taxpayers to Understand and Exercise Their Rights, Thereby Diminishing Customer Service Quality, Eroding Voluntary Compliance, and Impeding Case Resolution
14. COLLECTION DUE PROCESS NOTICES: Despite Recent Changes to Collection Due Process Notices, Taxpayers Are Still at Risk for Not Understanding Important Procedures and Deadlines, Thereby Missing Their Right to an Independent Hearing and Tax Court Review

The IRS Collection Function: Minimizing Taxpayer Burden and Addressing Taxpayers’ Ability to Pay

INTRODUCTION TO COLLECTION: A Roadmap to the IRS Collection Process

15. ECONOMIC HARDSHIP: The IRS Does Not Proactively Use Internal Data to Identify Taxpayers at Risk of Economic Hardship Throughout the Collection Process
16. FIELD COLLECTION: The IRS Has Not Appropriately Staffed and Trained Its Field Collection Function to Minimize Taxpayer Burden and Ensure Taxpayer Rights Are Protected
17. IRS’S AUTOMATED COLLECTION SYSTEM (ACS): ACS Lacks a Taxpayer-Centered Approach, Resulting in a Challenging Taxpayer Experience and Generating Less Than Optimal Collection Outcomes for the IRS
18. OFFER IN COMPROMISE: Policy Changes Made by the IRS to the Offer in Compromise Program Make It More Difficult for Taxpayers to Submit Acceptable Offers
19. Private Debt Collection: The IRS’s Expanding Private Debt Collection Program Continues to Burden Taxpayers Who Are Likely Experiencing Economic Hardship While Inactive PCA Inventory Accumulates

The Litigation Stage: Access to Representation:

20. PRE-TRIAL SETTLEMENTS IN THE U.S. TAX COURT: Insufficient Access to Available Pro Bono Assistance Resources Impedes Unrepresented Taxpayers from Reaching a Pre-trial Settlement and Achieving a Favorable Outcome.

Status Update:

1. APPEALS: Appeals Has Taken Important Steps Toward Increasing Campus Taxpayers’ Access to In-Person, Quality Appeals, But Additional Progress is Required.

Legislative Recommendations

Introduction

National Taxpayer Advocate Legislative Recommendations With Congressional Action

1. IT MODERNIZATION: Provide the IRS with Additional Dedicated, Multi-Year Funding to Replace Its Antiquated Core IT Systems Pursuant to a Plan that Sets Forth Specific Goals and Metrics and Is Evaluated Annually by an Independent Third Party
2. ADMINISTRATIVE APPEAL RIGHTS: Amend Internal Revenue Code Section 7803(a) to Provide Taxpayers With a Legally Enforceable Administrative Appeal Right Within the IRS Unless Specifically Barred by Regulations
3. FIX THE FLORA RULE: Give Taxpayers Who Cannot Pay the Same Access to Judicial Review as Those Who Can
4. INNOCENT SPOUSE RELIEF: Clarify That Taxpayers May Raise Innocent Spouse Relief In Refund Suits
5. TAX COURT JURISDICTION: Fix the Donut Hole in the Tax Court’s Jurisdiction to Determine Overpayments by Non-Filers with Filing Extensions
6. INTERGOVERNMENTAL AGREEMENTS (IGAS): Amend Internal Revenue Code § 1474 to Allow a Period of Notice and Comment on New IGAs and to Require That the IRS Notify Taxpayers Before Their Data Is Transferred to a Foreign Jurisdiction Pursuant to These IGAs, Unless Unique and Compelling Circumstances Exist
7. FOREIGN ACCOUNT REPORTING: Authorize the IRS to Compromise Assessed FBAR Penalties It Administers
8. TAX WITHHOLDING AND REPORTING: Improve the Processes and Tools for Determining the Proper Amount of Withholding and Reporting of Tax Liabilities
9. INDIAN EMPLOYMENT CREDIT: Amend IRC § 45A to Make the Indian Employment Credit an Elective Credit for Employers Who Hire Native Americans
10. CHILD TAX CREDIT: Amend Internal Revenue Code § 24(c)(1) to Conform With § 152(c)(3)(B) for Permanently and Totally Disabled People Age 17 and Older

The Most Litigated Issues

Introduction

Significant Cases

1. Accuracy-Related Penalty Under IRC § 6662(b)(1) and (2)
2. Trade or Business Expenses Under IRC § 162 and Related Sections
3. Summons Enforcement Under IRC §§ 7602, 7604, and 7609
4. Gross Income Under IRC § 61 and Related Sections
5. Appeals From Collection Due Process (CDP) Hearings Under IRC §§ 6320 and 6330
6. 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
7. Civil Actions to Enforce Federal Tax Liens or to Subject Property to Payment of Tax Under IRC § 7403
8. Charitable Contribution Deductions Under IRC § 170
9. Itemized Deductions Reported on Schedule A (Form 1040)
10. Frivolous Issues Penalty Under IRC § 6673 and Related Appellate-Level Sanctions

TAS Case Advocacy

Appendices