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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.

Report Contents

Executive Summary & Full Downloads

Volume One: Most Serious Problems, Recommendation to Congress, and Most Litigated Issues

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

  1. FREE FILE: The IRS’s Free File Offerings Are Underutilized, and the IRS Has Failed to Set Standards for Improvement
  2. 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
  3. 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
  4. 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

  1. CORRESPONDENCE EXAMINATION: The IRS’s Correspondence Examination Procedures Burden Taxpayers and are Not Effective in Educating the Taxpayer and Promoting Future Voluntary Compliance
  2. 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
  3. 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
  4. 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

  1. 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
  2. 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
  3. 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

  1. ECONOMIC HARDSHIP: The IRS Does Not Proactively Use Internal Data to Identify Taxpayers at Risk of Economic Hardship Throughout the Collection Process
  2. FIELD COLLECTION: The IRS Has Not Appropriately Staffed and Trained Its Field Collection Function to Minimize Taxpayer Burden and Ensure Taxpayer Rights Are Protected
  3. 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
  4. 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
  5. 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:

  1. 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

Volume Two: TAS Research and Related Studies

National Taxpayer Advocate 2019 Purple Book: Compilation of Legislative Recommendations to Strengthen Taxpayer Rights and Improve Tax Administration

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. Require the IRS to Provide Taxpayers with a “Receipt” Showing How Their Tax Dollars Are Being Spent

IMPROVE THE FILING PROCESS

  1. Authorize the Volunteer Income Tax Assistance Grant Program
  2. Authorize the IRS to Establish Minimum Competency Standards for Federal Tax Return Preparers
  3. Require That Electronically Prepared Paper Tax Returns Include a Scannable Code
  4. Clarify That IRS Employees May Help Taxpayers Locate a Specific Low Income Taxpayer Clinic
  5. Extend the Time for Small Businesses to Make Subchapter S Elections
  6. Require Employers Filing More than Five Forms W-2, 1099-MISC, and 941 to Submit Them Electronically
  7. Authorize the Treasury Department to Recover Misdirected Deposits of Tax Refunds and Pay Them to the Correct Taxpayers
  8. Treat Electronically Submitted Tax Payments as Timely if Submitted Before the Applicable Deadline
  9. Adjust Estimated Tax Payment Deadlines to Occur Quarterly
  10. Harmonize Reporting Requirements for Taxpayers Subject to Both FBAR and FATCA 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. 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
  3. 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
  4. Improve Offer in Compromise Program Accessibility by Repealing the Partial Payment Requirement
  5. Modify the Requirement That the Office of Chief Counsel Review Certain Offers-in-Compromise
  6. Require the IRS to Mail Notices at Least Quarterly to Taxpayers with Delinquent Tax Liabilities
  7. Protect Retirement Funds from IRS Levies in the Absence of “Flagrant Conduct” By a Taxpayer
  8. Toll the Time Periods for Requesting the Return of Levy Proceeds While the Taxpayer or a Pertinent Third Party Is Financially Disabled
  9. Authorize the IRS to Release Levies That Cause Economic Hardship for Business Taxpayers
  10. Strengthen Taxpayer Protections in the Filing of Notices of Federal Tax Lien
  11. Provide Taxpayer Protections Before the IRS Recommends the Filing of a Lien Foreclosure Suit on a Principal Residence
  12. Provide Collection Due Process Rights to Third Parties Holding Legal Title to Property Subject to IRS Collection Actions
  13. Extend the Time Limit for Taxpayers to Sue for Damages for Improper Collection Actions
  14. Codify the Rule That Taxpayers Can Request Equitable Relief Under IRC § 6015(f) Any Time Before Expiration of the Period of Limitations on Collection
  15. Direct the IRS to Study the Feasibility of Using an Automated Formula to Identify Taxpayers at Risk of Economic Hardship
  16. Amend IRC § 6306(d) to Exclude the Debts of Taxpayers Whose Incomes Are Less Than Their Allowable Living Expenses From Assignment to Private Collection Agencies or, If That Is Not Feasible, Exclude the Debts of Taxpayers Whose Incomes Are Less Than 250 Percent of the Federal Poverty Level

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. Authorize a Penalty for Tax Return Preparers Who Engage in Fraud or Misconduct by Altering a Taxpayer’s Tax Return
  5. Require Written Managerial Approval Before Assessing the Accuracy-Related Penalty for “Negligence”
  6. Compensate Taxpayers for “No Change” National Research Program Audits

STRENGTHEN TAXPAYER RIGHTS BEFORE THE OFFICE OF APPEALS

  1. Provide Taxpayers with a Legally Enforceable Right to an Administrative Appeal within the IRS, Except if Specifically Barred by Regulations
  2. 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
  3. Require Taxpayers’ Consent Before Allowing IRS Counsel or Compliance Personnel to Participate in Appeals Conferences

ENHANCE CONFIDENTIALITY AND DISCLOSURE PROTECTIONS

  1. Limit Redisclosures and Unauthorized Uses of Tax Returns and Tax Return Information Obtained Through Section 6103-Based “Consent” Disclosures
  2. Authorize the Treasury Department to Issue Guidance Specific to IRC § 6713 Regarding the Disclosure or Use of Tax Return Information by Preparers
  3. 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. Codify the National Taxpayer Advocate’s Authority to Issue Taxpayer Advocate Directives
  4. Clarify the Taxpayer Advocate Service’s Access to Files, Meetings, and Other Information
  5. Authorize the National Taxpayer Advocate to File Amicus Briefs
  6. Require the IRS to Address the National Taxpayer Advocate’s Comments in Final Rules
  7. Authorize the Office of the Taxpayer Advocate to Assist Certain Taxpayers During a Lapse in Appropriations
  8. Repeal Statute Suspension Under IRC § 7811(d) for Taxpayers Seeking Assistance from the Taxpayer Advocate Service
  9. Establish the Compensation of the National Taxpayer Advocate by Statute and Eliminate Eligibility for Cash Bonuses

STRENGTHEN TAXPAYER RIGHTS IN JUDICIAL PROCEEDINGS

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

MISCELLANEOUS RECOMMENDATIONS

  1. Establish the Position of IRS Historian Within the Internal Revenue Service to Record and Publish Its History
  2. 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
  3. 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