The National Taxpayer Advocate (NTA) Nina Olson released her mid-year report to Congress. It presents a review of the 2017 filing season and identifies the top issues the Taxpayer Advocate Service (TAS) will address during the upcoming year.
In addition it contains IRS’s responses to 2016 administrative recommendations made in her 2016 Annual Report.
2017 Tax Season
Ms. Olson gave the IRS good marks for a generally successful filing season, including processing nearly 130 million returns, reducing the amount of identity theft, implementing new accelerated Form W-2 reporting requirements, and matching Forms W 2 against tax returns claiming refunds.
However, Ms. Olson said taxpayers who require assistance from IRS are continuing to face significant challenges obtaining it. She attributes part of the problem to resource limitations, saying that IRS funding has been reduced by nearly 20% since fiscal year 2010, after adjusting for inflation.
While taxpayer services and enforcement activities are both essential for effective tax administration, Ms. Olson says taxpayer services require more emphasis than they are currently receiving. She points out that more than 60% of the IRS budget is allocated to enforcement activities, while only about 4% is allocated for pre-filing taxpayer assistance and outreach.
The number of Taxpayer Assistance Centers (TACs) is declining each year, and because of IRS’s new appointment-only system, taxpayers who show up without an appointment are routinely turned away. In response to complaints from TAS and others, IRS has given TAC managers the discretion to make exceptions to the policy, but the general rule continues to require advance appointments.
The TACs have stopped offering free tax preparation for low income, elderly, and disabled taxpayers. They do not answer a wide range of tax law questions, which they classify as “out-of-scope,” during the filing season and will not answer any tax law questions outside the filing season. The report says that answering taxpayer questions about how to comply with the law should be viewed as a core function of tax administration.
During Filing Season (FS) 2017, IRS answered 79% of the telephone calls it received on its “Account Management” telephone lines that were routed to telephone assistors. That is up from 72% during FS 2016. In addition, the time these taxpayers spent on hold declined from 11.1 minutes in FS 2016 to 6.5 minutes in FS 2017.
Private Debt Collection
This spring, IRS began assigning delinquent taxpayer accounts to private collection agencies (PCAs). TAS reviewed the accounts of taxpayers whose debts had been assigned to PCAs. It found that a high percentage of the PCA accounts were very low income taxpayers.
The Advocate expressed concern that PCAs will pressure taxpayers who cannot afford to pay into doing so. When IRS itself is collecting unpaid taxes, it is authorized to perform a financial analysis of a taxpayer’s ability to pay, and it does not collect from taxpayers where its financial analysis shows doing so would impose a financial hardship. However, PCAs are not authorized to perform a financial analysis, and IRS has not authorized them to collect financial information from taxpayers that could be turned over to IRS for analysis. Because PCAs are paid a percentage of what they collect, there is a financial incentive for them to pressure even low income taxpayers from whom IRS ordinarily would not collect to make payments.
U.S. Passport Revocations and Denials
Congress enacted legislation in 2015 that requires the Department of State (DOS) to deny an individual’s passport application and allows the DOS to revoke or limit an individual’s existing passport if IRS certifies the individual has a “seriously delinquent” tax debt. The law provides an exception allowing the DOS to issue a passport to a certified individual in emergency circumstances or for humanitarian reasons.
TAS is concerned that IRS does not plan to notify taxpayers of its intent to certify their tax debts as “seriously delinquent” until the certification is taking place. The U.S. Supreme Court has held that the right to travel, including international travel, “is a part of the ‘liberty’ of which the citizen cannot be deprived without due process of law under the Fifth Amendment.” The report says that revoking a taxpayer’s passport without providing an additional stand-alone notice of intent to do so raises legitimate questions about whether the government has complied with the U.S. Constitution’s due process requirements. Apart from the questionable legality of failing to provide advance notice, the report points out that advance notice of a certification that will lead to denial or revocation of a passport is likely to cause many taxpayers to resolve their debts, thereby sparing both the taxpayer and the government from the bureaucratic hassle of revoking and then reinstating a passport.
IRS Response to Prior Year Recommendations
The report contains IRS’s general responses to each of the problems the Advocate identified in her 2016 year-end report as well as specific responses to each recommendation. In addition, it contains TAS’s analysis of IRS’s responses and, in some cases, details TAS’s disagreement with IRS’s position.
Overall, the Advocate made 93 administrative recommendations in her 2016 year-end report, and IRS has implemented or agreed to implement 35 of the recommendations.
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