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MSP #18: TAXPAYER PROTECTIONS

The IRS Needs Specific Procedures for Performing the Collection Due Process Balancing Test to Enhance Taxpayer Protections

TAS Recommendations and IRS Responses

1
1.

TAS RECOMMENDATION #18-1

In collaboration with TAS, formulate a policy statement on the CDP balancing test based on congressional intent.

IRS RESPONSE TO RECOMMENDATION: The empirical data show that Appeals already is meeting its requirement to balance collection alternatives. Of the 34,155 CDP cases considered in Fiscal Year 2014, no more than 181 were remanded by the Tax Court. An even smaller number of these were because the balancing test was misapplied, as opposed to other procedural errors. Appeals quality measurement data shows a 98.26% rate of cases in which Appeals met balancing analysis requirements.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate is concerned the IRS is missing the point of this Most Serious Problem.  The CDP Balancing test does not simply require “balancing” of collection alternatives. Congress created CDP to provide extra measures of protection for taxpayers against abuse in the collection arena and included the balancing test among the three major elements of a CDP hearing to ensure any collection be “no more intrusive than necessary.” The CDP balancing test requirement is critical to due process and fairness of tax administration – it does not dictate the outcome, but it does weigh the impact of the proposed collection action on the taxpayer with the government’s interest for efficient collection of taxes. The IRS’s refusal to adopt a policy statement underlying congressional intent and reiterating the focus of the balancing test on whether the collection action is more intrusive than necessary demonstrates a lack of commitment to taxpayer rights.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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2.

TAS RECOMMENDATION #18-2

In collaboration with TAS, develop specific factors for the application of the CDP balancing test based on an analysis of case law and legislative history for use by both Appeals and Collection.

IRS RESPONSE TO RECOMMENDATION: ​The empirical data show that Appeals already is meeting its requirement to balance collection alternatives.  Of the 34,155 CDP cases considered in Fiscal Year 2014, no more than 181 were remanded by the Tax Court. An even smaller number of these were because the balancing test was misapplied, as opposed to other procedural errors. Appeals quality measurement data shows a 98.26% rate of cases in which Appeals met balancing analysis requirements.

CORRECTIVE ACTION: N/A

TAS RESPONSE: As stated in the Most Serious Problem, while the vast majority of balancing test related cases ruled in favor of the IRS notwithstanding the IRS merely stated (without elaboration or proper analysis) in these cases that the balancing test had been performed, analyzed cases showed that there was little scrutiny or in-depth review, if any, of how an Appeals Officer balanced the taxpayer’s concerns with the government’s interest to collect. TAS believes this result is largely due to the abuse of discretion judicial standard of review, not because Appeals conducted the balancing test properly or analyzed any balancing factors. As indicated in the IRS’s response, it confuses analysis of collection alternatives with the balancing test, which should include meaningful factors, some of which were analyzed by courts.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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3.

TAS RECOMMENDATION #18-3

Revise the IRM to specifically prohibit pro forma statements that the balancing test has been performed, and instead require a description of what factors were considered and how they apply in the particular taxpayer’s case.

IRS RESPONSE TO RECOMMENDATION: The existing guidance on drafting an Appeals Case Memorandum (ACM) already effectively prohibits pro forma conclusions regarding the balancing test. The balancing analysis is the last of seven sections in the ACM that is completed by the Appeals Officer. The factors considered are found in the other sections of the ACM, which are incorporated into the ultimate conclusion. To the extent there is a pro forma or similar statement in a concluding section (which is very likely given the annual number of CDP cases), it is merely a confirmation that the analysis was performed.

CORRECTIVE ACTION: N/A

TAS RESPONSE: As explained in the Most Serious Problem, Hearing Officers are required to write a determination in the form of an Appeals Case Memo, in which they should document the balancing test was considered. However, there is little guidance on how to actually perform the balancing test in a meaningful way to ensure collection action is no more intrusive than necessary and taxpayer rights are not undermined.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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4.

TAS RECOMMENDATION #18-4

Integrate any newly developed factors for the application of the CDP balancing test into the Appeals IRM and train all Appeals Officers, Settlement Officers, and Appeals Account Resolution Specialists on applying the balancing test consistently.

IRS RESPONSE TO RECOMMENDATION: ​As reflected in the responses above, Appeals data do not support a need for developing new factors to perform the balancing test, or that existing training or guidance is deficient. From 2011-2014, there were at least five Enterprise Learning Management System (ELMS) courses that covered the balancing test and other major issues involving CDP cases, including verification that legal and administrative prerequisites to collection were met. This is further augmented by guidance in IRM sections 8.22.9.6.4 and 8.22.9.6.7.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRM does not elaborate on the balancing test or advise employees how to analyze the factors. The ongoing effort to incorporate TBOR into IRMs is a positive step toward protecting taxpayer rights. However, IRS should emphasize incorporating specific balancing test factors into the Collection IRM and training employees on how to analyze these factors during consideration of enforced collection actions.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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5.

TAS RECOMMENDATION #18-5

Incorporate balancing test analysis into the Collection IRM and provide necessary training to Collection employees.

IRS RESPONSE TO RECOMMENDATION: As the NTA acknowledges in the report,  recent revisions to Collection IRMs have a “meaningful incorporation of TBOR provisions” including a balancing test analysis. We will continue to review IRM sections during the normal update cycle and revise IRM sections to include the balancing test when/where appropriate. Our Field and Campus collection new hire training will be updated to include any changes made to the IRM. In addition, we have provided all of our Compliance employees specific messages highlighting the Taxpayer Bill of Rights and actions our employees take in support of these rights every day.

Update: The Collection Policy IRMs, containing the balancing test analysis underlying Collection Due Process in the Taxpayer Bill of Rights, were published in 2013 and 2014. (see attached listing with excerpts…. full copies of IRM sections are available online) Collection Policy has a commitment with Training to review all Collection Training content ensuring all policy, procedures, and references are updated appropriately. This includes new hire training.

The Field Collection new hire training is updated as needed. The last previous update to the content was in 2014. This year new hires are again coming on board and the new hire curriculum review was completed on June 3, 2016. Copies of applicable sections attached. Collection has a commitment to continually update this training material.

For FY2015 Campus Collection developed and delivered via ebook a module titled Protecting Taxpayer Rights (copy attached). This material will be used in the Campus new hire curriculum once employees are brought on.

CORRECTIVE ACTION: We will update “new hire” training for Field Collection and Campus Collection to ensure it reflects the latest Collection IRM guidance on the balancing test analysis.

TAS RESPONSE: The ongoing effort to incorporate TBOR into IRM is a positive step toward protecting taxpayer rights. However, the emphasis should be given to incorporating specific balancing test factors into the Collection IRM and training employees on how to analyze these factors during consideration of enforced collection actions.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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