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MSP #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

TAS Recommendations and IRS Responses

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1.

TAS RECOMMENDATION #13-1

Redesign the notices of deficiency, using plain language principles and behavioral science methods, to clearly convey the taxpayer’s proposed tax increase, his or her right to challenge the IRS’s determination before the Tax Court, and his or her ability to obtain TAS or LITC assistance.

a.  Collaborate with the Taxpayer Advocate Service and stakeholders, especially the Taxpayer Advisory Panel (TAP) and Low Income Taxpayer Clinics, in designing the SNOD.

b.  Conduct a pilot of several SNODs, including current notices and rights-based prototypes, to measure: (1) the petition rate of each notice; (2) the TAS contact rate for each notice; (3) the IRS contact rate for each notice; and (4) the downstream consequences of each notice (e.g., disposition of cases, such as whether the taxpayer settled, conceded, or prevailed in Tax Court and whether the taxpayer’s deficiency decreased or the taxpayer requested an audit reconsideration).

IRS RESPONSE TO RECOMMENDATION:

a)  The IRS collaborates with TAS and other stakeholders to secure feedback during the revision and creation of statutory notices as part of the regular stakeholder review process.

We revised Letter 3219 (Correspondence Exam), Notice 3219A (AUR), Letter 531 (Field Examination), Letter 1753 (Tax-Exempt), and Letter 531-A/B in collaboration with TAS, Counsel, and the OTC. The revised notices include plain language principles, clearly indicate the proposed tax increase and taxpayer’s right to petition tax court, and provide information on how to file a U.S. Tax Court petition and how to obtain assistance from  TAS.

We revised Letter 3219-B (BMF Underreporter) using plain language principles and the notice includes the closest local TAS office and phone number based on the taxpayer’s zip code.

b)  Our Collection Operating Unit has been working on an in-depth notice redesign program for certain balance due notices.  This redesign has included various organizations across the IRS as well as private contractors. Based on the success of that effort, the SB/SE Examination Operating  Unit will consider whether such an effort is appropriate for SNOD notices based on cost-benefit considerations. Regardless, letters are reviewed on a regular basis and updated as necessary to continuously provide clear guidance and information.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate is pleased that the IRS agrees a focus on redesigning notices of deficiency, using plain language principles and behavioral science methods, is a priority and appreciates the IRS’s efforts in collaborating with TAS, Counsel, and the OTC in revising several notices. However, the IRS should expand on those efforts to include outside stakeholders, such as the Taxpayer Advocacy Panel (TAP) and LITCs, which would produce a better-informed notice redesign. The data confirms that less than one percent of taxpayers who received a statutory notice of deficiency filed a petition with the Tax Court. The National Taxpayer Advocate is concerned that the lack of taxpayers’ responses to SNODs may be, in part, due to faulty design and poor presentation of information in the notices, making it difficult for taxpayers to understand critical information and exercise their right to appeal an IRS decision in an independent forum. Even more alarming is that the majority of  those  notices  of deficiency are issued to low income taxpayers, who are less likely to petition the Tax Court, as illustrated in the Annual Report.  The IRS  should investigate new, and different, approaches in reaching this low income population.  By all accounts, the IRS can improve upon the “regular stakeholder-review process” it describes above by doing  so.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

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

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2.

TAS RECOMMENDATION #13-2

Develop and train IRS employees in best practices for assisting taxpayers who call the IRS in response to a SNOD, including having IRS employees remind and guide taxpayers in filing Tax Court petitions.

IRS RESPONSE TO RECOMMENDATION: ​Examination employees are trained on how to respond to taxpayers regarding questions received about a SNOD and the process to file a petition. Employees do not assist with the actual preparation of a petition.

The Enterprise Learning Management System (ELMS) Course # 12256, Exam Toll-Free Telephone Assistors Guide, provides guidance for employees responding to taxpayer questions on information contained in a SNOD and how to assist taxpayers on how to file a U.S. Tax Court petition.

For Field operations, contact procedures are outlined in Internal Revenue Manual (IRM) 4.8.9.20.3, Taxpayer Contact.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate is pleased the IRS provides an ELMS course focused on guiding employees responding to taxpayer questions on information contained in a SNOD and how to assist taxpayers on how to file a U.S. Tax Court petition. However, the course should be mandatory for telephone assistors. Because it is critical that taxpayers dispute the assessed tax within 90 days of receiving the notice in order to challenge the tax in an independent judicial forum, it’s incumbent upon these telephone assistors to communicate that information to taxpayers, particularly because the telephone assistors may be the only IRS employee the taxpayer speaks with before the 90 days expire.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

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

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3.

TAS RECOMMENDATION #13-3

Facilitate the process for petitioning the Tax Court by including with the notice of deficiency the Tax Court website and telephone number, as well as a copy of IRS Publication 4134, Low Income Taxpayer Clinic List.

IRS RESPONSE TO RECOMMENDATION: We agree with this recommendation and have already updated a number of notices as follows. The recent redesign of the Letter 3219 (Correspondence Examination) and Letter 3219-B (BMF Underreporter) includes the U.S. Tax Court website and telephone number. Publication 3498-A sent with the Letter 3219 provides information on Low Income Tax Clinics (LITCs) and refers taxpayers to the LITC website and IRS Publication 4134. The BMF Underreporter taxpayers do not meet the criteria for LITC assistance.

The revised Letter 531 (Field Examination) includes the U.S. Tax Court website and telephone number. Information regarding the LITCs is in the letter, including the web address for LITCs, reference to Publication 4134, LITC List, and a web address to link to LITCs on the Taxpayer Advocate’s webpage.

The revised notices relating to tax-exempt organizations and employee plans (Letters 531-A, 531-B, and 1753) also include the U.S. Tax Court website and telephone number. We will update these notices to cite or enclose Publication 4134 where appropriate.

The IRS will add the U.S. Tax Court’s website and phone number to any statutory notices not yet updated.  A copy of the four-page IRS Publication 4134 will be included with each notice.

CORRECTIVE ACTION: The IRS will add the U.S. Tax Court’s website and phone number to any statutory notices not yet updated.  A copy of the four-page IRS Publication 4134 will be included with each notice.

TAS RESPONSE: We commend the IRS for its dedication in providing excellent service and delivering the best service possible to taxpayers, particularly those who may be trying to get back on their feet and respond to notices of deficiency.  The National Taxpayer Advocate greatly appreciates the IRS’s commitment to update notices to cite or enclose Publication 4134, where appropriate, and to add the U.S. Tax Court’s website and phone number to any statutory notices not yet updated. We also appreciate the IRS’s agreement to implement this recommendation, to include providing a copy of the four-page IRS Publication 4134 with each notice.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

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

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4.

TAS RECOMMENDATION #13-4

Include the Local Taxpayer Advocate’s contact information on the face of the notices, specifically on Letters 3219-C, 1753, 531-A, and 531-B.

a.  If the IRS is unable to update computer programming to provide the telephone number and address information of LTAs pursuant to IRC § 6212(a) during the current year, include Notice 1214,  listing all LTA office contact information, when mailing letters 3219-C, 1753, 531-A, and 531-B.

b. Develop a timeline to secure and allocate funding to implement the necessary IRS system upgrades to allow for the programming of LTA addresses and contact information on the face of letters 3219-C, 1753, 531-A, and 531-B, as required by law.

IRS RESPONSE TO RECOMMENDATION:

a)  Revisions of Letters 531-A, 531-B, 1753 were recently sent to publishing. The revised letters say, “Find the location and phone number of your local Taxpayer Advocate at www.taxpayeradvocate.irs.gov/contact-us or call TAS at 877-777- 4778.” Letters 1753 and 3219-C include Notice 1214.

b)  In 2018, the IRS added LTA  addresses based on the taxpayer’s ZIP code to many statutory notices. The IRS has submitted a request for programming in order to add the LTA  addresses to the letter 3219-C and is awaiting approved funding to complete the request, which would be contingent on significant upgrades to the system. For the other letters, we are working to identify a technological solution and will develop a timeline depending on the systemic requirements.

Update: Letters 531A, 531B, and 1753 were revised to include the Local Taxpayer Advocate (LTA) address information and subsequently removed the Notice 1214 insert.  The 3219C letter contains program tie-ins with the IAT Letter Tool. Media and Publications and TAS collaborated with SERP developers who have housed and developed a database to maintain the LTA addresses. The correspondence generation process will include a step to access this database and extract the appropriate LTA  information based on the taxpayers zip code. The anticipated completion date for the letter to contain the addresses for use is June 2020. The 3219C letter will also be revised to include the new LITC language and Notice 1214 will be removed from the 3219C letter as an insert.

CORRECTIVE ACTION: a)  Revisions of Letters 531-A, 531-B, 1753 were recently sent to publishing. The revised letters say, “Find the location and phone number of your local Taxpayer Advocate at www.taxpayeradvocate.irs.gov/contact-us or call TAS at 877-777- 4778.” Letters 1753 and 3219-C include Notice 1214.

TAS RESPONSE: In the twenty years since Congress enacted the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98), codified at 26 U.S.C. § 6212(a), the National Taxpayer Advocate has continued to raise this issue, and TAS has worked extensively with the IRS to ensure the service updates its notices with the required LTA information. While the National Taxpayer Advocate appreciates the IRS’s efforts to include Notice 1214, which contains LTA contact information for each state, by its own admission, the IRS is still not able to include the Notice 1214 with every SNOD.

We also appreciate that the IRS has submitted a request for programming to add LTA addresses to the letter 3219-C. Understanding the budget constraints in making upgrades to the system, the National Taxpayer Advocate applauds the IRS’s commitment to work on identifying a technological solution and developing a timeline for programming, particularly in light of the IRS’s previous claims that doing so was  impossible.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

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

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