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MSP #7: IRS TRANSPARENCY

Lack of Transparency About Processing Delays and Other Key Data Frustrates Taxpayers and May Undermine Voluntary Compliance

 

TAS Recommendations and IRS Responses

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1.

TAS RECOMMENDATION #7-1

Make the operational plan, due six months from the enactment of the Inflation Reduction Act, available to the public by posting it on IRS.gov and allow for stakeholder comments on the plan and future improvements.

IRS RESPONSE TO RECOMMENDATION: IRS agrees to implement the TAS recommendation in full.

Since passage of the Inflation Reduction Act, the IRS has worked quickly to build out a Strategic Operating Plan and stand up a Transformation & Strategy Office. The IRS Inflation Reduction Act Strategic Operating Plan was made public via press release and posting on IRS.gov on April 6, 2023.

CORRECTIVE ACTION: N/A – Actions have already been completed.

TAS RESPONSE: To ensure accountability as it implements the SOP, it is critical that the IRS be transparent, including future modifications to how it will use the funds provided by Congress.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

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

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2.

TAS RECOMMENDATION #7-2

Commit to providing to the public and oversight organizations regular reports regarding the allocation of the increased funding and include performance metrics that show the results of how the IRS has applied the funds.

IRS RESPONSE TO RECOMMENDATION: IRS agrees to implement the TAS recommendation in full.

The Transformation and Strategy Office will be led by a Chief Transformation and Strategy Officer (CTSO) who will report directly to the IRS Commissioner. The CTSO will coordinate an advisory committee to facilitate informed decision-making by the Commissioner on issues related to strategic alignment and problem-solving.

The office will be responsible for monitoring and reporting progress, identifying and solving implementation challenges, enabling well-informed and fact-based decision-making, and managing enterprise-wide change efforts

The Transformation and Strategy Office will coordinate an update of this plan annually based on lessons learned, progress made and a changing environment. This will, in turn, provide renewed and current guidance on strategic priorities to IRS leaders and employees. Progress updates will be provided at least annually to external stakeholders—including the Office of Management and Budget, Congress and the public—through existing reporting and review processes like the Annual Performance Plan and Report. The IRS welcomes the opportunity to discuss progress more regularly with Congress and other stakeholders.

CORRECTIVE ACTION: N/A – Actions have already been completed.

TAS RESPONSE: To be transparent, the National Taxpayer Advocate believes it is necessary to treat the SOP as a living document that will provide meaningful updates to IRS leadership and employees, Congress, the public, and external stakeholders regarding what has been implemented, what remains to be implemented, and what funds have been used thus far.

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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3.

TAS RECOMMENDATION #7-3

Improve Where’s My Refund?, IRS2Go, and online accounts by providing taxpayers increased functionality, including specific information about the cause of their refund delay and an estimated date when the IRS might issue their refund.

IRS RESPONSE TO RECOMMENDATION: ​​

IRS agrees to implement the TAS recommendation in part.

On January 3, 2023, the IRS added the Where’s My Refund (WMR) status tracker for many scenarios where a refund is held or delayed. Additionally, we removed the “take action” banner from scenarios where it was not necessary and added six new math error descriptions for instances where the IRS corrects a refund amount during processing. The IRS2Go app displays the same information as the WMR application, including the following updates:

  • We changed your filing status. We refigured your tax using the Single filing status based on the information on your tax return.
  • We changed the amount claimed as credit for child and dependent care expenses on your tax return because there was an error on your Form 2441, Child and Dependent Care Expenses. The error was in one of the following:
    • Computation of the credit on Form 2441
    • Transfer of the amount to your tax return
  • We changed the amount claimed as nonrefundable Child Tax Credit or credit for other dependents on your tax return because you either didn’t enter an amount or entered an incorrect amount based on the number of boxes you checked on page 1 of your tax return.
  • We changed the amount claimed as excess Social Security tax withheld or tier 1 RRTA withheld on your tax return because you incorrectly calculated the excess amount.
  • We can’t allow your refundable Child Tax Credit. According to information on Schedule 8812, Credits for Qualifying Children and Other Dependents, your main home was not in the United States for six months or more and you were not a bona fide resident of Puerto Rico. These requirements don’t apply when claiming the nonrefundable Child Tax Credit or additional Child Tax Credit. We changed the credit amount to include the nonrefundable or additional Child Tax Credit as appropriate.
  • We can’t allow the refundable portion of your child and dependent care credit. According to information on Form 2441, Child and Dependent Care Expenses, your main home was not in the United States for six months or more. We changed your return accordingly.

The IRS plans to incorporate more detailed status messaging and WMR capabilities including extracting Error Resolution System (ERS) data, providing more specific messages based on ERS status codes, extracting data for certain Taxpayer Protection Program delays, and allowing direct deposit recipients or married filing joint taxpayers to self-initiate a refund trace.

Currently, Online Account does not contain information on the status of a taxpayer’s refund. Integrating this type of functionality is planned for the future but has not yet been approved for development.

CORRECTIVE ACTION: N/A – Actions have already been completed.

TAS RESPONSE: The National Taxpayer Advocate welcomes the additional enhancements to the Where’s My Refund? tools and taxpayers’ online accounts scheduled to be implemented soon. IRS efforts to provide taxpayers with information regarding their refunds is a key component to transparency and will reduce frustrations and minimize the taxpayer’s need to call the IRS and inquire about their refund.

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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4.

TAS RECOMMENDATION #7-4

Post a filing season dashboard and provide weekly information throughout the year on the filing season statistics, including the total number of returns in inventory, number of returns held beyond normal processing times, number of returns in suspense status, and the anticipated timeframes for working through them, while acknowledging that the situation is fluid and timeframes may change along with circumstances.

IRS RESPONSE TO RECOMMENDATION: ​IRS agrees to implement the TAS recommendation in full.

The IRS has collaborated with the National Taxpayer Advocate to develop a dashboard for placement on IRS.gov. This dashboard is still under review for final posting.

CORRECTIVE ACTION: The IRS has collaborated with the National Taxpayer Advocate to develop a dashboard for placement on IRS.gov. This dashboard is still under review for final posting.

Update: Processing Dashboard went live on December 18, 2023.

TAS RESPONSE: It is critical that taxpayers and external stakeholders can easily determine and evaluate the IRS’s progress in processing tax returns. A comprehensive dashboard is a simple and efficient way to create a public resource to obtain this necessary information. Although the IRS first agreed to develop this dashboard over 15 months ago, TAS is still awaiting its final design and installation on IRS.gov in anticipation of the 2024 filing season.

Update: TAS is monitoring this recommendation until after the 2024 filing season so we can analyze the dashboard in action when it matters the most to taxpayers.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Open

DUE DATE FOR ACTION (if left open): TBD

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5.

TAS RECOMMENDATION #7-5

Clearly state on all guidance the extent to which the taxpayer can rely upon it either for penalty relief or in an audit.

IRS RESPONSE TO RECOMMENDATION: IRS agrees to implement the TAS recommendation in part.

Every edition of the Internal Revenue Bulletin (IRB) includes language describing whether the guidance included therein may be relied upon by taxpayers. The same language is repeated on the IRS.gov webpage entitled “General Overview of Taxpayer Reliance on Guidance Published in the Internal Revenue Bulleting and FAQs.

The IRS.gov reliance webpage also addresses the extent to which taxpayers may rely upon FAQs that are on IRS.gov. To the extent TAS Recommendation #7-5 extends to IRS.gov webpages, publications, forms, instructions, and other informal guidance not included in the IRB, the same statements should apply. It is not feasible to append this reliance statement to each IRS.gov webpage, publication, form, instruction, and other guidance not included in the IRB whether maintained electronically or on paper. However, the IRS will update the IRS.gov reliance webpage to include a reference to other IRS.gov webpages, publications, forms, instructions, and other types of informal guidance made public by the IRS as subject to the same reliance limitations as FAQs and will add a link to the updated page on the bottom of the irs.gov home page under Know Your Rights.

More broadly, as part of the longer-term process of implementing the IRS Inflation Reduction Act Strategic Operating Plan, the IRS intends to coordinate with the Office of Chief Counsel and the Department of the Treasury Office of Tax Policy to expand capacity to provide as much certainty on tax issues as quickly as possible to enable more taxpayers to meet their filing and tax obligations voluntarily, at the lowest cost.

CORRECTIVE ACTION: The IRS will update the IRS.gov reliance webpage to include a reference to other IRS.gov webpages, publications, forms, instructions, and other types of informal guidance made public by the IRS as subject to the same reliance limitations as FAQs and will add a link to the updated page on the bottom of the irs.gov home page under Know Your Rights.

More broadly, as part of the longer-term process of implementing the IRS Inflation Reduction Act Strategic Operating Plan, the IRS intends to coordinate with the Office of Chief Counsel and the Department of the Treasury Office of Tax Policy to expand capacity to provide as much certainty on tax issues as quickly as possible to enable more taxpayers to meet their filing and tax obligations voluntarily, at the lowest cost.

Update: We have started the drafting process but need time to finish the drafting and obtain all necessary Counsel approvals. We likely need until 12/31/2023 to complete the process of drafting the language, getting Counsel approval, and posting on IRS.gov.

Update: We are close to finishing our work on the recommendation. We have the necessary Counsel approvals but want to do a final review of the language. The next step will be to ask C&L to post the updated reliance page.

TAS RESPONSE: The IRS’s solution falls short of ensuring that all taxpayers are aware of what guidance is formal and can be relied upon and what guidance is informal and cannot be relied upon. Though the IRS agreed to enhance its webpages to provide taxpayers with more information regarding what guidance they can or cannot rely upon, many taxpayers assume that any guidance published by the IRS is reliable. Most taxpayers do not understand the distinction. Having the IRS provide a short but clear statement on all guidance is the best way to embrace transparency and ensure taxpayers are fully informed about the distinction between formal and informal guidance and what can and cannot be relied upon.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Open

DUE DATE FOR ACTION (if left open): 1/17/2024

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6.

TAS RECOMMENDATION #7-6

In conjunction with IRS Chief Counsel, update the PGP to be a living document that specifies the type of guidance the IRS is developing, the issues it will address, the current status of the guidance, and the estimated date of completion.

IRS RESPONSE TO RECOMMENDATION: ​​IRS does not agree to implement the TAS recommendation.

The preamble to the Priority Guidance Plan (PGP) notes that it is a joint IRS and Department of Treasury document that, as the title suggests, lists formal guidance items that are considered priorities for publication within the next guidance year. The PGP “focuses resources on guidance items that are most important to taxpayers and tax administration.” The preamble further notes that the plan does not provide any deadline for completing the projects and states that the IRS and Department of Treasury intend to update the plan during the year to “reflect additional items that become priorities, guidance that is published during the plan year, and projects that may result from legislative developments”. The periodic updates allow the IRS and Department of Treasury flexibility to consider comments received from taxpayers and tax practitioners relating to additional projects and to respond to developments arising during the plan year. It is nearly impossible to specify with any certainty either the complete scope of any one guidance project because as guidance develops through the drafting process, the scope often changes, and timelines must be adjusted. Similarly, legislative and other developments during the year necessarily will affect the priority and timing of other projects on the plan. Finally, only Internal Revenue Bulletin guidance is reflected in the plan. All changes to the PGP must be done in conjunction with Treasury, and thus requires the same consultative process as the publication of the initial PGP. Consequently, real time updates are simply not possible. Other types of less formal guidance, such as IRS.gov webpages, publications, forms, instructions, and other informal guidance not included in the IRB are issued by the IRS and not included in the PGP. It would be impractical for the IRS to include every piece of such informal guidance on the PGP let alone with the degree of specificity suggested by TAS. Among other reasons, there is no centralized function that coordinates or tracks all such guidance being developed by the responsible divisions and functions.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate views this response as a failure to embrace transparency by keeping taxpayers updated on its efforts to provide guidance in a timely manner. TAS fully understands that the development and review process of guidance can often encounter unexpected delays and must be conducted in a deliberate fashion. But that’s why the recommendation was to create a living document that could be updated regularly as circumstances demand. The current layout of the PGP is difficult for taxpayers to follow and is inadequate in its level of detail. This lack of transparency makes it difficult for the public and external stakeholders to hold the IRS and other responsible parties accountable for the timely development of guidance.

Although the PGP may not be the appropriate place to add information about informal guidance that the IRS is developing, it is critical to fully embrace transparency by providing taxpayers with information about the type of informal guidance currently in development and when such guidance might be released – as currently there is nothing that provides taxpayers with this information. The National Taxpayer Advocate urges the IRS to reconsider its decision and would be happy to collaborate on a solution that’s feasible while providing taxpayers the information they desperately need.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

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