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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. The report identifies at least 20 of the most serious problems facing taxpayers and offers recommendations to fix them. Some of the issues, like tax reform and IRS’s need to expand its various taxpayer services, affect virtually every American taxpayer. Others, like the Alternative Minimum Tax, refund delays, and tax-related identity theft, impact large groups of taxpayers. The Taxpayer Advocate Service (TAS), led by the National Taxpayer Advocate, is your voice at the IRS. Some of the problems discussed in this report were first identified when taxpayers came to TAS for help in resolving problems with the IRS.

TAS is an independent organization within the IRS. The National Taxpayer Advocate delivers this report directly to the tax-writing committees in Congress (the House Committee on Ways and Means and the Senate Committee on Finance), with no prior review by the IRS Commissioner, the Secretary of the Treasury, or the Office of Management and Budget.

Report Contents

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

Executive Summary

Preface: A Path to Strengthening Tax Administration and Improving Voluntary Tax Compliance

Volume One

Introduction

The Most Significant Issues Facing Taxpayers and the IRS Today

  1. TAXPAYER RIGHTS: The IRS Should Adopt a Taxpayer Bill of Rights as a Framework for Effective Tax Administration
  2. IRS BUDGET: The IRS Desperately Needs More Funding to Serve Taxpayers and Increase Voluntary Compliance
  3. EMPLOYEE TRAINING: The Drastic Reduction in IRS Employee Training Impacts the Ability of the IRS to Assist Taxpayers and Fulfill its Mission
  4. TAXPAYER RIGHTS: Insufficient Education and Training About Taxpayer Rights Impairs IRS Employees’ Ability to Assist Taxpayers and Protect Their Rights
  5. REGULATION OF RETURN PREPARERS: Taxpayers and Tax Administration Remain Vulnerable to Incompetent and Unscrupulous Return Preparers While the IRS Is Enjoined from Continuing its Efforts to Effectively Regulate Return Preparers

 

Problems Facing Vulnerable Taxpayer Populations

  1. IDENTITY THEFT: The IRS Should Adopt a New Approach to Identity Theft Victim Assistance that Minimizes Burden and Anxiety for Such Taxpayers
  2. HARDSHIP LEVIES: Four Years After the Tax Court’s Holding in Vinatieri v. Commissioner, the IRS Continues to Levy on Taxpayers it Acknowledges Are in Economic Hardship and Then Fails to Release the Levies
  3. RETURN PREPARER FRAUD: The IRS Still Refuses to Issue Refunds to Victims of Return Preparer Misconduct Despite Ample Guidance Allowing the Payment of Such Refunds
  4. EARNED INCOME TAX CREDIT: The IRS Inappropriately Bans Many Taxpayers from Claiming EITC
  5. INDIAN TRIBAL TAXPAYERS: Inadequate Consideration of Their Unique Needs Causes Burdens

Problems Relating to IRS Collection Policies and Practices

  1. COLLECTION STRATEGY: The Automated Collection System’s Case Selection and Processes Result in Low Collection Yields and Poor Case Resolution, Thereby Harming Taxpayers and the Public Fisc
  2. COLLECTION PROCESS: IRS Collection Procedures Harm Business Taxpayers and Contribute to Substantial Amounts of Lost Revenue
  3. COLLECTION STATUTE EXPIRATION DATES: The IRS Lacks a Process to Resolve Taxpayer Accounts with Extensions Exceeding its Current Policy Limits
  4. COLLECTION DUE PROCESS HEARINGS: Current Procedures Allow Undue Deference to the Collection Function and Do Not Provide the Taxpayer a Fair and Impartial Hearing

Problems Causing Increased Taxpayer Burden

  1. EXEMPT ORGANIZATIONS: The IRS Continues to Struggle with Revocation Processes and Erroneous Revocations of Exempt Status
  2. REVENUE PROTECTION: Ongoing Problems with IRS Refund Fraud Programs Harm Taxpayers by Delaying Valid Refunds
  3. ACCURACY-RELATED PENALTIES: The IRS Assessed Penalties Improperly, Refused to Abate Them, and Still Assesses Penalties Automatically
  4. ONLINE SERVICES: The IRS’s Sudden Discontinuance of the Disclosure Authorization and Electronic Account Resolution Applications Left Practitioners Without Adequate Alternatives
  5. IRS WORKER CLASSIFICATION PROGRAM: Current Procedures Cause Delays and Hardships for Businesses and Workers by Failing to Provide Determinations Timely and Not Affording Independent Review of Adverse Decisions

Problems Facing International Taxpayers

  1. INTERNATIONAL TAXPAYER SERVICE: The IRS Is Taking Important Steps to Improve International Taxpayer Service Initiatives, But Sustained Effort Will Be Required to Maintain Recent Gains
  2. INDIVIDUAL TAXPAYER IDENTIFICATION NUMBERS (ITINS): Application Procedures Burden Taxpayers and Create a Barrier to Return Filing
  3. OFFSHORE VOLUNTARY DISCLOSURE: The IRS Offshore Voluntary Disclosure Program Disproportionately Burdens Those Who Make Honest Mistakes
  4. REPORTING REQUIREMENTS: The Foreign Account Tax Compliance Act Has the Potential to Be Burdensome, Overly Broad, and Detrimental to Taxpayer Rights

Introduction

National Taxpayer Advocate Legislative Recommendations with Congressional Action

  1. Repeal the Alternative Minimum Tax
  2. Broaden Relief from Timeframes for Filing a Claim for Refund for Taxpayers with Physical or Mental Impairments
  3. Allocate to the IRS the Burden of Proving it Properly Imposed the Two-Year Ban on Claiming the Earned Income Tax Credit
  4. Premium Tax Credit: Adjust the Affordability Threshold Based on Type of Coverage
  5. Tuition Reporting: Allow Taxpayer Identification Number Matching by Colleges

Introduction

Significant Cases

  1. Accuracy-Related Penalty Under IRC § 6662(b)(1) and (2)
  2. Trade or Business Expenses Under IRC § 162(a) and Related Code Sections
  3. Gross income Under IRC § 61 and Related Code Sections
  4. Summons Enforcement Under IRC §§ 7602(a), 7604(a), and § 7609(a)
  5. Collection Due Process Hearings Under IRC §§ 6320 and 6330)
  6. Failure to File Penalty Under IRC § 6651(a)(1), Failure to Pay Penalty Under IRC § 6651(a)(2), and Estimated Tax Penalty Under IRC § 6654
  7. Charitable Deductions Under IRC §170
  8. Frivolous Issues Penalty Under IRC § 6673 and Related Appellate-Level Sanctions
  9. Civil Actions to Enforce Federal Tax Liens or to Subject Property to Payment of Tax Under IRC § 7403
  10. Relief from Joint and Several Liability for Spouses Under IRC § 6015