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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.

Report Contents

2020 Annual Report to Congress

Preface

  1. Introductory Remarks by the National Taxpayer Advocate
  2. Taxpayer Rights and Service Assessment: IRS Performance Measures and Data Relating to Taxpayer Rights and Service
  3. Highlights of TAS Successes on Our Journey of Taxpayer Advocacy Throughout the Past Year

The Most Serious Problems Encountered by Taxpayers

Introduction

  1. IRS RECRUITMENT, HIRING, AND EMPLOYEE RETENTION: Quality Taxpayer Service and Protection of Taxpayer Rights Are Directly Linked to the IRS’s Need to Improve Its Recruitment, Hiring, and Retention Strategies
  1. TELEPHONE AND IN-PERSON SERVICE: Taxpayers Face Significant Difficulty Reaching IRS Representatives Due to Outdated Information Technology and Insufficient Staffing
  1. ONLINE RECORDS ACCESS: Limited Electronic Access to Taxpayer Records Through an Online Account Makes Problem Resolution Difficult for Taxpayers and Results in Inefficient Tax Administration
  1. DIGITAL COMMUNICATIONS: Limited Digital Communications With the IRS Make Problem Resolution Unnecessarily Difficult for Taxpayers
  1. E-FILING AND DIGITALIZATION TECHNOLOGY: Failure to Expand Digitalization Technology Leaves Millions of Taxpayers Without Access to Electronic Filing and Wastes IRS Resources
  1. INFORMATION TECHNOLOGY MODERNIZATION: Antiquated Technology Jeopardizes Current and Future Tax Administration, Impairing Both Taxpayer Service and Enforcement Efforts
  1. CORRESPONDENCE EXAMS: Taxpayers Encounter Unnecessary Delays and Difficulties Reaching an Accountable and Knowledgeable Contact for Correspondence Audits
  1. INTERNATIONAL: The IRS’s Assessment of International Penalties Under IRC §§ 6038 and 6038A Is Not Supported by Statute, and Systemic Assessments Burden Both Taxpayers and the IRS
  1. AMENDED RETURNS: The IRS Processes Most Amended Returns Timely But Some Linger for Months, Generating Over a Million Calls That the IRS Cannot Answer and Thousands of TAS Cases Each Year
  1. REFUND DELAYS: Taxpayers Whose Legitimate Returns Are Flagged by IRS Fraud Filters Experience Excessive Delays and Frustration in Receiving Their Refunds

Most Litigated Issues

Introduction

Significant Cases

Most Litigated Issues

  1. Appeals From Collection Due Process Hearings Under IRC §§ 6320 and 6330
  2. Civil Actions to Enforce Federal Tax Liens or to Subject Property to Payment of Tax Under IRC § 7403
  3. Accuracy-Related Penalty Under IRC § 6662(b)(1) and (b)(2)
  4. Trade or Business Expenses Under IRC § 162
  5. Gross Income Under IRC § 61
  6. Summons Enforcement Under IRC §§ 7602, 7604, and 7609
  7. Failure to File Penalty Under IRC § 6651(a)(1), Failure to Pay an Amount Shown As Tax on Return Under IRC § 6651(a)(2), and Failure to Pay Estimated Tax Penalty Under IRC § 6654
  8. Itemized Deductions Reported on Schedule A (Form 1040)
  9. Charitable Contribution Deductions Under IRC § 170
  10. Frivolous Issues Penalty Under IRC § 6673 and Related Appellate-Level Sanctions

 

Supplemental Review of the 2020 Filing Season
Update of the Review Published in the Fiscal Year 2021 Objectives Report to Congress

TAS Case Advocacy
TAS Case Advocacy
TAS Uses Taxpayer Advocate Directives to Advocate for Change

TAS Research Study
The IRS Can Systemically Identify Taxpayers at Risk of Economic Hardship and Screen Them Before They Enter Into Installment Agreements They Cannot Afford

Appendices
Appendix 1: Top 25 Case Advocacy Issues in Fiscal Year 2020 by Taxpayer Advocate Management Information System Receipts
Appendix 2: Taxpayer Advocate Service Directory
Appendix 3: Glossary of Acronyms

National Taxpayer Advocate 2021 Purple Book: Compilation of Legislative Recommendations to Strengthen Taxpayer Rights and Improve Tax Administration

National Taxpayer Advocate 2021 Purple Book: Compilation of Legislative Recommendations to Strengthen Taxpayer Rights and Improve Tax Administration

INTRODUCTION

STRENGTHEN TAXPAYER RIGHTS AND TAXPAYER SERVICE

  1. Elevate the Importance of the Taxpayer Bill of Rights by Redesignating It as Section 1 of the Internal Revenue Code
  2. Revamp the IRS Budget Structure and Provide Sufficient Funding to Improve the Taxpayer Experience and Modernize the IRS’s Information Technology Systems

IMPROVE THE FILING PROCESS

  1. Authorize the IRS to Establish Minimum Competency Standards for Federal Tax
  2. Set Goals for Substantially Increasing the Use of the Free File Program by Filing Season 2025 and Replace Free File If Those Goals Are Not Attained
  3. Require the IRS to Work With Tax Software Companies to Incorporate Scanning Technology for Individual Income Tax Returns Prepared Electronically But Filed on Paper
  4. Treat Electronically Submitted Tax Payments and Documents as Timely If Submitted Before the Applicable Deadline
  5. Extend the Time for Small Businesses to Make Subchapter S Elections
  6. Adjust Individual Estimated Tax Payment Deadlines to Occur Quarterly
  7. Harmonize Reporting Requirements for Taxpayers Subject to Both the Report of Foreign Bank and Financial Accounts and the Foreign Account Tax Compliance Act by Eliminating Duplication and Excluding Accounts a U.S. Person Maintains in the Country Where He or She Is a Bona Fide Resident
  8. Adjust the Filing Threshold for Taxpayers Filing as Married Filing Separately and Nonresident Alien Individuals

IMPROVE ASSESSMENT AND COLLECTION PROCEDURES

  1. Continue to Limit the IRS’s Use of “Math Error Authority” to Clear-Cut Categories Specified by Statute
  2. Require Independent Managerial Review and Written Approval Before the IRS May Assert Multiyear Bans Barring Taxpayers From Receiving Certain Tax Credits and Clarify That the Tax Court Has Jurisdiction to Review the Assertion of Multiyear Bans
  3. Allow Additional Time for Taxpayers to Request Abatement of a Math Error Assessment Equal to the Additional Time Allowed to Respond to a Notice of Deficiency When the Math Error Notice Is Addressed to a Person Outside the United States
  4. Require the IRS to Waive User Fees for Taxpayers Who Enter Into Low-Cost Installment Agreements
  5. Improve Offer in Compromise Program Accessibility by Repealing the Partial Payment Requirement and Restructuring the User Fee
  6. Modify the Requirement That the Office of Chief Counsel Review Certain Offers in Compromise
  7. Amend IRC § 7122 to Require the IRS to Refund Any Payment Collected Pursuant to a Federal Tax Lien That Exceeds the Amount of an Accepted Offer in Compromise
  8. Require the IRS to Mail Notices at Least Quarterly to Taxpayers With Delinquent Tax Liabilities
  9. Clarify When the Two-Year Period for Requesting Return of Levy Proceeds Begins
  10. Protect Retirement Funds From IRS Levies, Including So-Called “Voluntary” Levies, in the Absence of “Flagrant Conduct” by a Taxpayer
  11. Toll the Time Periods for Requesting the Return of Levy Proceeds While the Taxpayer or a Pertinent Third Party Is Financially Disabled
  12. Provide Taxpayer Protections Before the IRS Recommends the Filing of a Lien Foreclosure Suit on a Principal Residence
  13. Provide Collection Due Process Rights to Third Parties Holding Legal Title to Property Subject to IRS Collection Actions
  14. Extend the Time Limit for Taxpayers to Sue for Damages for Improper Collection Actions
  15. Direct the IRS to Study the Feasibility of Using an Automated Formula to Identify Taxpayers at Risk of Economic Hardship
  16. Revise the Private Debt Collection Rules to Eliminate the Taxpayers Intended to Be Excluded by the Taxpayer First Act

REFORM PENALTY AND INTEREST PROVISIONS

  1. Convert the Estimated Tax Penalty Into an Interest Provision to Properly Reflect Its Substance
  2. Apply One Interest Rate Per Estimated Tax Underpayment Period
  3. Pay Interest on Estimated Tax Overpayments, Allowing Taxpayers to Help Finance the National Debt While Promoting Tax Compliance and Savings
  4. Reduce the Federal Tax Deposit Penalty Imposed on Taxpayers Who Make Timely Tax Deposits
  5. Extend Reasonable Cause Defense for the Failure-to-File Penalty to Taxpayers Who Rely on Return Preparers to e-File Their Returns
  6. Authorize a Penalty for Tax Return Preparers Who Engage in Fraud or Misconduct by Altering a Taxpayer’s Tax Return
  7. Clarify That Supervisory Approval Is Required Under IRC § 6751(b) Before Proposing Penalties
  8. Require an Employee to Determine and a Supervisor to Approve All Negligence Penalties Under IRC § 6662(b)(1)
  9. Modify the Definition of ‘Willful’ for Purposes of Finding FBAR Violations and Reduce the Maximum Penalty Amounts

STRENGTHEN TAXPAYER RIGHTS BEFORE THE OFFICE OF APPEALS

  1. Require That at Least One Appeals Officer and One Settlement Officer Be Located and Permanently Available in Each State, the District of Columbia, and Puerto Rico
  2. Require Taxpayers’ Consent Before Allowing IRS Counsel or Compliance Personnel to Participate in Appeals Conferences

STRENGTHEN THE OFFICE OF THE TAXPAYER ADVOCATE

  1. Clarify That the National Taxpayer Advocate May Hire Legal Counsel to Enable Her to Advocate More Effectively for Taxpayers
  2. Clarify the Authority of the National Taxpayer Advocate to Make Personnel Decisions to Protect the Independence of the Office of the Taxpayer Advocate
  3. Clarify the Taxpayer Advocate Service’s Access to Files, Meetings, and Other Information
  4. Authorize the National Taxpayer Advocate to File Amicus Briefs
  5. Require the IRS to Address the National Taxpayer Advocate’s Comments in Final Rules
  6. Authorize the Office of the Taxpayer Advocate to Assist Certain Taxpayers During a Lapse in Appropriations
  7. Repeal Statute Suspension Under IRC § 7811(d) for Taxpayers Seeking Assistance from the Taxpayer Advocate Service

STRENGTHEN TAXPAYER RIGHTS IN JUDICIAL PROCEEDINGS

  1. Repeal Flora and Expand the Tax Court’s Jurisdiction, Giving Taxpayers Who Cannot Pay the Same Access to Judicial Review as Those Who Can
  2. Authorize the Tax Court to Order Refunds or Credits in Collection Due Process Proceedings Where Liability Is at Issue
  3. Provide That the Time Limits for Bringing Tax Litigation Are Subject to the Judicial Doctrines of Forfeiture, Waiver, Estoppel, and Equitable Tolling
  4. Amend IRC § 7456(a) to Authorize the Tax Court to Sign Subpoenas for the Production of Records Held by a Third Party Prior to a Scheduled Hearing
  5. Provide That the Scope of Judicial Review of Determinations Under IRC § 6015 Is De Novo
  6. Clarify That Taxpayers May Raise Innocent Spouse Relief as a Defense in Collection Proceedings and Bankruptcy Cases
  7. Clarify That Taxpayers May Seek Innocent Spouse Relief in Refund Suits
  8. Fix the Donut Hole in the Tax Court’s Jurisdiction to Determine Overpayments byNon-Filers Wi th Filing Extensions

MISCELLANEOUS RECOMMENDATIONS

  1. Restructure the Earned Income Tax Credit (EITC) to Make It Simpler for Taxpayers and Reduce Improper Payments
  2. Provide Earned Income Tax Credit (EITC) Relief During National Disasters
  3. Exclude Taxpayers in Specific Circumstances From the Requirement to Provide a Social Security Number for Their Children to Claim the Child Tax Credit
  4. Clarify Whether Dependents Are Required to Have Taxpayer Identification Numbers for Purposes of the Credit for Other Dependents
  5. Allow Members of Certain Religious Sects That Do Not Participate in Social Security and Medicare to Obtain Employment Tax Refunds
  6. Amend IRC § 36B(d)(2) to Prevent Individuals From Losing Some or All of Their Premium Tax Credits When Receiving Lump-Sum Social Security Benefits Attributable to a Prior Year
  7. Amend IRC §§ 108(a) and 6050P to Provide That Gross Income Does Not Include, and the Department of Education Is Not Required to Report, Income From the Cancellation of Student Loans Under the Coronavirus Aid, Relief and Economic Security Act
  8. Amend the Combat-Injured Veterans Tax Fairness Act of 2016 to Allow Veterans of the Coast Guard to Exclude Disability Severance Pay From Gross Income and File Claims for Credit or Refund for Taxes Withheld From Excluded Income
  9. Encourage and Authorize Independent Contractors and Service Recipients to Enter Into Voluntary Withholding Agreements
  10. Require the IRS to Specify the Information Needed in Third-Party Contact Notices
  11. Authorize the Treasury Department to Issue Guidance Specific to IRC § 6713 Regarding the Disclosure or Use of Tax Return Information by Preparers
  12. Increase the Individual Low Income Taxpayer Clinic Grant Cap and Index It for Inflation
  13. Compensate Taxpayers for “No Change” National Research Program Audits
  14. Establish the Position of IRS Historian Within the Internal Revenue Service to Record and Publish Its History

Appendix 1: Additional Reference Materials for Legislative Recommendations in This Volume

Appendix 2: Prior National Taxpayer Advocate Legislative Recommendations Enacted Into Law