Taxpayer Advocate Report to Congress
July 16, 2015
In her midyear report to Congress, National Taxpayer Advocate (NTA) Nina Olson reviewed the 2015 filing season and identified a number of priority issues the Taxpayer Advocate Service (TAS) will address in the upcoming fiscal year. Key areas highlighted in the report are IRS's long-term strategic planning, tax-related identity theft, and administration of the Patient Protection and Affordable Care Act (ACA).
Background. The NTA is required by statute to submit two annual reports to the House Committee on Ways and Means and the Senate Committee on Finance. The first of these reports, submitted mid-year, identifies the objectives of the Office of the Taxpayer Advocate for the fiscal year beginning in that calendar year. The TAS is an independent organization within IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should.
Overview of 2015 filing season. The NTA generally characterized the 2015 filing season as successful, especially in light of difficult circumstances including that IRS had both reduced funding and additional responsibilities relating to the ACA and the Foreign Account Tax Compliance Act (FATCA). However, the NTA noted a sharp decline in taxpayer service. Specifically, IRS answered only 37% of taxpayer calls routed to customer service representatives, and the hold time for taxpayers who got through averaged 23 minutes (corresponding 2014 figures were 71% and 14 minutes). For practitioners who called IRS's Practitioner Priority Service Line, 45% of calls were answered, and hold times averaged 45 minutes.
Priority issues. The report singles out several tax-administration areas for comment and criticism, including the following.
...Long-term IRS strategic planning. The NTA expressed concern about the overall direction of IRS away from being a service-oriented agency. Specifically, she said that 98% of tax revenue collected by IRS is paid voluntarily and timely, with the remaining 2% from enforcement—but IRS's enforcement budget is more than double that of Taxpayer Services. She observed that “increasing enforced collection would be a hollow victory if voluntary compliance declines because of decreasing taxpayer service and the attendant loss of good will.” Accordingly, she urged IRS, in developing its long-term plans, to place greater emphasis on meeting the needs of taxpayers who are trying to comply with the law.
The NTA was also troubled by plans that would replace traditional IRS employee-taxpayer interaction with online services. While noting that expanded online services can also be beneficial, she stated that talking to taxpayers provides an opportunity to understand their situation, educate them about what is required, and fully resolve problems. She cited the “Get Transcript” data breach as an “important reminder that where data security must be balanced against convenience and budget savings, data security must be paramount.” In addition, the report pointed out that taxpayers who lack internet access or aren't computer-literate will have greater difficulty in getting the help they need.
...Assisting victims of identity theft-related fraud. The report notes concerns about identity theft—namely, that IRS isn't doing enough to assist victims—and reiterates the NTA's recommendation that IRS assign a single employee to coordinate complex identity theft cases. It identifies two key ways in which taxpayers are affected by identity theft in their dealings with IRS: (i) if an identity thief has filed a false return on which IRS has paid a refund, IRS will automatically freeze the return later filed by the legitimate taxpayer; and (ii) when IRS identifies a return claiming a refund as “suspicious,” it suspends the processing of the return and requires the taxpayer to authenticate his or her identity.
...The ACA. According to the report, the most significant new challenge facing IRS during the 2015 filing season was the processing of tax returns reflecting two key ACA provisions: the premium tax credit (PTC) and the individual shared responsibility payment (ISRP). Approximately 2.6 million returns were filed with Form 8962, Premium Tax Credit, and approximately 6.6 million returns were filed reporting the individual shared responsibility payment. In addition, about 10.7 million taxpayers filed Form 8965, Health Coverage Exemptions, claiming exemptions from the health insurance coverage requirements. The report generally says that IRS did “a commendable job implementing those provisions,” observing that while there were some “significant glitches,” most weren't attributable to IRS error.
The NTA did note, however, that over 300,000 taxpayers overpaid the individual shared responsibility payment, mainly due to the taxpayers not owing the payment on account of being eligible for an exemption due to their low incomes. The NTA has recommended that IRS issue refunds to the affected taxpayers without requiring them to file amended returns, noting that since most taxpayers use paid return preparers, the preparation fee would in many cases cost more than the refund. IRS had not made a decision at the time that the report was finalized.
...FATCA compliance issues. The report also examined a number of issues pertaining to FATCA, noting that “the weight of FATCA is being felt not by tax evaders, but by U.S. taxpayers who likely would be compliant regardless.” The NTA recommended, among other things, that IRS and Treasury adopt a “same-country exception” which would exclude from FATCA coverage financial accounts held in a country in which a U.S. taxpayer is a bona fide resident.
IRS's response. Volume 2 of the report (available at http://www.taxpayeradvocate.irs.gov/reports/fy-2016-objectives-report-to-congress) contains IRS's responses to the administrative recommendations that the NTA made in her 2014 Annual Report to Congress, along with additional TAS comments. That report made 93 administrative recommendations, 45 of which IRS says it has implemented, is implementing, or will implement—although its agreement to do so is, in some cases, contingent on resources.