Join the Center for Taxpayer Rights for a Celebration of Keith Fogg’s Career on the Occasion of his Retirement

Readers of Procedurally Taxing know how vital Keith Fogg’s analyses and commentary is to improving the state of tax procedure and administration in the United States.  One only has to read his most recent series of posts about the Boechler case here and here and here and here and here to realize that Keith is a tireless advocate who does not rest on his laurels.  He is always thinking about how to build on victories and how to work around losses.  And those readers who know Keith personally know how generous and unstinting he is with support, friendship, and humor. 

So it may come as a surprise for readers to learn that Keith is retiring from the Harvard Federal Tax Clinic on June 30th of this year.  We didn’t want this occasion to pass unnoticed.  The Center for Taxpayer Rights, of which Keith serves as President, is hosting a virtual celebration of Keith’s career.  Now you can share your appreciation by raising a toast to Keith and sharing some reflections about what his support and friendship mean to you.


The celebration will be held on Tuesday, May 10th, 2022, from 5 pm to 7pm EDT via zoom.  You can register for celebration and receive the Zoom invite here.

If you can’t attend, you can still share your reflections by registering.  We will then send you a link to a drop box location where you can upload a short (2 to 3 minute) video of your comments which we will share with Keith during our celebration.

I can personally attest to the impact Keith has had on my life, starting with a conversation I had with him in January 1993, shortly after I incorporated The Community Tax Law Project (CTLP), the first independent low income taxpayer clinic in the country.  CTLP was just a vision in my mind; I was working on my LLM at Georgetown, and one of the deans there mentioned that I should speak with Keith Fogg, who taught the bankruptcy and insolvency class in the LLM program and who was the district counsel for the Virginia-West Virginia district.  So I cold-called Keith.  He didn’t know me at all, but he took my call, listened to me talk about my ideas for the clinic, and agreed completely about the need for representation of low income taxpayers before the IRS and in the courts.  The only doubt he raised was, where would the funding come from?  (Note, as the Center’s president, he still asks that question; we did address that concern, somewhat – see IRC § 7526.)

Fast forward a week or two, and Keith had finagled an invitation for me to meet with the VA-WVA IRS district leadership – the District Director, the Deputy District Director, the chief of exam, the chief of collection, the district chief of appeals, the customer service director and education director, even the chief of criminal investigation.  The District Director committed to putting posters up about CTLP in the walk-in office (when it was truly open for walk-ins) as well as including stuffer letters in appeals initial letters.  All that from one phone call!

I can truly say that had Keith hung up on me that first day, or been too busy to take a call from an unknown person, or just failed to see the need, a lot of things would have happened differently in my life.  Or at least at a more slow pace, and we all know that timing is everything.  Lucky for all of us, Keith not only did listen, but he actively supported CTLP and the concept of clinics writ large.  The tax system is much improved because of that one simple act in early 1993 and all the other acts of generosity and integrity Keith has done over the years.  On top of all that, I’m fortunate to have had Keith’s friendship over the years.

So, if you’d like to share your “Keith stories,” join us in our celebration of Keith Fogg on May 10th.

Keith has asked that folks wanting to recognize his career make a contribution to the Center for Taxpayer Rights.   You can donate to the Center here. Hope to see you on May 10th to raise a glass to Keith!

The 7th International Conference on Taxpayer Rights: Tax Collection & Taxpayer Rights in the Post-COVID World

On May 18-20, 2022, the Center for Taxpayer Rights will be convening the 7th International Conference on Taxpayer Rights, once again in a virtual online format.  We are very excited about this year’s conference, which will focus on an under-studied area of tax administration, namely the actual collection of tax.  I have always believed that for many taxpayers, especially low- and moderate-income individuals and small businesses, the audit process and assessment of additional tax liabilities is theoretical.  It is when the tax agency starts levying on one’s bank account, or garnishing one’s paycheck, that taxes become real.

That’s where taxpayer rights have an important role to play.  And that is what we will explore during the 7th International Conference on Taxpayer Rights: Tax Collection & Taxpayer Rights in the Post-COVID World.  You can see the full agenda and register for the conference here.


We will also be holding a free workshop on The Role of Tax Clinics and Taxpayer Ombuds/Advocates in Protecting Taxpayer Rights in Collection Matters.  This free online workshop will be held on May 16, 2022 and will include clinics and taxpayer advocates and ombuds from around the world.  Anyone interested in starting a clinic or encouraging one’s country or state to create a taxpayer ombuds/advocate will find this workshop helpful and interesting.  It’s also a great forum for sharing experiences and learning from one another.  You can register for the free workshop here.

As noted above, while an audit may result in a tax liability, it is still theoretical until the tax bill actually arrives and payment is expected (or extracted).  And while tax policy attempts to take into account taxpayers’ ability to pay in the form of living allowances and household or child exemptions or credits, individual financial circumstances are often not addressed by either policy or administrative procedures.  Requirements such as pay first, resolve later can seriously impair taxpayers’ access to administrative and judicial review of agency determinations. 

The COVID-19 pandemic has brought to the forefront the challenge of balancing the state’s collective need for tax revenue to fulfill its responsibility to provide for its citizens with the need to recognize the “slings and arrows of outrageous fortune” that might affect an individual’s ability to contribute to that collective need.  This balancing also applies to business entities where the added factor of competitive advantage or disadvantage comes into play.  A further challenge is addressing the imbalance between tax collection from taxpayers who have limited assets or income that nevertheless are easy to identify and levy, and taxpayers who have significant assets and the means to hide those assets or put them beyond the reach of tax authorities.

At the conference we will explore how agencies can address these challenges while respecting taxpayer rights.  We will cover various aspects of tax collection, including the state’s authority to collect, the statutory periods of limitation for collection, the exemption of income and assets from collection, the availability of alternatives to full payment of tax, the use of amnesties, settlements, and bankruptcy, and the availability of judicial review of agency collection actions.  We will also look at the tools available for international collection, the use of artificial intelligence and data mining to identify both those who are at risk of not affording basic living expenses and those who have the ability to pay.  Finally, we will discuss the impact of enforced collection actions and other approaches to collection on taxpayers’ willingness to pay and on tax morale.  The framework for these analyses will be the application of taxpayer and human rights principles to the collection of tax.

The 7th International Conference on Taxpayer Rights (ICTR) is part of a series in which we covered taxpayer protections in the audit process at the 5th ICTR in May 2021 and taxpayer rights as human rights at the 6th ICTR in October 2021, and will cover access to judicial review at the 8th ICTR in May 2023.  We have a number of really interesting videos of panel discussions from the 5th ICTR and 6th ICTR posted on our website and YouTube channel.  You really should check them out.

So, click here to see the agenda and register.  We’ve kept the registration fees very low and have discounts for JD/LLM/PhD students as well as for attendees from non-OECD countries.  The ICTR is a unique experience – people from all over the world attend to discuss taxpayer rights.  I hope to “see” you there! 

How Did We Get Here? Correspondence Exams and the Erosion of Fundamental Taxpayer Rights – Part 2

In my last post, I reviewed compelling IRS data, including from the National Taxpayer Advocate’s 2021 Annual Report to Congress, that show the IRS Automated Correspondence Exam (ACE) system disproportionately harms low income taxpayers and is desperately in need of a fix.  The IRS maintains the batch processing approach to correspondence (corr) examinations is efficient.  But the long-term goal of an audit should be to educate the taxpayer about what they did wrong (or for the IRS to learn what it got wrong), so the taxpayer (or IRS) does not repeat the mistake.  If the taxpayer never responds, or does not understand why additional tax is assessed, then the audit may result in more tax dollars, but from a voluntary compliance and taxpayer rights perspective the audit is a failure.  Correspondence exam, with its batch processing, assembly-line approach, may result in a high number of audits and assessments, but it does not promote understanding and in some cases has a negative compliance effect.  Moreover, researchers report that taxpayers who experience a correspondence audit report relatively low perceived levels of procedural, informational, interpersonal, and distributive justice.


If the IRS were truly taxpayer-centric and designed its compliance programs from a taxpayer-rights foundation, it would look at the data presented by the Taxpayer Advocate Service in this year’s report, as well as all the past reports, and conclude that the process isn’t working for the lowest income taxpayers.  It would ask itself how it could improve the audit process so that taxpayers engage with the auditor and learn what, if any, error they made and how to avoid it going forward.  That engagement and education is at the heart of voluntary compliance, and while it appears to require more upfront resources, it is way more cost effective in the long run than current correspondence exams, which have little educational value.  For example, in a 2007 TAS survey of taxpayers who experienced correspondence examinations for EITC claims, 45% did not understand how the documents requested by the IRS related to the questions the IRS had.  One study found that only 39.7% of Schedule C taxpayers audited by correspondence recalled being audited at all, as compared to 72% of field audited taxpayers and nearly 80% of office audited taxpayers.

The IRS doesn’t need to look far or use much more in the form of resources to be both more effective and in greater compliance with taxpayer rights.  In this post I will set several recommendations for improving the correspondence exam process.  All of these can be accomplished with a modicum of resources, and you can pay for the rest by minimizing, if not eliminating, the expensive downstream work caused by poorly handled correspondence exams (for a sense of this downstream cost, see Figure 2.9.7, page 156 of the 2021 Most Serious Problems for a chart of average pay of downstream employees).

First, the IRS should rename correspondence exam as “virtual office exam.”  Specifically, the IRS should reap the benefits of the pandemic-spurred “zoom” revolution by designing a virtual correspondence exam process that more closely follows in-person office exam procedures.  With this approach the IRS would still send the taxpayer an audit initiation letter, with a suggested date and time for a virtual audit appointment.  Behavioral researchers have found that people are more likely to respond when an appointment time is set, even if the response is to request a different appointment time. 

Second, the audit initiation letter should set out – in common parlance/plain language — the issue that is being examined (since IRS insists correspondence exams are “single issue” exams) and describe the types of documentation that may be helpful to establish eligibility for a credit or deduction.  Here’s an excerpt of an actual Notice CP-75 (correspondence exam audit initiation letter) sent to a low income taxpayer in February 2022:

Notice how vague the letter is about what, precisely, the IRS is auditing; the letter lists 5 different possible issues, each of which have different eligibility criteria.  This sure doesn’t look like a single-issue audit to me.

This notice goes on to identify the “audit items that require documentation” to be: EIC, Dependents, Filing Status, AOC, CDC Credit.  The notice helpfully includes the following enclosures:

According to the 2021 Annual Report to Congress, only 3% of taxpayers with Total Positive Income under $50,000 were represented in individual correspondence exams.  For unrepresented taxpayers, the above enclosures will be overwhelming and the sheer volume of them could lead an unrepresented taxpayer to just give up.  It is no wonder that the no-response rate for correspondence exam is higher than any other form of exam.  The inability to reach a live assistor to ask questions increases the administrative burden exponentially.  (In FY 2019, IRS answered the correspondence exam phone line 40% of the time.) 

Third, the IRS should completely trash its current notice system and use some of the IT funding it is getting for FY 2022 to replace it with a 21st century system that is flexible and graphically robust in terms of layout, type, and design.  IRS letter format is currently dictated by an aged, obsolete correspondence system that is completely inflexible.  Trying to get a change in wording to an IRS letter can take more than a year of endless reviews and negotiations, and even then you have to wait for the programming to be complete.  There is lots of good research, some conducted by IRS and TAS, about how to communicate complex information.  The benefits field, in particular, has lots of studies about how to plan effective communication.  IRS needs to apply that research to its correspondence exam notices and make them salient to the taxpayer’s specific situation.  Presumably, the IRS knows the exact reason the taxpayer’s return was selected for audit.  The audit initiation letter should include that specific reason, not a list of “and/or” possibilities.  The enclosures should relate to that specific reason.  (If there is more than one reason, then the audit should be conducted as an office or field exam, per the IRS’s own justification for “single issue” correspondence exams.)  The IRS should apply its IT resources to get this done, ASAP.

Fourth, the IRS should assign one audit employee to each case.  The audit initiation letter should include the name, badge number, and phone number of the employee to whom the case is assigned, as is required by IRC §7602(a).  Providing this information “personalizes” the process.  It reassures the taxpayer there is a live human being who will work with you on the case, rather than the impersonal, faceless IRS.  The letter should also encourage taxpayers to contact the office immediately if they need to reschedule or would prefer to conduct the audit by phone or correspondence.  By inviting the taxpayer to call to state their preference, the IRS not only signals its willingness to meet the needs of the taxpayer but also gains an opportunity to talk to the taxpayer about the issues.  This approach also increases IRS accountability.  As it stands today, no one employee is accountable for the conduct of a correspondence exam.  If the taxpayer does not respond, the assigned audit employee should be required to make at least two outbound call attempts (or emails/texts if that is available) at different days of the week and times of day. 

(I note that the IRS frequently justifies its “next available assistor” approach to correspondence exam by saying it is good for the taxpayer.  But all IRS functions where employees maintain case inventories – field exam and collection, Appeals, Counsel, and the Taxpayer Advocate Service – have established some type of buddy system to cover for vacations, sick leave, or training.  And the IRS could treat these taxpayers as adults and give them the choice of speaking to their assigned auditor or the next available assistor.)

Fifth, the audit initiation letter should also include a separate sheet providing information for signing on to the virtual appointment, including the requirement for a phone or other device that has a camera, and providing a contact for the taxpayer to discuss any technological challenges the taxpayer may face.  This is where QR code technology could be helpful, providing links to appropriate sites and information.  If the taxpayer is unable to sign on via a device with a camera, a telephone appointment should be arranged.  When the taxpayer requires specific reasonable accommodations, the audit should be converted to an in-person office exam or conducted via telephone, whichever is best for the taxpayer.

Sixth, when the taxpayer attends the virtual office audit appointment, the auditor should iteratively explain the specific issue that is being reviewed and what the IRS needs to see to establish eligibility.  If the taxpayer has documentation, the IRS auditor should look at it via the taxpayer’s device camera and instruct the taxpayer on how to upload, email or fax it.  As with an in-person office audit, at the close of the appointment the taxpayer should know what additional documentation, if any, is needed to prove eligibility.  The employee should memorialize the requested additional documentation in a letter to the taxpayer (or email if allowed).

Seventh, in order for this approach to work, the IRS must test its Documentation Upload Tool (DUT) or similar technology (such as the virtual office platform) with low income taxpayers to determine whether they are able to access and utilize it.  It should work with both the National Institute of Standards and Technology (NIST) and other government agencies and external groups to identify secure but accessible methods for low income taxpayers to sign on and submit information and documentation digitally.

Eighth, the IRS should adopt in correspondence exams the same procedures it uses in office and field exams for identifying alternative mailing addresses.  This approach will minimize the number of default assessments due to taxpayers moving around, especially low income taxpayers who comprise more than half of the correspondence exam population.

Ninth, with respect to all CTC/EITC audits, the IRS should allow taxpayers to establish proof of residency by using Form 8836 and its accompanying Schedule A.  These forms walk taxpayers through how to prove their child or relative lived with them for more than 6 months by having certain officials or professionals attesting under penalties of perjury and completing the periods of time they either have personal or official-records knowledge of the child’s residence.  In an exhaustive 2005 IRS study, this form was shown to be more reliable and probative than the usual documents and notarized statements the IRS currently accepts.  Since that time, I have recommended the IRS use this form in all EITC audits, which the IRS has steadfastly refused to do.  Given its obvious benefits, including reducing taxpayer burden, the IRS’s refusal is just plain baffling and counterproductive.

Tenth, the IRS should conduct a research study to test the effectiveness of certain messages in eliciting a response from low income taxpayers.  Several studies have already been conducted, including one by Day Manoli and Nicholas Turner on Nudges and Learning: Evidence from Informational Interventions for Low-Income Taxpayers.  This study found that timely reminder notices about the availability of the EITC increased take up of the childless worker EITC by 80% among the test population in the year of the notice.  A similar study designed around increasing responsiveness to correspondence exams, including focus groups exploring how letter recipients perceived the messages, could greatly enhance taxpayer communication and participation. 

The IRS should also build upon the important research conducted by TAS in 2016 and 2017 in which it sent out educational letters, under the signature of the NTA, to taxpayers whose returns claiming children had broken certain rules in the Dependent Database.  The letter referenced the specific issue and explained the eligibility rule in plain language.  One part of the study offered a toll-free Extra Help line to get questions about eligibility for the EITC and the CTC.  The letters had significant future compliance effects in several areas, without the cost of an audit.  The IRS should conduct a follow up study including focus groups to determine whether taxpayers understood the eligibility rules as a result of the letter.

The IRS recently announced the permanent establishment of the Customer Experience Office.  From the announcement, it appears the office will primarily focus on taxpayer service.  I hope the office defines “taxpayer service” more broadly, to include how taxpayers are served by the audit and collection process of the IRS (answer = poorly).  If it does so, the correspondence exam process is a good place to start.  While it is at it, the office can look at how to create a ”feedback loop” so correspondence auditors can learn what happens to the cases after they leave correspondence exam, as this post suggests.  Taxpayers who are under audit, and their representatives, will be enormously grateful for any improvements, and the rest of us taxpayers will be very happy that the IRS no longer wastes resources and violates taxpayer rights in this audit process.

How Did We Get Here? Correspondence Exams and the Erosion of Fundamental Taxpayer Rights – Part 1

Over the past several decades, correspondence examinations have become the IRS’s primary method for auditing individual taxpayers.  The Transactional Records Access Clearinghouse (TRAC) at Syracuse University just reported that of the 659,003 individual audits conducted by the IRS in Fiscal Year (FY) 2021, all but 100,000 were conducted by correspondence.  TRAC reports that correspondence exams now account for 85% of all audits, up from about 80% in the previous two years.

Originally designed for “less complex” matters, correspondence exams are now used for complex factual issues including the child tax credit, earned income tax credit, self-employment income (gross receipts and expenditures), and charitable deductions.  Correspondence is also the only method applied in “unreal” audits – examinations that the IRS doesn’t count as “audits” under IRC § 7602 because it says they don’t arise to an examination of the taxpayer’s books and records.  Through the Automated Correspondence Examination (ACE) system, unless the taxpayer responds in writing, a correspondence exam automatically moves from one stage to the next, up to the issuance of a Notice of Deficiency, without any human intervention.

IRS maintains that correspondence exams are an efficient and cost-effective method of conducting audits.  For example, in a summer 2021 release, the IRS justifies the low cost of these audits ($150 for the IRS!) by highlighting the minimal burden on taxpayers.  This blog will show just how wrong the IRS is about the burdens correspondence audits impose on taxpayers and their consequences.


Over the decades, advocates for taxpayers, myself included, have consistently criticized this method and maintained it does not adequately protect taxpayer rights, including the right to be informed, to pay no more than the correct amount of tax, to challenge the IRS and be heard, and to a fair and just tax system.  Recently, The Tax Law Center at New York University and the Center for Taxpayer Rights published a paper about this topic, Exclusionary Effects of the IRS Correspondence Audit Process Warrant Further Study, in which we question the effectiveness of correspondence exams and propose additional research and pilots.

To get a sense of the disproportionate impact the IRS overall audit strategy has on Earned Income Tax Credit taxpayers, and why it is so important not only to revise that strategy but also to reform the audit process, please take a look at some rather stunning statistics from the IRS Statistics of Income compliance webpage.  Table 17 sets forth Exam Coverage and Recommended Additional Tax After Exam, by Type and Size of Return, for Tax Years 2010-2018.  (I am using Tax Year (TY) 2018 because it best aligns with the NTA Annual Report numbers, which use Fiscal Year (FY) 2019, discussed later in this post). 

Total TY 2018 individual tax returns filed:                                                      153,927,628

Total TY 2018 individual tax returns with EITC:                                              26,492,486

EITC returns are 17.2% of all TY 2018 individual returns.

Total audit closures of TY 2018 individual tax returns:                                  234,543

Total TY 2018 individual tax return audit closures selected for EITC:            165,611

EITC returns are 70.6% of all TY 2018 individual audit closures.

Total TY 2018 individual audit closures with no change:                                41,276

Total TY 2018 individual audit closures, selected for EITC,with no change: 28,277

EITC returns are 68.5% of all TY 2018 individual no-change audits.

What this data tell us is that over 70% of all IRS individual audit closures for TY 2018 returns involved EITC despite the fact that only 17.2% of individual income tax returns claim the EITC.  This is up from what I reported in the 2005 Annual Report to Congress, when 48% of IRS individual examinations involved the EITC despite only 17% of individual income tax returns claim the EITC.  And remember – these “audit” numbers don’t include “unreal audits” involving EITC, such as math errors under IRC § 6213.  Further, EITC audits constitute more than 2/3 of the no-change individual audit closures.  Now, this figure does not take into account downstream adjustments to proposed assessments in appeals or Tax Court, or abatements in audit reconsiderations.  Given the low response rate for correspondence exams, that there are any no-change audits is stunning to me.  At any rate, the IRS spent resources forcing 28,000 people – 12% of all TY 2018 EITC audit closures! — to produce documentation of eligibility, when they were eligible all along.

These numbers are all the more outrageous when you consider the fact that the dollar amount of EITC improper payments are only $16 billion or 3.6% of the IRS’s current $441 billion gross tax gap estimate.  (It is only 1.6 % if you buy the Commissioner’s $1 trillion tax gap estimate, which I don’t).  Why would the IRS focus so much on low income taxpayers?  Certainly, the fact that EITC is subject to improper payment reporting requires the IRS to audit some EITC returns.  But the requirement to audit some returns is not a justification for adopting an assembly-line approach to the most low-income taxpayers.  Could it possibly be the IRS uses that approach because it beefs up the overall audit coverage rate and the number of audits, at really low cost?

Now comes the National Taxpayer Advocate’s 2021 Annual Report to Congress, with its 9th Most Serious Problem focusing on Correspondence Exams.  Let’s take a look at some of the data (relating to FY 2019) presented in the report: 

  • 53% of individual (IMF) audits were on taxpayers with Total Positive Income (TPI) under $50,000. Of this 53%, 82% of the taxpayers claimed refundable credits including the EITC.  (TPI includes “only total positive income values from wages, interest, dividends, other income, distributions, Schedule C net profits, and Schedule F net profits.  Losses are treated as zero.”  MSP #9, endnote 7.)
  • 92% of IMF audits on taxpayers with TPI under $50,000 were conducted by correspondence exam. 
  • The average direct time spent by an IRS auditor on a correspondence exam for taxpayers with TPI under $50k was 2 hours, compared to 11 hours for office exam and 41 hours for field exam.
  • 4% of Wage & Investment Division correspondence exam resources was spent answering phone calls; 96% was spent on handling correspondence.  The Level of Service on the correspondence exam line was 40.7% (Note that this is for 2019, so it is pre-pandemic ….)
  • 35% of 361,000 IMF audits closed in FY 19 for taxpayers with TPI under $50,000 were the result of no taxpayer participation, of which 14% involved undeliverable mail.
  • Unlike field auditors, who can use both internal and external sources, including USPS trace, to locate better addresses, correspondence examiners can only use internal sources.
  • Only 3% of taxpayers with TPI under $50,000 were represented in correspondence audits.
  • Of the 24,700 petitions to Tax Court in FY 19, 17,700 originated in correspondence exam.
  • 94% of audit reconsiderations originated in correspondence exam; 44% of these original audits closed because there was either no record of a taxpayer response or IRS correspondence was undeliverable.
  • 88,000 of taxpayers audited in FY 19 with TPI under $50,000 were placed in collection; 45% of these were in Currently Not Collectible-Hardship status as of 10/28/21.

So.  The primary method of auditing low income individual taxpayers is by correspondence.  If you are more affluent, you are more likely to have a single auditor assigned to your case in office or field exam, but not if you are low income – i.e., in correspondence exam, no one employee is assigned to your case.  If you are more affluent, the IRS is more likely to spend more time looking at your documentation, and communicating with you.  Not so if you are low income.  If you are more affluent, the IRS makes more of an effort to actually locate a more current address if mail is returned undeliverable.  Not so if you are low income.

It’s not just that mail is undeliverable.  IRS audit notices are incomprehensible to taxpayers.  In 2007, the Taxpayer Advocate Service did a survey of a representative sample of taxpayers who had been audited about their EITC claims.  More than 25 % of those taxpayers said they did not understand from the initial letter that they were under audit.  More than 70% said the audit letter was difficult to understand, including they did not understand what documentation the IRS wanted them to provide.  If you don’t understand you are under audit, that will affect your response.  And if you don’t understand what you should send in to prove your eligibility, that will affect your audit outcome.

And in fact, we see this in the no-response and agreed rates of audits of low income taxpayers versus more affluent ones, who are more likely to have a single auditor assigned to the case.  Here’s a chart from the 2021 Annual Report to Congress:

To make matters worse, past TAS studies have compellingly shown that correspondence exam procedures actively harm taxpayers.  In 2012 TAS reviewed a representative sample of taxpayers whose EITC claims were disallowed in correspondence exam and later conceded in full by Chief Counsel when the taxpayer filed a United States Tax Court petition.  In that study we found that these taxpayers, on average, contacted the IRS five times during the audit (one taxpayer contacted the IRS 21 times!).  78 % were ultimately able to submit documentation that was accepted by IRS appeals officers or counsel attorneys after the Tax Court petition was filed.  In 20% of those cases, appeals/counsel accepted documented that IRS auditors had rejected. 

Correspondence exams have been a recurring topic in the Annual Reports to Congress when I was the National Taxpayer Advocate.  At a quick glance, I found Most Serious Problems on various aspects of correspondence exam in Annual Reports from 2001 (my first), 2002, 2003, 2005, 2006, 2007, 2008, 2009, 2011, 2013, 2014, 2015, 2016, 2018, 2019, and 2020.  (My recollection is, in the years we didn’t write about some aspect of correspondence exam, we were just tired of it and decided to give it a rest for one year.)  TAS has conducted numerous research studies on the topic.  And yet the IRS response has been unchanged over the years.

Why does the IRS persist in believing correspondence exam is an efficient, cost-effective method of auditing?  First of all, because it defines efficiency and cost-effectiveness from the IRS perspective – that is, correspondence exam works for the IRS.  It doesn’t have to dedicate (human) resources to the task; it can churn out a lot of audits and get a lot of assessments, all of which feed into its reports of audit coverage and enforcement results.

In fact, correspondence exams are a classic example of IRS assessing efficiency from a superficial cost-benefit analysis, disregarding the administrative burden these exams impose on taxpayers, especially low income taxpayers.  As Les, Keith and I discuss in an upcoming article, the learning, compliance, and psychological burdens of an administrative process can significantly undermine the policy goals of a program, and can even be used to deliberately deter eligible taxpayers from benefitting from a program.

In this blog post, we’ve seen that IRS intransigence over years regarding the correspondence exam process has created a procedural justice nightmare for taxpayers, especially low income ones, as well as generating lots of unnecessary and expensive downstream work for itself.  In part 2 of this “How Did We Get Here?,” I’ll discuss some recommendations for fixing this mess.

How Did We Get Here? 2-D Barcoding and the Paper Return Backlog – A Missed Opportunity

In her February 17, 2022 testimony before the Senate Finance Committee, the National Taxpayer Advocate reported that as of February 5, 2022, the IRS had 23.5 million returns and correspondence in its inventory requiring manual processing.  This number includes 17.6 million original and amended individual and business returns, down from the 35.5 million tax returns frozen for manual review at the end of the 2021 filing season on May 17, 2021, but up from the 10.3 million returns unprocessed at the end of December 2021.

Needless to say, this is a big mess.  While not all of the return filing backlog could have been avoided, given the months the IRS mail processing was either fully shut down or impeded because of pandemic conditions, there was a solution that would have sped up the processing of returns significantly.  That solution is 2-D Barcoding or some variation thereof.

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This is not a new idea.  In fact, in the “most serious problem” discussion about e-filing in the 2004 National Taxpayer Advocate Annual Report to Congress (pages 89-109), I noted that 31% of individual returns were prepared on a computer and subsequently printed out and mailed.  The IRS calls these tax returns “V-coders” because they are coded with a “V” when the IRS processes them.  At the time, the IRS was struggling to achieve the e-filing mandate of 80% of all returns by 2007, established in the IRS Restructuring and Reform Act of 1998 and codified in IRC § 6011(f)(1) and (2).  By the 2004 filing season, only 61 million of the 128 million individual returns were e-filed, or 48%.

We proposed the IRS implement 2-D barcoding, by which computer-prepared returns would generate a horizontal and vertical code containing all information on the return upon printing.  Upon receiving the paper return, the IRS could scan the code, which would convert the information into digital form and allow the return to be treated the same as an e-filed return.  Although it would not eliminate the need for human beings to open returns, this approach eliminates the need for manual keystroking of data from the paper return and quality review of that keystroking; it also allows all data to be captured, rather than select fields, improving audit selection and other downstream compliance operations.

In a September 2004 memorandum responding to our inquiry about such implementation, the Director of Customer Account Services, Wage & Investment Operating Division responded that the IRS was not pursuing 2-D bar coding for individual returns because “promoting this method of paper filing would slow the growth of e-filing.”  (See footnote 72 on page 102 of the 2004 NTA Annual Report to Congress.)   Note that at the time IRS did have this technology and was using it to scan paper Form 1065 and Form 1120S Schedule K1s, as well as paper Form 941s.  And note that in 2004, at least 17 states were using 2-D barcoding for paper return filings.

In its formal response to the report’s preliminary recommendation that the IRS initiate processing of 2-D barcodes on paper returns, the IRS stated “… the IRS believes that offering taxpayers a paper alternative to e-file is counterproductive to Congressional e-file goals and sends taxpayers a mixed message as to what Service policy is with respect to e-file.”

In response to this myopic position, TAS responded:

While 2-D bar coded returns may not produce as many benefits as e-filed returns, the IRS must acknowledge that a certain population of taxpayers will always refuse to e-file for one reason or another. Even when the IRS meets the 80 percent goal, it will still need to make paper returns available to the 20 percent of taxpayers who continue to file in such manner. We disagree with the IRS’s point that offering this technology to individual taxpayers would send mixed signals. If taxpayers are properly informed about the benefits exclusive to e-file, it is doubtful that 2-D bar coding technology will attract current or prospective e-filers. However, such technology will still benefit those unpersuaded paper filers and the IRS by avoiding transcription errors and reducing processing costs.

2004 NTA Annual Report to Congress, P. 108, citations omitted.

I reiterated this recommendation in 2006 and 2008 testimony before the Senate Finance Committee and the House Ways and Means Oversight Subcommittee, respectively, and other hearings over the years, as well as in many subsequent Annual Reports, including the 2019 Purple Book, which compiles the NTA’s legislative recommendations.  The 2020, 2021, and 2022 Purple Books continue to reiterate this recommendation.

The idea gained traction despite the IRS opposition:  section 2104 of a bipartisan early version of the Taxpayer First Act actually included a mandate for 2-D bar coding.  The proposed mandate would have been effective for returns filed after December 31, 2019.  Ummm … let’s see: the pandemic arose after December 31, 2019.  So if that mandate had passed or been included in the Taxpayer First Act ultimately enacted, IRS would have the capability of scanning those millions of returns backlogged during the pandemic and get them into the e-filing system.

It now looks like the IRS may finally be coming around to this idea.  The 2022 Purple Book reports “[t]he IRS has indicated an interest in adding 2-D barcodes on all IRS forms and outgoing correspondence due to the industry-proven efficiencies associated with extracting machine-readable data from paper returns and correspondence.  It is exploring both 2-D barcode and OCR [optical character recognition] technology with the software industry as part of a pilot program.”

Now we come full circle.  On December 17, 2021, IRS Chief Counsel issued Program Manager Technical Advice (PMTA) 2022-02 regarding the IRS’s authority to mandate that tax-software developers embed a 2-D barcode in all tax returns.  The memo notes that the current IRS process of manually entering paper return information is “resource intensive and error prone.”   In a very cursory (one-paragraph!) analysis, Chief Counsel concluded the IRS cannot require tax software developers to embed barcodes on returns prepared on their software, because “Section 6011(e)(1), which provides the Treasury Department and the IRS authority to prescribe regulations to determine ‘which returns must be filed on magnetic media or in other machine-readable form,’ does not apply here, because the proposed mandate is not directed to taxpayers or other filers.”

One has to wonder what would have happened if, in 2004, IRS has embraced the idea of 2-D barcoding and sought Chief Counsel advice at that time.  Having the legal opinion that a mandate required legislation, would Congress have enacted such a mandate, given the significant taxpayer benefits and resource benefits of such a mandate and the minimal burden on software developers?  At the very least, would the mandate of the earlier version of the Taxpayer First Act have made it into the final version?

We’ll never know for sure, but one thing we do know is that had the IRS responded to our 2004 recommendation about 2-D barcoding in a positive fashion rather than one-size-fits-all approach it adopts so often, we would not be in the mess we are in now.  This sad history lesson demonstrates that resources is not always the reason for lack of progress.

How Did We Get Here? A New Series …

These days, the news has been filled with stories about the disastrous state of the IRS this filing season and how this is attributable, in part if not in entirety, to underfunding of the IRS over the last decade.  Now, I agree the IRS needs more funding to accomplish its dual mission of collecting revenue and administering social benefit programs.  In fact, in the 2006 National Taxpayer Advocate Annual Report to Congress, I proposed a legislative recommendation to completely revise the budget procedures with respect to the IRS, based on the recognition that unlike other branches of the federal government, one dollar spent on the IRS actually raises more than one dollar for the public fisc – i.e., it pays for itself and more.  But lately, the “lack of resources” has become the response to any and all shortcomings or critiques of the agency.


I heard this “no resources” mantra almost every day of the 18 years I served as NTA, coming in response to perfectly actionable recommendations TAS employees made to their counterparts in IRS functions.  This response is actually pretty insulting, both to the nonprofit and private business sectors, and even to IRS employees.  I’ve founded and run two small nonprofits in my lifetime, The Community Tax Law Project and the Center for Taxpayer Rights, and we never had enough resources to do what we wanted and needed to do, yet somehow we did amazing things.  This is true for small and medium sized businesses just trying to stay afloat in an uncertain economy.  And by justifying poor organizational performance with the excuse of “no resources,” the IRS stifles the creativity and curiosity of IRS employees – why bother trying new approaches if you don’t have the resources to implement them?  How self-defeating, and how insulting to the rest of us.

Again, the IRS does need more funding.  It also needs better direction and oversight on how it spends that funding, because, frankly, its track record on spending infusions of cash hasn’t been impressive.  But it also needs to better utilize the resources it has.  The problems that seem to be so immediate today – massive backlogs in mail and return processing; low levels of telephone service; low audit rates; e-filing and identity authentication  – have been simmering for decades.  The pandemic just exacerbated the issues.

But here’s the good news.  As Little Finger told Varys in Season 3 of Game of Thrones, “Chaos isn’t a pit. Chaos is a ladder.”  I’m not saying we should adopt the approaches of Little Finger or the other vying factions in that series, but we should use this chaotic filing season to analyze the root causes of what brought us to this place and to envision what we want our tax system to look like when we emerge.

So, occasionally, over the next several months, I’ll be exploring various issues in a series of posts called, How Did We Get Here?  In some ways, these posts will be deeply personal, because in writing them, I will draw not only from my published writings, including the Annual Reports to Congress and my congressional testimony, but also from my diaries and notes of meetings held with IRS personnel and others over the last two decades.   In doing so, I hope to show that all is not lost.  During this period, many people, inside the IRS and outside it, made perfectly reasonable suggestions that, if adopted, would have moved the IRS a little closer to modern tax administration and made the impact of covid less severe.  Each of the recommendations were relatively modest, but taken as a whole, over time, would have been transformative.  And that is precisely what the IRS needs at this point – a transformation.

It’s (A)Live! LITC Connect Is Up And Running (Sort Of!)

After nine months of gestation, the Center for Taxpayer Rights has a new offspring … the LITC Support Center.  Today, the Support Center’s website is live, including the “dating app” for LITCs and prospective volunteers, LITC Connect.  Yay!  And a huge sigh of relief.

To recap:  since the days when I was the executive director of The Community Tax Law Project, it’s been clear the Low Income Taxpayer Clinic community, including its volunteers, have needed a resource center to provide technical support, litigation strategy, research, and systemic advocacy.  The Center started providing this support throughout the pandemic, hosting weekly Litigation Strategy calls with LITCs, assisting in several of the Economic Impact Payment lawsuits, and submitting amicus briefs on issues affecting low income taxpayers, as discussed here and here and here.

Through individual donors’ support, we have been able to raise the funds for development and programming of our new website and, most importantly, LITC Connect.  I’ve written about LITC Connect last month, but now it is a reality. It’s not as elegant design-wise as I want it to be, but now that the site is up, I will be able to work on the actual design.  What’s important is, the skeleton has some flesh on it!  YAY!  (I know, I’m using mixed metaphors here, but give me a break.)


Through LITC Connect, LITCs are now able to create a profile and submit “Assistance Requests” when they need volunteer assistance.  The most common requests will be for volunteer pro bono representation of a client; however, LITCs can also request volunteers for mentors, technical advice, outreach and education assistance, and developing training materials or conducting training.

Prospective volunteers can also create profiles, describing the volunteer work they would like to do.  They can not only select the types of services they would like to provide (e.g., representation, training, mentoring) but they can also select the types of representation (e.g., audit, appeals, litigation, collection) and the types of issues (e.g, EITC audits, nonfilers, offer in compromise, collection due process).  Volunteers can also indicate the issues on which they would like additional training before they accept case referrals in that area.

Once an LITC submits an Assistance Request, LITC Connect’s algorithm chugs along and matches the request with the most promising volunteer candidates, based on their profiles.  The Center will then review the information and reach out to the best candidate personally, through email, and hopefully make the match and referral to the LITC.  Voila!

Now, a word of caution.  The website and algorithm are in their first iteration.  We’ve tested and tested, but I’m sure we will find things that are ungainly and need to be improved.  We’ve already identified two improvements that we’re contracting with the programmers to complete in the next few weeks that will make creating a profile easier (e.g., using checkboxes next to lists of issues rather than a drop down you have to scroll through and use key combinations to select multiple items).  We want to know how this is working, and we really want to hear from you.  You can write us at

We also have a lot of content we need to add to the site.  We are in the process for creating pages for training videos, materials, and templates for filings/government submissions, as well as links to other resources and pages for our FOIA requests and IRS responses.  We are creating materials for VITA sites and taxpayers about problems they may encounter during this upcoming filing season (a lot of them) and what they can do via self-help and when they need to reach out to an LITC for assistance.  And, in conjunction with the ABA Tax Section, in February 2022 we will be doing a training for volunteers about representing survivors of domestic violence.  The recording of this training, along with others, will be posted on the LITC Support Center website.

So.  What do we need from you?

First, LITCs need to sign up and create a password-protected profile.  Please do this now, for two reasons:  (1) so we can learn from your experience setting up your profile and improve the process; and (2) so you are ready to submit an Assistance Request when the urgent need arises.  We’re not yet accepting referrals, but you need to be in the system so when we do so, you are ready!

Second, volunteers need to sign up and create a password-protected profile.  Attorneys, certified public accountants, and enrolled agents are all eligible to be a volunteer.  In creating a profile, we ask a number of questions; we’ve tried to make it as simple as possible, but the information we ask is necessary to get the best matches and improve the algorithm.  We really need you to sign up so we have a volunteer pool for when the millions of math error notices and frozen returns attributable to reconciliation of the Rebate Recovery Credit and the Child Tax Credit start surfacing this filing season.  And we need you in the system so we can offer you free training on this specific issue.  For those of you who are retired, all of the LITCs registered with us will have professional liability coverage for their volunteers (that is one of our LITC profile questions).  The LITC Support Center is also obtaining professional liability coverage for those cases that it retains for representation.

Third, please consider making a contribution to support the work of the LITC Support Center.  Now that we have the first stage of our app built, we need to hire a Pro Bono Coordinator.  Although the app will identify good potential matches, we want the human touch in making the final decision and by staying in touch with both the LITC and the volunteer to ensure the referral is going smoothy.  So please help us help us by donating to the Center for Taxpayer Rights.

The LITC Support Center has been germinating since 1992; today, the seedling has popped above the surface.  I look forward to watching it grow.  (End of metaphors.)  Thank you, to everyone who has worked for and supported LITCs over the years.

Throwing the Baby Out with the Bathwater – the Proposed Repeal of IRC § 6751(b) Supervisor Approval of Penalties

Avid readers of Procedurally Taxing know that we have been closely following the litigation over IRC § 6751(b) and the Graev line of cases.  This litigation has also received attention from Congress in the Build Back Better Act, H.R. 5376, in which § 138404 repeals this provision and replaces it with a toothless requirement of quarterly certification to the Commissioner.  The repeal is retroactive to its enactment in the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98).

I’m not going to go through all the cases raising this issue – you can read about them here and here and here and here and here and so forth.  Suffice it to say that for nigh on to twenty years the IRS just ignored the language of § 6751(b), which provides:

No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.

IRS issued no regulations or other guidance on this point, and it wasn’t until the Treasury Inspector General for Tax Administration (TIGTA) issued a report in 2013 noting the IRS was not complying with the provision that Frank Agostino decided to challenge the imposition of a penalty in Graev because there was no written approval by a supervisor.


Why did Congress see fit to enact this provision in the first place?   During the hearings leading up to the enactment of RRA 98, Congress heard from many sources that the IRS was using penalties as bargaining chips in audit and appeals context.  That is, as Gwen Moore wrote in a recent Forbes blog,

When the law was passed in 1998, the Senate Finance Committee explained the legislation was needed to correct glaring problems in tax administration and provide much-needed taxpayer protections. The first problem was that at that time, the IRS was not required to “show how penalties are computed on the notice of the penalty.”  S. Rep. 105-174, at 65 (1998). The second was that penalties were used as a bargaining chip, and “[i]n some cases, penalties may be imposed without supervisory approval.” Id. Section 6751 was added to the Internal Revenue Code because the Senate Finance Committee “believes that taxpayers are entitled to an explanation of the penalties imposed upon them,” and “that penalties should only be imposed where appropriate and not as a bargaining chip.” Id.

In fact, I was a witness at one RRA 98 hearing when penalties-as-bargaining-chips were discussed.  At that February 5th, 1998, hearing, no less an authority than Michael Saltzman (of IRS Practice and Procedure treatise fame) in his formal testimony wrote,

In practice, the penalty has become a penalty for “being wrong” in the opinion of the revenue agent.  Many practitioners also believe that the penalty is asserted at the district level solely to gain some bargaining advantage at the Appeals level.  This creates additional expense for taxpayers in fighting the penalty when all that may truly be in dispute is a frank difference of opinion as to what the law requires.  (IRS Restructuring, Hearings before the Senate Committee On Finance, S. Hrg. 105-529, at 372.)

Section 6751(b) was Congress’ response to these legitimate concerns, echoed by other witnesses, including Stefan Tucker, then Chair-elect of the American Bar Association Section of Taxation (see page 92 of the Hearing record).  Supervisor approval helps ensure consistent and equitable treatment for taxpayers.  As Michael Saltzman noted, each examiner approaches the job and issues with a little bit (or sometimes a lot) different mindset.  What one thinks is negligent or fraudulent will be different from what another thinks.  Laying a second set of eyes and judgement on the case can smooth out the edges of differing value systems and mindsets of examiners.  If done correctly, the supervisor should ask a few questions which could reveal gaps in the examiner’s exam procedures (such as the examiner failing to ask a salient question that might have clarified why the taxpayer did what they did, which might show a penalty isn’t warranted).  This process could eliminate some penalties but perhaps strengthen others where penalties are in order.  In this way, supervisor review promotes good tax administration and reinforces effective exam procedures.  A quarterly report is not going to accomplish that.

Now, the language of 6751(b) could be more clearly stated.  Courts have struggled with when the written supervisory approval should be obtained – before issuance of the notice of deficiency (NOD), or just before the tax is assessed.  And how does this provision apply to immediately assessable penalties or penalties not otherwise subject to deficiency procedures?  If supervisor approval must only occur before assessment, this approach gives the IRS plenty of time to correct a failure to obtain the approval earlier in the process, but it does nothing to avert the harm to taxpayers caused by use of penalties as negotiating tools, nor does it promote effective exam procedures discussed above.  Timing is important to achieve the goal of the statute, which was to ensure that someone was looking over front-line employees’ shoulders on the important issue of penalty imposition so that penalties are imposed for the appropriate reasons (to promote voluntary compliance and to discourage noncompliance).

Why would Congress now want to make this provision disappear – retroactively, back to enactment, as if the underlying concern never existed?  I would hazard a guess that someone suggested that well-heeled taxpayers were pulling a fast one over the IRS and avoiding appropriate penalties simply because of a technical foot-fault.

But penalties are not a foot-fault.  They can be a significant expense to taxpayers, and in most instances interest accrues on penalties daily, so that often, if a taxpayer has entered into an installment agreement, after years of paying, the actual remaining liability is made up of only penalties and interest.  Research I published as the National Taxpayer Advocate shows that improperly assessed penalties actually increases noncompliance in future years.  So it is well worth it for the IRS to take the extra time to ensure the appropriate application of penalties. 

To come back to the topic of well-heeled taxpayers getting off easy, I suggest you review two research studies published in the National Taxpayer Advocate Annual Reports to Congress in 2013 and 2019.  In these studies we looked at the IRS application of the IRC § 32(k) two-year ban of the Earned Income Tax Credit where the IRS made “a final determination that the taxpayer’s claim of credit was due to reckless or intentional disregard of rules and regulations.” 

In 2013, the Taxpayer Advocate Service (TAS) reviewed a representative sample of the 32(k) cases and found:

  • In almost 40% of the cases, the ban was imposed without the required “determination” of the taxpayer’s state of mind;
  • In 69% of the cases IRS employees did not obtain required managerial approval before imposing the penalty; and
  • In almost 90% of the cases, “neither IRS work papers nor communications to the taxpayer contained an adequate explanation of why the ban was being imposed.

Following our study, TAS negotiated with the IRS to update the Internal Revenue Manual provisions to include a requirement that auditors must note the reason for imposition in their workpapers.  Both the 2013 and 2016 IRMs required supervisory approval of 32(k) penalty revision.  Here’s what IRM ban requires Correspondence Exam Technicians to do before asserting (or not) the 2 year ban:

● Review the documentation submitted by the taxpayer

● Determine whether the 2-year ban should be asserted based on applicable tax law and
1. the taxpayer’s documentation
2. taxpayer contact
3. IDRS research
4. Prior year CEAS workpapers

● Clearly document workpapers as indicated in, Workpapers for All Cases, including the decision and reason to impose or not impose the 2-year ban

● Get managerial approval on CEAS Non-Action note prior to asserting the 2-year ban


Do not use standard statements such as 2-year ban is applicable because taxpayer showed intentional disregard of the rules and regulations for EIC/CTC/ACTC/ODC or AOTC. Proper workpaper documentation should clearly outline the audit steps taken and fully explains the decision to assert or not assert the 2-year ban.

In 2019, TAS undertook an updated study to see how IRS examiners were complying with the new IRM procedures.  Here’s what TAS found:

  • In 54% of the cases, the auditor imposed the ban without the required managerial approval; and
  • In 84% of the cases, the explanation provided to the taxpayer on Form 886-A for imposition of the ban was inadequate.
  • In over half of the cases where taxpayers submitted documentation and the ban was imposed, it appeared from the documentation taxpayers believed they were eligible for the credit (thus negating the requirement of reckless and intentional disregard).

It is not clear why Congress would want to let the IRS off the hook here.  The TAS studies show the amount of 32 (k) penalty imposed (disallowance of future EITC) can be as much as 23 percent of taxpayers’ adjusted gross income.  It is one thing to violate the IRM, but why should we reward the IRS for ignoring the statutory mandate, especially where the imposition can create financial havoc for the taxpayer?

This is a problem of the IRS’s own making.  It could have issued clear guidance back in 1999 following the enactment of RRA 98 and established quality review procedures to ensure adherence to this guidance.  (I know this is possible – at times in TAS we imposed 100% supervisor or analyst review of certain aspects of casework where we determined those elements were critical to the fair and accurate treatment of taxpayers.  It can be done.  That is Management 101.)  It could have saved itself (and the public fisc) millions of dollars in litigation costs had it taken these steps decades ago.  The IRS finally got around to issuing IRM guidance in October, 2020 addressing the timing of supervisory approval (IRM which PT discusses here.

Because the IRS ignored the statutory protection for two decades, the problem that existed in 1998 is still present – the IRS imposes penalties as punishment and without adequate explanation, to itself or its taxpayers, and it doesn’t seem to care enough to fix it on its own.

It doesn’t have to be this way – we don’t need to repeal 6751 to address the issue of “foot faults.”  All that Congress needs to do is amend 6751(b) to make clear that supervisory approval must occur before the issuance of a notice of deficiency where one is required, or with respect to immediately assessable penalties or those not subject to deficiency procedures, “prior to issuing any written communication of penalties to a taxpayer that offers the taxpayer an opportunity to sign an agreement, or consent to assessment or proposal of the penalty,” as the current IRM requires.  Further, direct the Secretary to issue guidance as to the level and process of supervisory approval.  Then the litigation will have had a salutary effect, and accomplished what Congress tried to do the first time around.