Preview of This Week’s ABA Tax Section Virtual Fall Meeting

The ABA Section of Taxation kicked off its Fall Meeting virtually yesterday, with a plenary address by Thomas A. Barthold, Chief of Staff, Joint Committee on Taxation, followed by CLE programs from the Corporate Tax, Employee Benefits, State & Local Tax, and Transfer Pricing committees. A full week of programming follows, starting at 10:30 AM Eastern each day.

I will preview several sessions of interest in this post. The full program is available here, with the “schedule at a glance” here. To register, click here. (Registration is free for J.D. and LL.M. students, and $25 for LITC practitioners.)

Sessions are all held live, but registrants can also view sessions on replay – a major bonus of the virtual format for those of us who like to attend multiple committee meetings and for those with conflicting obligations.

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The CLE sessions presented yesterday are already available for viewing, as is the plenary address, Rewriting the Internal Revenue Code in a Pandemic, presented by Thomas A. Barthold, Chief of Staff, Joint Committee on Taxation. Those curious about the budget reconciliation process, the Byrd rule, and what tax writing looks like on the ground will find it illuminating and thought-provoking. The plenary session also includes remarks by Julie Divola, Chair of the Tax Section, by Wells Hall, Chair-Elect, and by Caroline Ciraolo, Vice Chair of Membership, Diversity & Inclusion.  

Readers of this blog may be interested in the panels happening at the Administrative Practice, Individual & Family Taxation, Civil & Criminal Tax Penalties, Court Procedure & Practice, Diversity, Tax Collection, Bankruptcy and Workouts, and Teaching Tax Committees, as well as the Pro Bono and Tax Clinics Committee. There are too many excellent panels to highlight them all here. Several committees also offer informal networking events, and the week ends with the always excellent Women in Tax Forum. I encourage readers to check out the full program and the schedule at a glance.

The Civil & Criminal Tax Penalties committee offers two programs today, at 12:30 and 2:30 p.m. ET. Part One includes subcommittee reports on important developments, followed by a cutting-edge discussion evaluating taxpayers’ exposure from their participation in COVID relief programs. Part Two presents additional important developments, and a final panel on taxpayer privacy versus the public’s right to know at 3pm, at which PT contributor Nina Olson is speaking.

Taxpayer Privacy v. The Public’s Right to Know. In the wake of the Watergate scandal Congress substantially increased the statutory protections for taxpayer privacy, including imposing criminal penalties for various forms of unauthorized disclosure. At the same time, the First Amendment provides for freedom of the press and journalists are tasked with informing the public on matters of national import. Recently, high profile leaks of tax return information have led to blockbuster reports by ProPublica (on the tax strategies of high net-worth individuals) and the New York Times (on former President Trump’s tax returns), among others. This panel will explore what I.R.C. §§ 6103 and 7213 protect and prohibit, how these laws potentially interact with the First Amendment, how newsrooms think through the legal and ethical questions surrounding the publication of leaked or stolen information, and more.

Moderator: Benjamin Eisenstat, Caplin Drysdale, Washington, DC

Panelists: Jesse Eisinger, Senior Reporter & Editor, ProPublica, Washington, DC; Cara Griffith, President and CEO, Tax Analysts, Washington, DC; Nina Olson, Executive Director, Center for Taxpayer Rights, Washington, DC; Jenny Johnson Ware, McDermott Will & Emery, Chicago, IL

The Administrative Practice committee teams up with the Court Procedure & Practice committee to present three joint sessions tomorrow. The Current Developments program at 10:30 ET is sure to be of interest to PT readers. The second program at 12:30 p.m. ET concerns CIC Services, which PT has covered in many prior posts, several of which can be found here, with Les’s most recent post here. The third session focuses on John Doe Summonses and begins at 2:30 p.m. ET on Wednesday.

Current Developments. This panel will include a report from the Tax Court, as well as a discussion of significant IRS guidance and pending litigation.

Moderators: Kandyce Korotky, Covington & Burling LLP, Washington, DC; Michael J. Scarduzio, Jones Day, New York, NY

Panelists: The Honorable Emin Toro, U.S. Tax Court, Washington, DC; Richard G. Goldman, Deputy Associate Chief Counsel (Procedure & Administration) Office of Chief Counsel, IRS, Washington, DC; Natasha Goldvug, Department of Treasury, Washington, DC (Invited)

CIC Services, LLC v. Internal Revenue Service: Opening the Floodgates to Pre-Enforcement Tax Litigation? In a unanimous decision, the Supreme Court held that the Anti-Injunction Act’s bar on lawsuits for the purpose of restraining the assessment or collection of taxes did not bar a pre-enforcement challenge under the Administrative Procedure Act of an IRS reporting rule backed by tax penalties. This panel will discuss helpful background regarding the Anti-Injunction Act and Administrative Procedure Act; examine the facts of the case and key arguments presented to the Court by the parties and amici curiae; and debate the implications of the Court’s ruling for pre-enforcement lawsuits challenging the validity of Treasury and IRS rules and regulations.

Moderator: Antoinette Ellison, Jones Day, Atlanta, GA

Panelists: Bryan Camp, Texas Tech University School of Law, Lubbock, TX; Kristin Hickman, University of Minnesota Law School, Minneapolis, MN; David W. Foster, Skadden, Arps, Slate, Meagher & Flom LLP, Washington, DC; Gil Rothenberg, former Chief of the Justice Department Tax Division’s Appellate Section, Adjunct Professor of Law at American University’s Washington College of Law, Washington, DC

Also on Wednesday afternoon, Teaching Taxation presents an important program on promoting diversity, equity, and inclusion in tax at 12:30.

Promoting Diversity, Equity, and Inclusion in Tax: Ideas and Resources for Mentoring Diverse Students and Leading Discussions of DEI in Tax. (Recommended for Young Lawyers) “We will all profit from a more diverse, inclusive society, understanding, accommodating, even celebrating our differences, while pulling together for the common good.” Ruth Bader Ginsburg. “Diversity requires commitment. Achieving the superior performance diversity can produce needs further action − most notably, a commitment to develop a culture of inclusion. People do not just need to be different, they need to be fully involved and feel their voices are heard.” Alain Dehaze. This panel will document the need for greater diversity in the field of tax law − in practice and in Academia – and share ideas to promote this goal, with a focus on law students and recent law school graduates. The panelists will (1) provide information about existing programs to promote DEI in the tax profession, (2) discuss ways to build the tax profession pipeline, to recruit and retain diverse tax attorneys, and to provide strong platforms for professional success, and (3) solicit audience participation and ideas for new initiatives.

Moderator: Katie Pratt, Professor of Law and Sayre Macneil Fellow, LMU Loyola Law School Los Angeles

Panelists: Professor Alice Abreu, Honorable Nelson A. Diaz Professor of Law and Director, Temple Center for Tax Law and Public Policy, Temple University Beasley School of Law, Philadelphia, PA; Caroline D. Ciraolo, Kostelanetz & Fink, LLP, inaugural Vice Chair, Membership, Diversity, and Inclusion, Tax Section Council, ABA; Professor Steven Dean, Brooklyn Law School; Honorable Juan F. Vasquez, US Tax Court; Lany L. Villalobos, Kirkland & Ellis, LLP, Assistant Secretary, Tax Section Council, American Bar Association (2021-2022), Immediate Past-Chair, ABA Tax Section Diversity Committee

Wednesday afternoon’s programming continues with a Diversity Committee session on return preparer fraud at 2:30 p.m.

Protecting Vulnerable Taxpayers Against Tax Preparer Fraud. (Recommended for Young Lawyers) Many taxpayers turn to paid tax preparers to help them navigate the tax code and accurately prepare their tax returns each year. While most tax return preparers are qualified and professional, unscrupulous tax return preparers do exist and can cause financial hardship and legal problems for the taxpayers who hire them. This is especially true for low-income taxpayers and other vulnerable communities. This panel will provide a comprehensive discussion of tax return preparer fraud and how to help those who have been taken advantage of by unethical tax return preparers. Panelists will identify resources to report tax return preparer fraud and what options are available to taxpayers to help remedy the damage caused by the tax return preparer. Lastly, the panel will discuss regulation of tax return preparers and what steps the tax community can take to reduce the risk of tax return preparer fraud.

Moderator: Shahin Rahimi, Legal Aid Society of San Diego, San Diego, CA

Panelists: Hana M. Boruchov, Boruchov Gabovich & Associates PC, New York, NY; Omeed Firouzi, Philadelphia Legal Assistance, Philadelphia, PA; William Schmidt, Legal Aid of Western Missouri, Kansas City, MO; Patrick W. Thomas, Frost Brown Todd, Louisville, KY

The Pro Bono and Tax Clinics committee presents two programs on Thursday morning. The first panel highlights administrative barriers that often prevent low-income taxpayers from receiving tax benefits to which they are entitled. This discussion is extremely timely as Congress debates whether to extend advance CTC payments.  We have covered problems with the IRS identity verification program here and here. Nina Olson wrote about problems with customer service and return processing recently here.

The second panel on determining a taxpayer’s “last known address” under the Code is a topic that has also prompted many PT posts.

Barriers to Tax Benefits: Resolving ID Verification and Payment Delivery Issues. (Recommended for Young Lawyers) The CARES Act and American Rescue Plan Act expanded numerous important benefits for low-and-middle income individuals delivered through the tax code -for example, the Advance Child Tax Credit and the Recovery Rebate credits. This panel will discuss numerous barriers that have emerged in getting those payments to the rightful recipients including ID verification issues, payments to the unbanked, and working with incarcerated individuals and the housing insecure.

Moderator: Anthony Marqusee, Philadelphia Legal Assistance, Philadelphia, PA

Panelists: Laura Baek, IRS TAS, Washington, DC; Barbara Heggie, Low-Income Taxpayer Project, Concord, NH; Nanette Downing, Director of Identity Assurance, IRS, Washington, DC; Denise Davis, Director of Return Integrity Verification Program Management, Atlanta, GA

A Simple Question with a Complicated Answer: Determining a Taxpayer’s Last Known Address. (Recommended for Young Lawyers) Many IRS notices are required to be mailed to a taxpayer’s “last known address.” Failure of the IRS to properly mail such notices can carry profound consequences. Determining exactly what a taxpayer’s last known address should be, however, is increasingly contentious. This panel will review the regulatory and subregulatory guidance on what is required for a taxpayer to effectively change their address with the IRS. It will also discuss how the recent 3rd Circuit decision Gregory v. Commissioner and the online IRS “portals” may affect this area of law.

Moderator: Briana Fehringer, Partner at Anderson & Jahde, P.C., Littleton, CO

Panelists: Christopher Valvardi, IRS Office of Chief Counsel (P&A), Washington, DC; Audrey Patten, Harvard Legal Services Center, Jamaica Plain, MA

Speaking of IRS customer service, on Friday the Individual & Family Taxation Committee presents a two-part session featuring IRS Wage & Investment Commissioner Ken Corbin.

The Service of the Service: Interacting Now and in the Future. (Recommended for Young Lawyers) This two-part panel will examine the current state of IRS customer service and how technology may transform how the IRS interacts with taxpayers. Part one will focus on common scenarios that taxpayers, practitioners, and IRS personnel have faced with the continuing backlog of correspondence and return processing. The panel will focus on how practitioners have attempted, with varying degrees of success, to resolve these problems. It will bring together viewpoints from private practice, tax clinicians, the Taxpayer Advocate, and the IRS. Part two will focus on strategic IRS initiatives to use Artificial Intelligence (AI) and data analytics to automate core components of customer service – some already in testing. The panel will discuss the IRS’s concierge service initiative, which will be AI-driven with some IRS representative collateral support, and how the initiative interacts with the broader Taxpayer First Act implementation programs. The panel will explore issues of equity in accessing responsive service by different taxpayer populations.

Part One Panelists: Kenneth C. Corbin, Commissioner, Wage & Income Division, IRS, Atlanta, GA; Andrew VanSingel, Local Taxpayer Advocate, IRS, Chicago, IL; Olena Ruth, Ruth Tax Law, Denver, CO; W. Edward (Ted) Afield, Clinical Professor of Law and Director, Philip C. Cook Low Income Taxpayer Clinic, Georgia State University, Atlanta, GA

Part Two: Joshua Beck, Attorney Advisor, Taxpayer Advocate Service, Des Moines, IA; Leigh Osofsky, Professor of Law, University of North Carolina School of Law, Chapel Hill, NC; Joshua Blank, Professor of Law, University of California, Irvine School of Law, Irvine, CA; W. Edward (Ted) Afield, Clinical Professor of Law and Director, Philip C. Cook Low Income Taxpayer Clinic, Georgia State University, Atlanta, GA

Taxpayer Rights as Human Rights: Registration is open for the 6th International Conference on Taxpayer Rights

Back in pre-pandemic days, the Center for Taxpayer Rights planned to hold its 5th International Conference on Taxpayer Rights (ICTR) at the University of Pretoria in South Africa in October 2020.  We had a fascinating theme – Taxpayer Rights, Human Rights: Issues for Developing Countries.  We’d pulled together a great group of panelists, the locations in Pretoria were terrific, there was lots of excitement.

And then COVID hit.  We postponed the conference to October 2021, hoping we would be able to be there in-person.  Unfortunately, that is not to be; the University is pretty much operating remotely, and travel is restricted on the African continent.

But we are not deterred – the Center is holding the 6th ICTR online, from 05 to 08 October, 2021.  We will be having two panels a day, to accommodate all the different time zones.  The Conference will kick off with a free online workshop on 05 October on The Role of Tax Clinics and Taxpayer Ombuds/Advocates in Protecting Taxpayer Rights.  You can see the agenda here.  And you can register for the conference here.

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Now, you may be thinking to yourself, this is not for me; I don’t practice tax law in a developing country.  Here are a few reasons why you might want to attend this conference.  First of all, I have to say that I have spent a lot of time over the last two decades meeting and working with different tax administrations; there are many things the US can learn from other tax agencies and systems, especially in terms of taxpayer service, technology, data use, and online accounts.  Developing countries often aren’t weighted down with legacy systems that require Rube Goldberg-like workarounds.  Every time I met with folks from another country’s tax agency, I learned something new about tax administration and also about my own country’s tax system vis a vis theirs.  This information is helpful when trying to improve our own system.

But there is a more important reason to focus on the issues raised when thinking about taxpayer rights as human rights in the context of developing countries.  Unlike developed countries, which have established tax systems and administrative structures, and a fairly high level of voluntary compliance, developed countries are … developing those things.  They cannot take anything for granted.  Most of them have emerged from colonial (read paternalistic/infantilizing) regimes.  They are wrestling with pandemics, unemployment, droughts, civil war and strife.  And they are trying to meet the basic needs of their population and provide them some human dignity.

Human dignity is at the heart of human rights.  And human dignity is the rationale behind government – that together we can meet the needs of the populace.  The United Nations has established 17 Sustainable Development Goals that governments should seek to achieve.  Governments must have funds to fulfill those goals and meet the needs of their people.  Developing countries often have young constitutions, with explicit recognition of human rights and the social contract between the government and its citizens.  Taxation is a key means for a state to fulfill that social contract.  These countries are wrestling with elemental principles that developed countries take for granted.  By taking them for granted, developed countries often forget why taxation exists – they forget first principles.

So, to that end, I encourage you to register for and attend the 6th International Conference on Taxpayer Rights.  It should be fascinating and give cause for reflection about our own status as a “developed” country.

Here’s the link for more information about and to register for the conference.

The Current State of Taxpayer Service (or Lack Thereof) at the IRS

In my written testimony for a recent hearing before the Ways and Means Subcommittees on Select Revenue Measures and Oversight about the tax gap, I discussed some of the current state of taxpayer service at the Internal Revenue Service (IRS) and the many causes for refunds being delayed in the processing of tax returns.  In a normal filing season, refunds may be stopped because of suspicion of identity theft, or omitted or understated wage income or overstated tax withholding.  They may be stopped for “math error” processing for any number of reasons, including incorrect social security numbers.  As the National Taxpayer Advocate, I regularly focused (here and here) on the high “false positive rates” of these programs.  That is, the IRS froze many more returns that ultimately turned out to be legitimate refund requests than were fraudulent.  For example, for the 2020 filing season, the National Taxpayer Advocate reported that IRS refund fraud filters froze 3.2 million individual income tax returns on suspicion of refund fraud.  Of those 3.2 million refund suspended returns, 66 percent – almost two-thirds — were false positives, meaning they were legitimate refund requests.  (See footnote 19 in NTA report.)  For a quarter of the frozen returns, it took the IRS longer than 56 days to release them to normal processing. 

This year is a far from normal filing season.  The IRS is grappling with reconciling various new provisions including the Rebate Recovery Credit, exclusion of unemployment benefits from income, and the “look-back” provision for the Earned Income Tax Credit.  These provisions have resulted in many more returns being suspended and requiring some form of manual review before processing, posting, and refund issuance can resume.

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The National Taxpayer Advocate has reported (Figure 2, Filing Season Report) that for Filing Season 2021, through May 21, 2021, the IRS received 148 million individual income tax returns and processed 135.7 million such returns.  The remaining 12.3 million were stuck in various stages of review.  This number under review is almost twice the number of returns unprocessed at the end of the 2020 filing season (6.3 million were suspended as of July 15, 2020).  Elsewhere,  the National Taxpayer Advocate has reported that as of May 21, 2021, the IRS had over 35 million individual and business tax returns either suspended or “in process” but requiring manual processing before the return can move along and refunds issued (Figure 3, Filing Season Report).

Included in these “frozen” returns are 9.8 million individual tax returns sitting in the Error Resolution System (ERS), up 544 percent from the 2020 filing season, and 2.1 million individual income tax returns still suspended for Identity verification, up 91 percent from the 2020 filing season.  Trying to get through to the IRS to resolve these issues is nearly impossible.  During the 2021 filing season, the IRS received 167 million calls on all its lines, up 294 percent from the year before; only 15.67 million of those calls reached a live assistor.  On the 1040 phone line, which is the main phone number for individual income tax assistance, the IRS received 85 million calls, up 978 percent from the 2020 filing season, with only 3 percent reaching a live assistor.  (Figure 5, Filing Season Report.)

If a taxpayer’s refund return is selected for identity verification (on suspicion of identity theft), the taxpayer is required to verify their identity through an online tool, or by telephone, or at an appointment at the Taxpayer Assistance Center (TAC).  Taxpayers have reported being unable to verify online, unable to get through to the phone verification system, unable to reach the TAC appointment line, and if they are able to get a TAC appointment, it is 9 weeks later.  The phone identity verification line received over 6 million calls this filing season, with a 19 percent level of service, meaning 4 out of 5 calls could not get through to verify their identity and get their refund released.

What can be done to fix this?  First, technology, artificial intelligence, and data science can play an important role.  Many of the IRS’ fraud detection and questionable refund filters are rule-based.  That is, a fixed rule is broken, then a return is selected and must be manually reviewed; often the taxpayer must supply additional information.  From year to year, the IRS does not do a good job of learning from the cases where its filters incorrectly identified a return.  The IRS needs to work with data scientists and artificial intelligence experts to design a fraud/error detection system that is not rule-based but rather learns from the returns that actually turned out to be fraudulent, as well as those that were frozen and ultimately determined to be legitimate.  In short, IRS systems need a continuous feedback loop so it minimizes the false positive rate and improves on its initial selection of returns.  To date, the IRS has refused to set goals for reducing the false positive rate on its fraud detection system.  The data cited above show the urgent need for the IRS to set these goals and act on them.  Congress should require it to do so.

Second, the IRS can use programming to minimize taxpayer errors.  In the 2009 filing season, in which taxpayers were reporting the Economic Stimulus Payments (ESPs) they received in 2008, the IRS had a system by which taxpayers (and their preparers) could look up the amount of ESP they received.  The IRS did not replicate this system for the 2021 filing season.  Thus, according to the National Taxpayer Advocate, 5 million returns were suspended in Submission Processing to reconcile Economic Impact Payments with Rebate Recovery Credits.  For the 2022 filing season, Congress should require the IRS to create a similar look-up system for the Advanced Child Tax Credit; otherwise we will have the same return backlog in 2022 as we have today.

The IRS also could program, as part of the submission processing pipeline, the ability to systemically look back to the 2019 modified adjusted gross income, where a taxpayer claimed the “look back” rule for EITC eligibility.  Instead, millions of returns were suspended for manual review because the IRS did not program this.  While I realize this may not have been possible for the 2021 filing season, given the late enactment of the look back provision, if Congress makes the EITC look back rule permanent, it should require the IRS to systemically check for eligibility.  This approach not only reduces the number of returns that must be manually verified but will also identify returns on which the look back was not but should have been claimed.

On top of all this, the Taxpayer Advocate Service (TAS) has at the top of its homepage on its website a statement as follows: “Refund Delayed? Our ability to help may be limited.”  TAS is supposed to be the safety net for taxpayers experiencing significant hardship; yet TAS is unavailable for most taxpayers experiencing refund delays this year.  This is unacceptable, and a violation of the right to a fair and just tax system.  I do not know why TAS has decided it is unable to help these taxpayers; what I do know is that taxpayers are losing faith in TAS.

Third and most importantly, the IRS taxpayer service functions need a significant and steady funding increase.  Congress should scrutinize the IRS projections for the number of calls it receives.  When refunds are frozen, online services are just not satisfactory; taxpayers want to talk to a live human being.  Congress should require the IRS to tell it how many assistors will be required to answer 85 percent of the calls coming in.  Congress should require the IRS to project how many returns it expects to suspend for identity theft and questionable refund issues, and what level of staffing it needs in ERS and the identity theft/refund fraud units to resolve those issues within 14 days.  Congress should require the National Taxpayer Advocate to project the number of cases they would receive if they were willing to assist taxpayers with refund issues.  With all of this information, Congress can then appropriate the funds necessary to get staffing levels up in all these functions so U.S. taxpayers get the assistance and service they deserve.

These are resolvable problems.  The Commissioner regularly points out in oral testimony that Congress only appropriated funding for a 60 percent level of service in FY 2021.  What the Commissioner omits saying is that the President’s budget for that year only requested funding for that level of service.  (See page 85 of FY 2021 President’s Budget Request for Treasury here.)  Thus, Congress funded 100 percent of what the President/IRS requested.  So, to start transforming taxpayer service, the IRS must be transparent about the abysmal quality of service it is currently providing taxpayers and provide Congress with a budget request that reflects the level of service taxpayers need to comply with the tax laws.  No more of this 60 percent nonsense!  Then, as Michelle Singletary wrote in her recent column, the IRS will be able to pick up the damn phone.

Juneteenth And Section 7503: A New Federal Holiday Give a New “Last Chance” For Some

Today guest blogger Bryan Camp discuses the implications for tax procedure of the new federal holiday celebrating Juneteenth. National recognition of Juneteenth resulted from a years-long campaign by many including the incredible 94-year old activist and survivor of white supremacist violence Opal Lee. Christine

Yesterday, President Biden signed legislation that made June 19th a federal holiday. It’s the first new federal holiday since President Reagan signed on to the creation of Martin Luther King Day back in 1983.

The new holiday means paid time off for some. Certainly all federal workers will get it, and other workers, too, to the extent one’s employer automatically pegs paid holidays to the federal calendar.

But the first thought for tax procedure nerds is, of course, IRC §7503. That statute provides that when any deadline for performing “any act” required under “this title” falls on Saturday, Sunday, or a “legal holiday,” why then “the performance of such act shall be considered timely if it is performed on the next succeeding day which is not a Saturday, Sunday, or a legal holiday.” The Tax Court piggybacks off of this rule, saying that §7503 also applies to deadlines for Tax Court petitions. TC Rule 22.

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Section 7503 will apply to the new holiday just like it applies to others. This year, for example, June 19th falls on a Saturday. The enacting legislation says that when that happens, the holiday will be celebrated on the preceding Friday, June 18th. And THAT means that June 18th is now a legal holiday, so §7503 acts to defer any act due today until Monday, June 21st. I have not read the legislation, but I am guessing that when June 19th falls on a Sunday, the holiday will be celebrated on the next day, Monday. After all, we cannot let holidays go to waste.

Let’s call that the 3-day weekend rule!

This is also a good moment to review a couple of other quirks about §7503 associated with the statute’s definition of “legal holiday.” Surprisingly, the term is not defined to mean a federal holiday, at least not directly. Let me explain.

The term encompasses two types of holidays. First, the term means any federal holiday. Technically, the statute actually says that the term just refers to “a legal holiday in the District of Columbia.” However, since DC is currently under federal jurisdiction that statutory definition means that any federal holiday is a “legal holiday.”

One quirk involving this definition is that DC celebrates a holiday called “Emancipation Day.” That day is supposed to fall on April 16th but the enacting legislation also contains a 3-day weekend rule. The result is that when April 15th falls on a Saturday, that means that Monday April 17th is a legal holiday in DC, which means that §7503 kicks in and pushes the April 15th filing date to April 18th. That is what happened in 2017 for tax year 2016 returns.

The second type of holiday that triggers operation of §7503 is trickier to figure out. It provides that when any act is required “to be performed, at any office of the Secretary or at any other office of the United States or any agency thereof, located outside the District of Columbia but within an internal revenue district” then the term “legal holiday” also means “a Statewide legal holiday in the State where such office is located.”

One example of a statewide legal holiday that sometimes affects the April 15th filing deadline is the Patriots Day holiday. No, it’s not about the sports team. It is designated to be celebrated on the third Monday in April (so no need for a 3-day weekend rule). Several states have that day as a statewide holiday.

So what happens when the third Monday in April is the 15th, 16th, or 17th (do you see why it matters that it falls on the 16th or 17th?). So far, the IRS has taken the position that only those taxpayers who live in the states that celebrate the holiday can use §7503, to push their filing deadline to Tuesday, even if they are required to file in an IRS Campus that is not in a state celebrating that holiday. See IRS Notice 2006-23. That does not make much sense to me. The statutory language would appear to key the effect of a statewide holiday to whether the IRS office where a document must be filed is in the state, not where the taxpayer required to file happens to live. Thus, because there is a a returns processing center in Andover Massachusetts, a state that observes Patriots Day, then §7503 should apply to all taxpayers required to file in Andover.

Section 7503 is woefully outdated. The reason for the two separate definitions was that in the old days, taxpayers filed their returns in local offices but much of the processing and assessment work was done in Washington D.C. And when I say “the old days” folks, I mean the really old days, before the introduction of the Computing Centers and centralized returns processing in the early 1960’s! That’s how outdated the language is.

Further, alert readers will also notice that the statute refers to “internal revenue districts.” They no longer exist. They were abolished by the 1998 IRS Restructuring and Reform Act. But did Congress think to change the language in §7503? Noooooo. So we just stumble along, applying outdated statutory language to new situations as best we can. Thankfully, the creation of a new federal holiday fits very nicely within the definition of “legal holiday” contained in §7503. ….until D.C. achieves statehood.

Calling the Number Provided in IRS Correspondence

This has been a tough year for the IRS.  For a variety of reasons not the least of which is the pandemic, it has faced numerous challenges.  My understanding is that its performance in answering the general phone line during the filing season ranged somewhere between 2-5% which is not good but it’s not zero. 

A couple years ago I wrote a complaining post about the offer in compromise unit in Brookhaven that gave out a phone number no one ever answered.  I know from personal experience with that number how frustrating it can be to try to reach a number, the only number you are given, and no one ever answers.  I likened the situation to the circumstances facing Joseph K in Franz Kafka’s classic novel, The Trial.  After I wrote that post, the phone problem with Brookhaven was fixed very quickly.  Inspired by that success, and discouraged my two specialty phone numbers that seem to be a dead letter box, I am writing another post about phone numbers the IRS provides but does not answer.  I am not sure how this happens but it should not.  I hope that someone can address the problem.

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The first phone number that no one answers is the phone number for people seeking to verify their ID.  I encountered this earlier this year when I had back to back offer in compromise cases the examiners expressed a readiness to accept but the taxpayers had an outstanding ID verification issue.  I obtained the phone number to verify their identity and gave it to the clients expressing to them the urgency with which they needed to address the verification issue.  Each client took me seriously and tried to verify their identity but could never get through.  The offer examiners give you a deadline to do the things they request of you.  I understand why they do this and do my best to meet their deadlines but here we could not meet the deadline since the clients could not get anyone to answer the phone.  I sent a message to my local taxpayer advocate asking if he could help.  He got each of the cases assigned to a case advocate.  The case advocate was able to make the ID verification happen, the clients got their offers accepted, all was well but this is an expensive way for the IRS to deal with a bad phone number.

This past week I received a phone call from the person who runs the After Innocence project.  He has created an organization to assist exonerees with all of the issues they face once released.  The tax clinic at Harvard does the tax work for the exonerees and it has been very rewarding work for the students over the past several years.  We have Kelley Miller to thank for getting us started and for jumping in to assist us occasionally.  The director of the project reached out to me because he now has 20 exonerees who need to verify their ID with the IRS in order to receive a refund or a stimulus payment; however, he cannot get anyone to answer the phone when he calls the number provided.  I was not surprised that he was having trouble with this since his difficulty mirrored the difficulty my clients had earlier this year.  Because going through the verification process serves as a gateway to other matters – getting an offer accepted or getting a refund – this is a critical number.  I solicit suggestions on how to get through to the number or to work around the problem created by the IRS not picking up the phone when the number provided in its correspondence is used.

A second phone number is not working according to readers of the blog.  I do not have personal experience with this number.  I wrote a post last June about lost or destroyed EIP cards.  We have received 27 comments on this post to date but I want to highlight some that focus on the phone issue and two which are very recent:

June 25, 2020 – Did you figure out how to get your replacement card cuz I have had no luck and when calling that number it told me the same thing I am stuck and need help

March 31, 2021 – There is no number that one they have 1800-240-8100 does not work

April 26, 2021 – The only recourse is to call an 800 customer service line, when you are prompted to press 2 for a lost card, it spews some rigamarole and disconnects you…I’ve tried several times to replace my lost card,
With the same result

May 13, 2021 – Same Results that Number does not Work. What can you do? It says press 2 , and then says check http://www.irs.gov/eip which leads back to that number which you can’t do anything. If you find any info which works let me know via email

The inability to get through to a specific phone number for resolving a problem creates more problems that the difficulty getting through with a general call.  Neither problem is good but if you need to get through to a number to receive a refund or a replacement stimulus card the inability to get through becomes magnified.  If/when Congress gives the IRS additional funding, I hope that some of it will be headed to fix these types of customer service issues.

Advanced Child Tax Credit

Congress has passed legislation creating a much expanded child tax credit (CTC) and requiring the IRS to make advance payments of the CTC during the 2021 tax year starting in July.  The expanded credit provides a $3,600 credit for every child under 6 and a $3,000 credit for every child under 17.  The expanded CTC does not require that taxpayers have earned income in order to qualify.  The credit will phase out for taxpayers earning more than X and completely vanish for taxpayers earning more than Y.  Currently, the expanded CTC only happens for the 2021 tax year though many efforts exist to expand it to a more permanent fixture.  Whether the expanded CTC has a life beyond 2021 could depend on the ability of the IRS to surmount the significant administrative hurdles to make it happen without drawing too many negative stories of parents unpaid or ineligible individuals paid.  The IRS faces a tough challenge.  

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At the ABA Tax Section meeting last week there was a couple programs on the CTC because this is such a big change and because the almost immediate implementation raises many questions as well as many challenges.  At the Individual and Family meeting on Friday panelist Margot Crandall-Hollick, Acting Section Research Manager, Congressional Research Service, created some excellent slides showing the history of the CTC and the way it will work for different families.  Recent studies indicate that nearly 1 in 7 US children live in poverty. Originally enacted in 1997, the child tax credit (CTC) is part of our nation’s patchwork efforts to address the high costs of raising children. The panel   focused on the underlying policy issues behind the adoption of the expanded CTC and administrative issues associated with the implementation. 

Ms. Crandall-Hollick has kindly allowed us to display those slides here:

In addition to the background information about CTC and the basics of the law, the panel included Ken Corbin, the Commissioner for Wage & Investment at the IRS who is tasked with making this work.  He provided some answers regarding where the IRS in its effort to ramp up for this and noted some areas where the IRS still seeks answers.  Mr. Corbin pointed to the experience of the IRS in issuing the stimulus payments as the starting point for its approach to delivering the advanced CTC payments.  He not only talked about lessons learned from this experience but the partnerships developed with the Social Security and Veterans Administrations as well as other partner within and without the government.  He sounded positive that the IRS can meet this challenge.  I certainly hope that it can, because the delivery of the advanced CTC payments represents a significant policy shift to insure that children will have a better chance.

One of the major problems with the Earned Income Tax Credit, the largest refundable credit the IRS has administered to this point, concerns payments to the wrong individual, which can occur for a wide variety of reasons.  The fluidity of many family situations often makes it difficult to correctly claim the credit, the complexity creates confusion and the refundable nature of the credit creates an incentive to wrongfully claim the credit that proves too tempting for some taxpayers and some preparers.  He spoke of a new authentication process the IRS has developed that will work on the phone or in person.  Perhaps this authentication process will eliminate some of the problems that have caused concern with the payments of the EITC refundable credit and perhaps the tool(s) developed for the expanded CTC will have some crossover benefits in boosting the accuracy of the EITC claims.  I am glad to hear that it has developed such a process.  I am a bit concerned that even if the process works perfectly, the IRS ability to answer the phone and to meet taxpayers in person may create a barrier to the success of the process. 

Mr. Corbin indicated that the IRS will potentially send out three letters to the intended recipients of the expanded CTC.  First, the individual will receive a notice alerting them to their potential eligibility.  I assume that this letter will provide some mechanism for the individual to opt out of the expanded CTC as opting out is one of the features of the program.  By opting out the individual identified by the IRS signals that someone else, usually the other parent, should receive the advance payment of the expanded CTC.  Second, the individual will receive a notice that the payment is coming.  I assume this notice will signal the amount of the payment.  He did not provide enough detail to make clear whether the first or the second notice would provide an opportunity for the taxpayer to notify the IRS that the number of eligible children in the IRS calculation is wrong perhaps because of a new birth or a child moving to live with a different family unit.  Third the individual who has received the payments will receive a reconciliation statement at the end of 2021 that will be used to file with their 2021 tax return.  The IRS may develop a system similar to the premium tax credit by which taxpayers will reconcile that the payments received were correct.

In response to questions Mr. Corbin indicated that the IRS was still working on the process for resolving disputes over who is entitled to the advanced CTC payment.  While the vast majority of cases will probably work smoothly, family dynamics dictate that situations will exist where more than one person claims the credit for a child.  Given the abbreviated time frames within which the payment determinations are being made the ability of the IRS to create a system for resolving disputes during the 2021 period will provide quite a challenge and could severely strain its resources.  On the other hand, if the IRS cannot find a reasonable way to handle disputes, it will receive much criticism.

Congress has once again tasked the IRS to perform a very difficult task in a short time period while its resources are already strained past the point of allowing it to provide the best service on the tasks already on its plate.  The IRS will once again try to pull a rabbit out of the hat as it did with the stimulus payments.  There will, no doubt, be problems.  Keeping the problems to a minimum and delivering the payments to families could impact the long term viability of a program that makes a lot of sense.

Observations from the ABA Tax Section Meeting

This week is the ABA Tax Section meeting.  Normally, this is the biggest meeting of the year because it takes place in DC and the Tax Section can attract all of the government speakers.  With everything happening in the tax world at the moment, there would be lots of important players to see in person.  Like almost all meetings, this one is virtual which in some ways makes it easier to attend but in others leaves an empty feeling.

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Even though the meeting is not physically in DC, there have been lots of government speakers and things to report from the meeting so far.  Judge Toro, representing the Tax Court, indicated that the Court is pleased with the results of some of the changes it has made to its procedures as a result of the pandemic.  To assist the remote trial process, some documents, such as the stipulation of facts, need to be filed before calendar call.  The Court is also holding many more pre-trial conferences and getting engaged with the parties earlier in the process and this is apparently leading to results that the Court finds pleasing.

While some judges routinely engaged with taxpayers prior to calendar call, for many Tax Court judges their first interaction with taxpayers occurred at calendar call unless the petitioner or the government sought a pre-trial conference.  It always seemed to me that the process would benefit from earlier engagement by the judge assigned to try the case and it does not surprise me that the Court is finding this helpful in moving the cases.  I hope that the practice takes hold and continues post-pandemic because it helps everyone.  

The Tax Court has a relatively high default rate of petitioners who file but get dismissed for failure to properly prosecute.  Certainly, the petitioner who files and does not engage bears some responsibility for their action, but the system seemed designed to promote disengagement.  With over 70% of the petitioners filing pro se, these petitioners receive an answer which in almost all cases denies everything they have alleged in their petition.  A surprising number of pro se petitioners believe that the answer means they have lost the case because they do not understand the role of pleadings.  Then, after the answer, nothing happens on their case for months in many cases because the attorney who answers the case ships it off to Appeals which takes a long time to engage with the taxpayer.

During this period the taxpayers, who were among the 3% of statutory notice recipients engaged enough to petition the Tax Court, lose their interest in the case and drop out ultimately resulting in a dismissal for failure to properly prosecute.  The Tax Court sends them a letter acknowledging their petition and providing some guidance on what will happen with their case but the letter does not really prepare them for the Answer and the long period of silence.  The more the Court engages with them the less taxpayers will drop out of the system and the better prepared they will be when it comes time to try their case or, even better, to resolve it by settlement.  Some of the actions the Court is taking during the pandemic have helped this situation.  It will be interesting to see if these actions statistically make a difference in the number of drop out cases over the long haul.

Earlier this week the Tax Section announced that Special Trial Judge Panuthos received this year’s Distinguished Service Award.  Judge Panuthos is a great selection and his selection provides recognition for the work he has done over decades to make the Tax Court a more inclusive place for the many pro se taxpayers who come there.  The Tax Court recognized Judge Panuthos for his work in 2012 by bestowing upon him the Murdock Award for distinguished service to the Tax Court.  The ABA recognition helps in continuing to highlight the importance of his work in making sure that underrepresented individuals receive proper treatment in the tax system.  

Yesterday, the Tax Section held an event with Judge Panuthos and this year’s Janet Spragens Pro Bono Award winner, Susan Morgenstern, to highlight their work on behalf of low income taxpayers.  Susan was one of the early entrants to the world of low income tax clinics at Legal Services organizations and promoted tax clinics to other Legal Services organizations.  Now, the tax clinics at these organizations represent the largest number of tax clinics.  Because Legal Services organizations serve low income individuals with a wide variety of civil legal problems, getting tax clinics into these organizations has been a vital benefit to providing them with necessary representation as the tax code became the source for more and more benefit programs.  Linking back to the earlier discussion about dismissals for failure to properly prosecute, Susan has pushed the Court for many years to provide stronger engagement to address that problem.

Another topic discussed yesterday at the ABA meeting by a Chief Counsel executive on an issue written about frequently in this blog concerns the timing of supervisory approval in penalty cases.  On May 11, 2021, another IRC 6751(b) case came out holding that the IRS did not approve the penalty in time, Battat v. Commissioner, T.C. Memo 2021-57.  Although arguably not breaking new ground, which is why it came out as a memo opinion, it tossed the penalty because the revenue agent put it in a report before getting approval.  Like many of these cases in the past year, this case goes back to action taken a decade ago.  The docket number in the case is 17784-12 which tells you that it was filed with the Tax Court nine years ago.  Nonetheless, the comments from Chief Counsel at the meeting essentially stated that as the Court pushes the timing of the approval back further and further in time it will force agents to get approval for penalties before they have properly developed the facts.  

I understand the concern but am not sure I agree with it.  Many of the cases coming out relate to a period before the IRS paid attention to the statute.  Now that it is paying attention to the statute, perhaps revenue agents will develop the facts before they issue their reports.  No doubt there will be cases where taxpayers do not work with the agents and the agent will issue a report uncertain about all of the facts.  I hope that the exercise causes agents to pay more attention to penalties rather than being casual about them and I suspect it already has.  The next fight in the circuit courts may occur over the automatic approval cases of 6751(b)(2)(B) and what constitutes, or should constitute, the waiver for penalties imposed  where the IRS seeks the exception from prior approval of “any other penalty automatically calculated through electronic means.”  I think we will hear from Caleb Smith on this issue in a couple of posts in the near future.

Senate Finance Committee Tax Gap Hearing Today

Last month Commissioner Rettig testified before the Senate Finance Committee, and he stated that the tax gap could be approaching $1 trillion annually. That got a lot of attention, especially as the IRS’s own official tax gap estimates pegged the average gross tax gap at $441 billion per year, though it is based on data from 2011-2013.  There’s also a lot of attention in general to possible changes to the Code as a part of the administration’s proposed legislation including many recommendations related to tax procedure. Some people are predicting that this could be the biggest year for changes to tax procedure since 1998. 

Today the Senate Finance Committee’s Subcommittee on Taxation and IRS Oversight will be holding a follow up hearing on the tax gap. The testimony will be live streamed starting at 2:30. 

We will update this post later with links to the written testimony of the witnesses.

Here is the witness line up for today:

Barry Johnson, Acting Chief, Research And Analytics Officer, Internal Revenue Service

Doug O’Donnell, Deputy Commissioner, Services & Enforcement, Internal Revenue Service

J. Russell George,Treasury Inspector General For Tax Administration

Nina E. Olson, Executive Director, Center for Taxpayer Rights

Charles O. Rossotti, Former Commissioner (1997-2002), Internal Revenue Service

UPDATE: See here for a link to a recording of the testimony https://www.youtube.com/watch?v=frlZ6GQnd6A