Join the Center for Taxpayer Rights for a Tax Chat! with former IRS Commissioner Charles Rossotti on 23 March 2023

On Thursday March 23 at noon EDT, the Center for Taxpayer Rights is launching its series of virtual Tax Chats! titled Transforming Tax Administration: Toward an Effective, Trusted, and Inclusive IRSOur first Tax Chat! in the series will be a conversation between Charles Rossotti, former IRS Commissioner, and me (Nina) about his experience modernizing the IRS in the context of the IRS Restructuring and Reform Act of 1998 (RRA98).  The Tax Chat! is free, but you need to register here to receive the link to the program. 

The last major reform effort for the IRS was pursuant to the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98), Public Law 105-206.  RRA 98 was preceded by a bipartisan National Commission on Restructuring the IRS, which held public hearings around the country and heard from scores of tax professionals, academics and government officials on how to improve the agency.  The National Commission’s report provided the basis for approximately nine months of congressional hearings. The Ways & Means Committee originated the legislation and prepared an extensive committee report, followed by the Senate Finance Committee amending the bill and preparing its own committee report; the bill finally went to conference, which also generated a conference report.  RRA 98, then, has extensive legislative history which lays out the clear intent and expectations of Congress in its efforts to reform and restructure the IRS.  Not surprisingly, as a result of all this effort, RRA 98 passed the House with a 402 to 8 vote and the Senate with a 96 to 2 vote.

On the other hand, the Inflation Reduction Act, providing $80 billion for the IRS over 10 years, was a reconciliation bill and preceded by very little legislative background work.  There are no committee reports, much less a national commission with recommendations on how to transform the IRS.  Although the IRS has established transformation offices and Treasury is holding various roundtables with specific stakeholder groups, the IRA does not have the bipartisan in-depth exploration of what is needed to transform the IRS into a tax agency that meets the needs of its diverse taxpayer population while ensuring those taxpayers comply with the law.


To provide some record and public discussion, the Center for Taxpayer Rights is holding a series of 15 or so free, virtual “Tax Chats” with experts from the private, academic, nonprofit, and government sectors on various aspects of tax administration.  The format of the 1 ½ to 2-hour discussions will be informal and allow for viewer questions.  All the Tax Chats! are free of charge but you must register here in order to receive the link and notifications of future Tax Chats! in the series.  You can also sign up for the Center’s newsletter to receive notifications of future Tax Chats! in the series.  The Chats! are funded by a generous grant from Arnold Ventures.

The inaugural Tax Chat! will be followed by a group of Tax Chats that we view as foundational to any transformation effort, including discussions of the IRS budget structure and process, information technology challenges, and the IRS workforce.  We will then have a conversation about taxpayer behavior and voluntary compliance, and launch into Tax Chats! About specific areas of tax administration, including the use of big data, artificial intelligence, taxpayer service, audit and collection techniques, penalty administration, administrative burden, and interactions with vulnerable populations.  We’ll close with a look at the IRS’s organizational structure, culture, and how to earn taxpayer trust.

The Tax Chats! Will be held over the spring and summer of 2023, culminating in an in-person and virtual day-long conference in September 2023.

Hope to see you at the Tax Chats!

IRS Statement Regarding Payment of Special Tax Refunds by States

After the post by Bob Kamman, the IRS released a statement yesterday regarding these payments:

February 3 update

IRS issues statement about the taxability of state payments

The IRS is aware of questions involving special tax refunds or payments made by states in 2022; we are working with state tax officials as quickly as possible to provide additional information and clarity for taxpayers.  There are a variety of state programs that distributed these payments in 2022 and the rules surrounding them are complex. We expect to provide additional clarity for as many states and taxpayers as possible next week.

For taxpayers uncertain about the taxability of their state payments, the IRS recommends they wait until additional guidance is available or consult with a reputable tax professional. For taxpayers and tax preparers with questions, the best course of action is to wait for additional clarification on state payments rather than calling the IRS. We also do not recommend amending a previously filed 2022 return.

An Open Letter to the Last IRS Commissioner

Phoenix lawyer Bob Kamman, an occasional guest blogger and frequent commenter, turns 74 this week. He tells us that his clients won’t allow him to retire. And, some of them must file California returns, so he keeps up with developments west of the Colorado River.

Mr. Charles Rettig

Beverly Hills

I bet it feels great to be back in California, even with the recent bad weather and worse mass shootings.  At least you are thousands of miles from the Capitol, where IRS is not always welcome or appreciated.  Now that you are back among friends, though, you probably are expected to answer their tax questions.  I can guess which one comes up the most: the MCTR.

Californians wish you had pushed IRS to answer this question before you left office  November 12.  After all, IRS should have anticipated it when Governor Newsom signed AB 192 into law on June 30, 2022.

More than 30 million beneficiaries know about Middle Class Tax Relief, but the rest of the country might want some details.  It provided payments ranging from $200 to $1,050 for residents who filed a 2020 state income tax return with AGI less than $250,000 (single) or $500,000 (joint).  Yes, in California that’s middle class.

But these were not tax rebates or tax refunds, because they weren’t based on whether tax was paid or how much.  The General Assembly explained the purpose:

“Increased costs for goods, including gas, due to inflation, supply chain disruptions, the effects of the COVID-19 emergency, and other economic pressures have had a significant negative impact on the financial health of many Californians. The Legislature hereby finds and declares that the payments authorized . . .as added by this act, serve the public purpose of providing financial relief for Californians who may have been adversely impacted by these economic disruptions and do not constitute gifts of public funds within the meaning of Section 6 of Article XVI of the California Constitution.”

The state initiated direct deposits to more than 7 million filers, and then mailed another 9 million debit cards.  Total cost: about $9 billion.  And they haven’t finished yet. 

The state law made it clear that these payments were not subject to state income tax.  But apparently no one was sure how IRS would view them.  So with an abundance of caution, envelopes and postage, the Franchise Tax Board (that’s what California calls its Department of Revenue) decided to send 1099-MISC forms to anyone who received $600 or more.  The FTB explained it was doing this because “The MCTR payments may be considered federal income.”

Or, they may not be.  Don’t ask them, ask IRS.  It must be a difficult question, because so far there is no answer.  And it has now become a subject of debate for tax practitioners.

There are those for whom “may be considered federal income” means “must be, if there is a 1099.”  They are preparing and electronically filing returns already because they don’t want their clients to receive a CP-2000 notice proposing an assessment  next year. 

But there are others who reason that these payments come under the category of “general welfare.”  The Internal Revenue Service has consistently concluded that payments to individuals by governmental units under legislatively provided social benefit programs for the promotion of the general welfare are not includible in a recipient’s gross income (“general welfare exclusion”). See, e.g., Rev. Rul. 74-205, 1974-1 C.B. 20; Rev. Rul. 98-19, 1998-1 C.B. 840. To qualify under the general welfare exclusion, payments must: (i) be made from a governmental fund, (ii) be for the promotion of general welfare (i.e., generally based on individual or family needs), and (iii) not represent compensation for services. Rev. Rul. 75-246, 1975-1 C.B. 24; Rev. Rul. 82-106, 1982-1 C.B. 16. 

You see the problem here?  And why it would be helpful to have a respected  tax expert from California  push IRS to decide how to answer this question, before the Taxpayer Service phone lines are jammed with Californians calling to ask what to do with their 1099 from the FTB?

The San Francisco Chronicle tried to get an answer from IRS in December. But it reported:

“The IRS could not provide a clear answer. ‘I can tell you, we are aware of it. California is not the only state doing this,’ IRS spokesman Raphael Tulino said. The only answer Tulino provided was this excerpt from IRS Publication 525. ‘In most cases, an amount included in your income is taxable unless it is specifically exempted by law. Income that is taxable must be reported on your return and is subject to tax. Income that is nontaxable may have to be shown on your tax return but isn’t taxable.’”

Fortunately, there is still one Great California Hope left in D.C. who might be able to push for an IRS answer.  She is National Taxpayer Advocate Erin Collins.  Her job is to listen to everyone, but she might pay more attention to you if you could explain to her the importance of this matter.  Please, send her a text or give her a call. 

Thanks in advance,

Bob Kamman

P.S.  Do you ever hear from Kevin McCarthy or Nancy Pelosi?  They might also encourage IRS to provide guidance for their constituents.

Next Month’s Symposium Highlighting Relationship Between Tax and Race

I am writing to share information about an upcoming Symposium to be held on February 24, 2023 in Washington, D.C. on “The Federal Income Tax: Racially Blind But Not Racially Neutral.”  The symposium is free and open to the public. 

There are in-person and Zoom attendance options, with pre-registration here and a flyer with more information here. The program is sponsored by the American Tax Policy Institute and co-sponsored by the American College of Tax Counsel, the ABA Tax Section, Skadden Arps Meagher & Flom LLP, the Center for Tax Law and Public Policy at Temple University Beasley School of Law, the Elisabeth Haub School of Law at Pace University, and the Pittsburgh Tax Review.  The symposium comes at a time of increased attention concerning the relationship between tax law and racial justice. Professor Dorothy Brown’s book, The Whiteness of Wealth, has justifiably received wide recognition for shining a bright light on how the tax system disproportionately favors White Americans, reinforcing our country’s racial wealth gap.


On his first day in office, President Biden signed Executive Order 13985, Advancing Racial Equity and Support for Underserved Communities Through the Federal Government. And this past week, Treasury has released a working paper estimating the distribution of certain tax breaks by race and ethnicity. There is a Treasury blog post highlighting the main take aways from this important paper.

As the Treasury blog post notes,

The IRS does not collect information on race and ethnicity on tax returns, so to facilitate analysis of disparities in tax policy, the Treasury Department has developed an approach to impute race and ethnicity in tax data, which it will continue to refine. Using this approach, the Department has conducted a first-of-its-kind analysis of the impact of tax expenditures on racial and ethnic disparities, which will increase transparency and improve our understanding of how existing tax policies work.

In the study, Treasury found that preferential rates for capital gains and dividends, deduction for pass-through income, charitable deduction, home mortgage interest deduction, and deduction for employer-provided health insurance disproportionately benefit White families.

In contrast, Treasury notes that “Black and Hispanic families, who make up a disproportionate share of low-wage workers, disproportionately benefit from the Earned Income Tax Credit” And “Hispanic families, who have comparatively low rates of employer-sponsored health insurance, also disproportionately benefit from the Premium Tax Credit, which provides assistance for the purchase of health insurance through the Marketplaces. Finally, Hispanic families disproportionately benefit from the Child Tax Credit.” 

The Feb 24th Symposium thus comes at an important inflection point for scholars and others interested in how the tax system relates to issues of racial justice, and includes panels on the following:

• Race, History, and Taxation

• Tax Systems and Privileged Choices

• Systemic Inequalities Undergirding Facially Neutral Tax Laws

• Discrimination through Non-Discrimination

I am thrilled to participate, as I will discuss the relationship between tax administration and racial justice, an especially important topic given how, for better or for worse, Congress increasingly tasks the IRS to play a main role in distributing benefits relating to poverty relief, creating work incentives, and subsidizing health care, housing, and energy efficient consumption. The Center For Taxpayer Rights will explore these themes further in the fall of 2023 as part of its successful Reimagining Tax Administration series. The Center’s first Reimagining Tax Administration series in 2021 addressed running social programs through the Internal Revenue Code, and the 2022 series explored taxpayer rights at the state level. With its upcoming series Racial Impact of Tax Administration, the Center will follow up on many of the themes likely to be explored in the February 24th Symposium.

While virtual and in person attendance for the February 24th Symposium is free, there are limited spaces, so I encourage those of you interested to register asap.

GAO Report of Refunds and Customer Service

No one reading this blog and probably very few people in the general populace need to be told that the IRS has experienced significant problems recently processing returns, answering calls and filling vacancies.

While IRS is still digging out, this past November the NTA posted an update on the IRS’s progress working through its backlog, noting that IRS was making progress but that for many taxpayers the delays due to the backlog could make them feel like Groundhog Day

GAO, like TAS, provides a gold mine of data helping understand the scope and status of the IRS’s challenges.  This post pulls charts from the recent GAO report entitled “2022 Tax Filing – Backlogs and Ongoing Hiring Challenges Led to Poor Customer Service and Refund Delays.”

The report describes it purpose as follows:

You asked us to assess IRS’s performance during the 2022 filing season. In this report, we assess IRS’s 2022 filing season performance on (1) processing tax returns, (2) providing customer service to taxpayers, and (3) hiring staff to support filing season operations.

In this post we pull out the graphics from the GAO report in order to give you a visual taste of the findings.  Read the report if you want the details behind the problems.

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IRS Requests Comments on Forms 3520 and 3520-A

We welcome back guest blogger Daniel N. Price. Dan worked in the Office of Chief Counsel of the Internal Revenue Service for almost two decades and is now starting in the private sector in San Antonio, Texas. He recently authored a post on the proposed regulations surrounding the role of Appeals in FOIA disputes. Today, Dan provides some background on the IRS process to fulfill its obligations under the Paperwork Reduction Act and its request for comments last month on Forms 3520 and 3520-A..

On December 16, 2022, the IRS published a request for public comment on Forms 3520 and 3520-A in the Federal Register. The request for public comment is a routine request in the context of periodic OMB approval. Every three years, all forms with OMB numbers must go through the process of OMB review as part of the paperwork reduction act. See That process includes a request for public comment published in the Federal Register.

When I was with the Office of Chief Counsel providing legal support to the IRS units handling the Voluntary Disclosure Practice and the Streamlined Filing Compliance Procedures, I assisted IRS personnel in the process of publishing requests in the Federal Register, analyzing public comments for the IRS, and drafting agency responses to public comments. The process is generally mundane. Inside of the IRS, the process begins with using the last cycle’s approval paperwork as a template. Then, the information on the last cycle’s paperwork might be verified or updated. Sometimes the IRS staff handling requests for public comments do not receive feedback from the business operating unit within the IRS responsible for the forms (at times because designated points of contacts for forms move positions within the IRS or retire). At other times, deadlines necessitate publishing requests for comments using best guesses or the last paperwork from the prior cycle. Over the years, I saw some variance in how these were handled by IRS personnel.

Once public comments are collected, internal discussions within the IRS may occur. In the realm of the voluntary disclosure practice and the Streamlined Filing Compliance Procedures, key players including IRS management and Chief Counsel discussed the public comments. Then, the IRS generally prepares a summary of the public comments and a brief discussion of any changes based on the public comments. The IRS doesn’t make much fanfare of this process, but the IRS’ written discussion of public comments becomes part of the public record available at

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Searching is not intuitive. For example, if you want to pull up the IRS’ official response to public comments on Forms 3520 and 3520-A from the last cycle in 2019, select the “ICR” search option and search for “Form 3520.” Then, sort by date, and poke around for “view supporting statement and other documents” to find the single comment (by a practitioner in the U.K. concerning reducing reporting burdens for taxpayers with foreign pensions) and the IRS’ supporting statement which included agency responses to the public comment.

Although the overall process of soliciting comments for this type of periodic review is rather mundane and mechanical, when meaningful public comments are received, this process helps the IRS improve its forms and update burden estimates. And even if comments are technically beyond the scope of the request for comment, practitioner input may have an impact on the IRS. We have that type of opportunity in the context of the request for public comment pending for Forms 3520 and 3520-A.

One detail in the recent request for public comment on Forms 3520 and 3520-A caught my attention: the estimated number of annual respondents. According to the IRS’ estimate published in the Federal Register, only 1,820 respondents will complete Forms 3520 and 3520-A. But that estimate is grossly understated. Historical data shows 27,431 Forms 3520 were paper filed in 2012. See TIGTA report “A Service-Wide Strategy Is Needed to Increase Business Tax Return Electronic Filing,” September 24, 2014. The ridiculously low estimate appears to be a holdover from the IRS’ prior OMB recertification of these forms. The IRS’ supporting paperwork for the last OMB review contained that exact figure calculated as follows:

Over the last decade, awareness of Forms 3520 and 3520-A has grown exponentially. A decade after the 2012 stats, the actual number of annual filers (respondents) of Form 3520 likely exceeds 50,000, and I would not be surprised by a combined annual filing for Forms 3520 and 3520-A of over 75,000. By materially understating the number of respondents, the IRS is materially understating the overall compliance burden associated with these forms. Also, the IRS welcomes comments on the time estimates per respondent. For these forms the IRS estimates 51 hours and 56 minutes per respondent (which appears to be a weighted average of the two forms)! And the IRS’ burden estimates do not attempt to capture post-filing burdens relating to dealing with IRS penalty assessments post-filing. 

If you have any thoughts on the Forms 3520 and 3520-A, the estimated burdens relating to those forms, and ways to enhance the forms, I urge you to submit comments by February 14, 2023 to

How You Can Help Support the Center For Taxpayer Rights

Readers of PT know that Keith and I are members of the Center for Taxpayer Rights’ board of directors (Keith is the president).  We strongly support the Center’s mission of advancing taxpayer rights in the United States and around the globe.  In this regard, a few weeks ago Nina shared some of the significant things the Center for Taxpayer Rights has accomplished during 2022, and the Center’s plans for 2023 are equally impressive.  Its work is increasingly recognized as a nonpartisan source for important issues tax administration (see, e.g., the NPR discussion earlier this week with Nina concerning the IRS not auditing the former President during his first two years in office). Today, we’re asking that readers join me and Keith and other readers who have contributed and consider supporting the Center’s important work.  You can do so here.

At its founding, one of the Center’s goals was to raise the awareness among non-tax foundations and grantors of the role taxation and taxpayer rights play in the health and welfare of nations.  The Center has been incredibly successful in this area.  We now count the Rockefeller and Schusterman Family Foundations as funders, underwriting important projects including the two Reimagining Tax Administration series (Running Social Programs Through the Tax Code and State Tax Practices and Taxpayer Rights) and our pro bono/training coordinator.  For 2023, these foundations will continue funding a Reimagining Tax Administration series Exploring The Racial Impact of Tax Administration.  Further, over the next two years, the Robert Woods Johnson Foundation has committed significant funding for a project titled, Toward a more inclusive tax system: Shaping the Benefits-mission of the Internal Revenue Service.  In February, we’ll be launching a series of Tax Chats! exploring how to go about transforming the IRS into a 21st century tax administration.  And, we will be returning to our in-person International Conference on Taxpayer Rights, to be held in Santiago, Chile in May 2023, with the theme of Access to Judicial Review.

As important as this external support is, we need the tax profession to show its support for the Center’s work.  The one area that is still difficult to fundraise for is the LITC Support Center, which provides technical support for Low Income Taxpayer Clinics (LITCs) around the country.  In addition to filing amicus briefs on important taxpayer rights issues and participating in high-impact litigation, the LITC Support Center also operates LITC Connect, the “dating app” for LITCs and prospective volunteers.  In 2023, the Center will be beta testing LITC Connect for VITA sites and other non-governmental organizations to make referrals of their low income clients to LITC Connect where they have tax disputes.  And we will be building our library of training videos and materials so volunteers and LITCs have resources to help them with their representation. 

The Support Center’s mission of expanding the reach and capacity of LITCs should resonate with all of us in the tax profession, who daily see how access to representation can change the outcome in tax disputes and ensure taxpayer rights are protected for low income taxpayers.  So, as 2022 comes to a close, we at PT ask that you consider donating to the Center for Taxpayer Rights and its project, the LITC Support Center.  Help the Center help others.  Thank you!

The Most Viewed Procedurally Taxing Posts of 2022

PT had a banner year-with, 279 blog posts to date, thousands of subscribers, and views pushing over the two million mark.

In today’s post, we offer the top-viewed posts of the past year. The list includes some long time favorites from years past as well as some posts that had their debut in 2022. 

We thank our loyal readers and contributors who have helped to make our blogging enjoyable.

Some changes to the blog are on the horizon; but what will continue is our commitment to providing quality analysis and context for developments in tax administration and tax procedure, a goal that began with our first post Welcome to Procedurally Taxing! almost ten years ago.

Here are the top posts of 2022.

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1. Biden Administration Floats Refundable Pet Tax Credit Idea to Boost Child Tax Credit

The number one post this year originally appeared on April 1, 2021, and reflects my real talent: a frustrated wannabe Onion writer. The post had a strong surge this past month, causing my colleagues to request that I add a more explicit disclaimer.

2. Requesting an Offset Bypass Refund and Tracing Offsets to Non-IRS Sources

The all time most viewed post on PT, Keith’s 2015 post is a crucial source of information for taxpayers looking to receive a refund and sidestep the IRS’s offset powers.

3.  The Facebook Pixel and Unauthorized Use and Disclosure of Tax Return and Tax Return Information

The most viewed post that had its debut in 2022; here Nina Olson discusses a Markup report detailing the presence of a Facebook (or Meta) pixel on various tax software websites that discloses taxpayer identity and financial information, gathered in the course of preparing and filing tax returns online, to Facebook.  

4. 11th Circuit Affirms That Anti-Injunction Act Prevents Taxpayer Seeking Access to Appeals

In this post I discuss Hancock County Land Acquisitions v US, where the taxpayer brought an action alleging that the IRS’s failure to refer its case to the IRS’s Independent Office of Appeals violated the Taxpayer First Act  The Eleventh Circuit, in an unpublished opinion, held that the Anti-Injunction Act barred the lawsuit.

5. Discharging Student Loan Debt

In this post from February, Keith discusses  Wheat v. Great Lakes Higher Education Corp, and the Department of Education’s unsuccessful efforts to get  a bankruptcy court to reconsider discharge of student debt.

6. “The Dark Net? We OWN the Dark Net.” -Charles Rettig, IRS Commissioner, ABA Tax Section Meeting

In this guest post, Karen Lapekas reflects on former Commissioner Rettig’s comments he gave at the Fall ABA Tax Section meeting in Dallas. The post also has a thoughtful introduction from Nina Olson.

7. How Did We Get Here? A New Series …

In the first of a series, Nina Olson offers her views on the state of the IRS, and a way forward.   The series offers thoughtful takes on correspondence exams and processing of returns.

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

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

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

8. Making Additional Work for Yourself and Others

In this post, Keith discusses IRS receiving paper returns and checks, yet with its processing woes IRS was sending correspondence that reflected an unawareness as to whether the agency received a return. This added more work and stress for taxpayers and practitioners, and ultimately the IRS too.

9. The IRS Strikes Back Against Robocalls

In this post, the third post of the past year that discussed enQ, a private for pay service that allows subscribers to skip the phone line and get access to IRS, Keith discussed IRS efforts to thwart its use.

10. 2021 Tax Court Exam for Nonattorneys

In this guest post, Sherrill L Trovato provides detailed information about the examination the Tax Court administers to non-attorneys who practice before it.