The National Taxpayer Advocate’s Annual Report to Congress was released today. It contains a listing of the most serious problems, legislative recommendations, and most litigated issues. Volume 2 of the Report contains original TAS research and related studies. A useful link to the page where all of the above can be accessed is found here
We will be looking at and highlighting aspects of the report we find interesting. Readers of the blog may note my particular interest in return preparer regulation and the special compliance issues relating to low income taxpayers. The report contains a robust defense of the IRS’s efforts to regulate unenrolled preparers. It also discusses serious problems with the IRS’s use of Section 32(k) to ban taxpayers from claiming the EIC in future years.
The research study in volume 2 has papers on the efficacy of accuracy related penalties to enhance compliance, small business taxpayer compliance, the use of revenue officers versus automatic collection, filing season reform proposals, optimizing taxpayer services, and a comparison of private sector versus IRS collection practices.
I will give some insights on those sections and other parts of the report in the next few days. The annual report is essential reading for those interested in tax administration.
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Generally, the language of the report perpetuates the myth that “IRS” and “TAS” are separate entities, regardless of their same physical location in IRS offices across the country and their same conceptual location, under the Commissioner, on the IRS organizational chart.
It required some searching to find one key indicator of how much authority the TA program can exercise: The number of Taxpayer Assistance Orders issued to IRS co-workers. After a jump from 95 to 422, between FY 2010 and FY 2011, the count steadied at 434 in FY 2012 and then dropped by 19% this year, to 353.
It would have dropped much more, had it not been for all of the tax-exempt organization complaints, especially since May:
“TAS’s FY 2013 cases involving applications for exempt status have increased by 371 percent compared to FY 2010, . . .Thirty percent of the FY 2013 cases met economic burden criteria, and 70 percent were congressional referrals. Since May, TAS has averaged about 62 new receipts per week. This increase in exempt organization cases demonstrates that the IRS’s processes are creating significant hardship for both new exempt organizations and those whose exempt status was automatically revoked. In FY 2013, TAS issued 42 TAOs to the TE/GE function, compared with six in FY 2012 (four of which were rescinded), and three in FY 2011.”
All those Congressionals on 501(c) problems, with no increase in TAS staff, must slow cases involving real persons.
Despite its public-relations success, the effectiveness of TAS is perhaps best illustrated by a Small Tax Case decision today from the Tax Court (Corso, Docket No. 7676-12S). A Massachusetts minister, earning about $40,000 a year, has apparently been fighting since 1994 to maintain her exemption from self-employment tax, having filed Form 4361. Every two or three years, IRS wants to collect the tax from her.
In 2006, she asked the TAS for help with the examination of her 2002 return. After TAS intervened, IRS agreed she did not owe the tax. But when her 2007 and 2008 returns were filed, IRS once again wanted to collect. Apparently TAS was no help. But she won her case today, with help from a good lawyer. The more things change, the more they stay the same.
Measuring TAS’s impact through issuance of TAO’s or a particular case overlooks the systemic role TAS plays in influencing Congress and the rest of the IRS on issues that affect a broad class of taxpayers. Over the years, TAS has been a (and many times the only) voice representing those whose views are not typically heard in Congress or at Constitution Avenue. TAS has made a huge difference in changing rules on issues like innocent spouse, identity theft, lien withdrawals, qualifying children definition etc. Its independence and power comes from a number of hard powers (e.g., its reporting requirement) and soft powers (e.g., testifying at hearings).
Nontax scholars have noted the role that ombuds play in improving agencies, and have singled out TAS for its role in influencing the IRS. See BRETT MCDONNELL & DANIEL SCHWARCZ, Regulatory Contrarians, 89 NC Law Rev. 1630 (2011) http://www.nclawreview.org/documents/89/5/mcdonnellandschwarcz.pdf
The importance of legal representation on a particular case I agree can be key.That is why in part Congress passed tax clinic legislation in 98–the Restructuring Commission in the late 90s viewed tax clinics and the growth of a more independent IRS ombuds office as two sides of the same coin to protecting taxpayer rights.
For those who would like to see more on TAS I recommend you slogging through my article in Tax Notes from last year or so where I argue Congress should do more to enhance TAS’s independence. See http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2053641
As I once wrote (or maybe was quoted), we don’t measure the effectiveness of police carrying guns, by the number of bullets they use. But a four-fold increase in TAO’s from one year to the next, followed by a noticeable decline, leaves many questions unanswered. Battleships and IRS don’t turn around that fast.
Because of confidentiality rules, we have no real evidence that any of what the NTA does makes any difference, other than the office patting itself on the back. The report admits that details of “success” stories have been changed. It’s like the phony (phone-y?) data on toll-free taxpayer service, where we don’t know how many people get through but we make up numbers to justify budget increases.
My favorite story is when the NTA swung through town on a PR trip, bragging to an open meeting for taxpayers that on a previous stop in Nebraska, someone asked why there is no line on Schedule F for office in home. She had called the forms development people in DC and they promised it would be there the following year. It never happened, and when I asked the explanation was that it had been determined that people don’t really want it. When someone can’t deliver on the little stuff, I have my doubts about how they can deliver on big issues.