We recently celebrated the 20th anniversary of the Restructuring and Reform Act of 1998 (RRA 98). That legislation requires the Treasury Inspector General for Tax Administration (TIGTA) to perform a number of annual audits to determine if the IRS complies with specific provisions of the Internal Revenue Code. One of the matters that TIGTA must review and report on each year concerns compliance by the IRS with the requirement that the IRS provide information to spouses about collection from the other spouse or former spouse on an account resulting from a joint return. TIGTA has recently issued its 20th annual report on this topic which shows that 22 years after enactment of the law requiring disclosure to the other spouse and 20 years after requiring an annual review a high percentage of IRS employees do not understand the law and the guidance in the Internal Revenue Manual (IRM) does not adequately guide.
read more...For anyone who has asked the IRS for information about a spouse or former spouse regarding a liability stemming from a joint return, the TIGTA report will not come as a surprise. Maybe the civil and criminal penalties IRS employees face for making a wrongful disclosure, in addition to the employee sanctions, should cause us to expect that if you ask for information about someone other than yourself the IRS employee’s knee jerk reaction will be no since not providing the information will almost never get the employee into trouble but providing it when they should not has a high likelihood of creating a personal problem for the employee. The IRS generally does a good job of not disclosing. Ask President Trump who should be a big fan of the IRS and its compliance with disclosure laws. We have not seen his returns despite a lot of curiosity about them. The lack of a leak speaks highly of the IRS ability to follow the disclosure provisions.
When Congress has created an exception to the general rule of non-disclosure, the IRS does not get high marks. Part of the problem stems from the complexity and length of IRC 6103. Anyone taking the time to read that statute from end to end knows that it is not only one of the longest sections in the code but is also quite complex. Still, the subsection added in 1996 to allow one spouse to find out what is happening regarding collection from the other spouse (or former spouse) should not create too difficult a technical barrier to compliance. Yet, a relatively high percentage of the employees at the IRS cannot get it right.
One of the issues that regularly tripped up IRS employees was mirrored accounts. We recently discussed the misinformation delivered by IRS regarding a mirrored account and that case did not involve the disclosure exception in IRC 6103(e)(7) or (8). The TIGTA report shows that when the IRS creates mirrored accounts, as it will do when there is an innocent spouse request or a Tax Court or bankruptcy petition by just one party to a joint return, IRS employees become even more reluctant to disclose information about the other party to the joint return. For anyone not familiar with the term mirrored account discussed in the TIGTA report, read our post here, which provides a brief explanation of the IRS master file system and the non-master file, or mirrored system of accounts, created in certain circumstances where the accounts of taxpayers on one master file assessment, typically a joint return assessment, move in different directions and require special handling.
The TIGTA report not only shows that IRS employees do not understand how to respond when the IRS creates a mirrored account but also that the IRS has done a poor job of writing the IRM to guide its employees on how to handle requests for information from one spouse about another. Helpfully, the IRS does not require the request to be made in writing; however, in far too many cases taxpayers requesting information about their spouse or former spouse simply get turned away and told they do not have access to such information. Anyone trying to obtain this information on behalf of a client may not be able to convince the IRS employee by citing them to an IRM provision – the normal place to start any discussion with an IRS employee – since the IRM has not provided clear guidance.
In March, the IRS attempted to address this problem by putting a number of examples in the IRM to guide its employees to the right answer. Look at IRM 5.19.5.4.11.1 (Mar. 9, 2018). Perhaps the new IRM provisions will help to clear up the problem either by making IRS employees more informed in the first place or making them comfortable when the taxpayer or the representative cites the IRS to the new IRM provision in support of releasing the information. Anyone who has sought to convince an IRS employee of the law knows that citing to the Code is a waste of breath. The only thing that matters to 99% of IRS employees is the guidance in the IRM. The TIGTA report did not test IRS employees after the release of the new IRM provisions. Perhaps spouses seeking information in the future will have better luck. My guess is that they will not but with the new IRM provisions perhaps knowledgeable representatives will have more success in citing to the IRM.
“Anyone who has sought to convince an IRS employee of the law knows that citing to the Code is a waste of breath. The only thing that matters to 99% of IRS employees is the guidance in the IRM. ”
In my somewhat limited experience, this observation seems to have some basis, however, the batting average seems to be SOMEWHAT better if you get to talk to the employee’s supervisor.
And if you can document that you did in fact bring the code section (or, in the case of provisions such as Section 6103, the specific subparagraph), then when you fill out Form 911 (Request for Taxpayer Advocate Service Assistance), you can put in your attached narrative the language from Section III, Box 7 “TAS Criteria,” items (7) and (8), to wit:
“(7) A system or procedure has either failed to operate as intended, or failed to resolve the taxpayer’s problem or dispute within the IRS.”
“(8) The manner in which the tax laws are being administered raise considerations of equity, or have impaired or will impair the taxpayer’s rights.”
The TAS people seem to be more amenable to Code and Reg citations (and, for that matter, case citations) than the rank-and-file IRS people. By putting the above verbiage substantially into your Form 911 attachment narrative (and backing up your assertion with the appropriate documentation) you are giving the TAS bureaucrat a basis to take on your request for assistance.
Other tax professionals may deal with complex disclosure problems. I can simply report on those that are run of the mill. In the last month, here is what has crossed my desk.
1) Let’s call my client XYZ Sales Inc. Let’s say there is another local company called XYZ Construction Inc. My client receives a notice of wage levy from IRS, involving a person whose name they do not recognize. The wage levy has the full name, address, SSN and tax owed of the person who probably works for the similarly-named XYZ. An unintended consequence of owing federal tax? Your identification may be shared with strangers. Of course, IRS still expects a response. Compare this to the IRS practice of sending levies to the three biggest banks in town, figuring there is an 80% chance of finding an account at one of them. Bank employees are generally honest, but why tempt them? (I’m not sure this procedure is still used.)
2) A revenue agent calls me asking for a copy of a fiduciary income tax return (Form 1041) that I had prepared a couple years ago. The return was later amended by a subsequent Form 1041. The revenue agent tells me they have the second return but can’t find the first one. My client the fiduciary has since been replaced. I tell the revenue agent that I am not comfortable sharing the return without the authorization of my client, or my client’s successor. (For all I know, the paper return was not filed.) The revenue agent tells me she will just have to send me a summons. A few weeks later, she convinces my client to approve release of the return that was filed.
“That legislation requires the Treasury Inspector General for Tax Administration (TIGTA) to perform a number of annual audits to determine if the IRS complies with specific provisions of the Internal Revenue Code.”
[Off topic but I’ll return to the topic after this.
Will TIGTA someday audit whether the IRS issues Notices of Mathematical or Clerical Errors when the IRS creates records of such allegations in its internal administrative files? Will TIGTA someday audit whether the IRS issues Notices of Deficiencies when demanded by taxpayers? Will TIGTA someday audit whether the IRS contacts payers despite the IRS’s fears that the information returns might be accurate?]
“One of the matters that TIGTA must review and report on each year concerns compliance by the IRS with the requirement that the IRS provide information to spouses about collection from the other spouse or former spouse on an account resulting from a joint return.”
Something is mising. When the IRS collects from a spouse on an account resulting from a joint return, and if the IRS provides information to the other spouse, is the IRS also required to provide information to the spouse that the IRS collected from? If so, the IRS is not complying.
“Ask President Trump who should be a big fan of the IRS and its compliance with disclosure laws. We have not seen his returns despite a lot of curiosity about them. The lack of a leak speaks highly of the IRS ability to follow the disclosure provisions.”
Is that because there’s no litigation yet over those returns? The 9th Circuit has ruled that if returns become the subject of litigation then it is proper for the DOJ and IRS to disclose return information to the public, including social security numbers.
I appreciate the fact that IRS employees generally are careful about following disclosure rules. But I have seen some truly pathetic and frustrating failures to acknowledge exceptions to those rules. My favorite one involved a situation in which my client filed a joint return with their (later) estranged spouse. IRS audited the joint return and proposed a large deficiency against our client based on income and other adjustments to the return of an S corporation of which the estranged spouse was the only officer and 100% owner. My client had no connection of any kind with the corporation.
We submitted a FOIA response and a protest which included a claim for relief from joint liability. . Disclosure refused to provide us with any information relating to the adjustments made to the Form 1120S, based on the grounds that our client had no interest in the corporation.
Throughout my career I have advised couples where I thought there were special circumstances to have separate advisors and consider filing MFS whatever the cost. You cannot believe how many ex-spouses have blessed me for that advice.