We need a permanent National Taxpayer Advocate, now.

Contributor Nina Olson returns with her thoughts on the importance of filling the vacancy at the head of the Taxpayer Advocate Service.

This week, the acting National Taxpayer Advocate released the 2019 Annual Report to Congress, on the heels of the IRS’s release of its own “annual report” about its performance. Reading the two documents together, one wonders whether they are reporting on the same agency. The NTA’s report focuses on the challenges the agency faces and makes concrete recommendations about how to address them; the IRS’s report celebrates the agency’s performance over the last year and how it is on track to fulfill the goals of its 2018 to 2022 strategic plan. One report is forward looking; the other is a status update.

I’ll be scouring the contents of both reports over the next month or so, but their arrival reminds me of the important and unique role the National Taxpayer Advocate (NTA) plays in U.S. tax administration today. The NTA is the protector of taxpayer rights and, according to the National Commission on Restructuring the IRS, serves as the “voice of the taxpayer” inside the agency. Each of the Most Serious Problems, Most Litigated Issues, and Legislative Recommendations in the NTA’s 2019 Annual Report to Congress is prefaced with the relevant rights enunciated in the Taxpayer Bill of Rights; they form the framework for analysis. On the other hand, the IRS annual report doesn’t get around to mentioning “taxpayer rights” until page 12. Tellingly, the words “taxpayer rights” do not appear in any of the strategic goals listed in the annual report, nor are they listed among the “core values” of the agency.

This contrast highlights why it is so important to have a permanent National Taxpayer Advocate in place, to hold the IRS’s feet to the fire about promotion and protection of taxpayer rights, especially as it hires more audit and collection employees and launches new compliance and enforcement initiatives. The NTA is the person at the table of the IRS senior leadership who is charged (by Congress) with reminding the IRS that its primary job is to promote voluntary compliance, that enforcement revenue only counts for about 2 percent of all revenue collected, that the vast majority of U.S. taxpayers are trying to comply with the mind-numbingly complex tax laws, and that personal assistance and education is a, if not the, most significant factor in enabling these taxpayers to meet their obligations.

That is why it is so disturbing that there is no permanent NTA appointed by the Secretary of the Treasury, a full nine months after I announced my retirement as the NTA. On March 1, 2019, I publicly informed Treasury, the IRS, and everyone else that I would be retiring on July 31, 2019. I announced my retirement that early, against the counsel of several of my closest advisors and friends who feared I might become a “lame duck,” because I believed it was important to have a successor named and ready to assume the duties immediately upon my retirement. I knew of several highly qualified people interested in the job, and indeed, the recruitment process identified several excellent candidates. At the time of my retirement, I knew of three excellent candidates who were on a very short list.

So what happened? Why is there no NTA? I have no clue. What I do know is that despite the excellent interim leadership of the Taxpayer Advocate Service, no acting NTA can do the job as Congress envisioned. Indeed, Bridget Roberts, the acting NTA, states in the 2019 Annual Report, “As in other organizations, acting leaders are caretakers — charged with keeping the trains running on time but lacking the authority to make significant changes and often not taken as seriously as permanent officials.”

Let’s take a step back and look at what Congress did in 1998 when it amended IRC 7803(c), the statute that lays out the requirements for and duties of the Office of the Taxpayer Advocate. Congress made changes to this statute after widespread dissatisfaction with the then-Taxpayer Advocate structure surfaced in the hearings before the National Commission on Restructuring the Internal Revenue Service. In the chapter titled “Taxpayer Rights,” the Commission outlined these concerns:

Currently, the national Taxpayer Advocate is not viewed as independent by many in Congress. This view is based in part on the placement of the Advocate within the IRS and the fact that only career employees have been chosen to fill the position. Because a candidate for the job is likely to have additional career ambitions at the IRS after performing the Advocate position, it is difficult to perceive the Advocate as independent when the position is regarded as just another assignment for an IRS executive, with the Commissioner viewing his or her performance as determining the next position. Additionally, while the Advocate has provided recommendations for improvements at the IRS, these recommendations merely tend to highlight ongoing IRS corrective efforts with little in the way of recommendations that focus attention on issues that the IRS either is doing nothing or its efforts are inadequate. Finally, what recommendations the Advocate has provided have limited value because they do not prescribe specific legislative or administrative corrections.

A Vision for a New IRS, Report of the National Commission on Restructuring the Internal Revenue Service, June 25, 1997, at 43.

Congress addressed these concerns in the Internal Revenue Service Restructuring and Reform Act of 1998. It sought to ensure the independence of the Advocate by radically transforming the Office of the Taxpayer Advocate into an independent organization within the IRS. IRC 7803(c) explicitly lays out the requirements for appointment of the NTA and the qualifications of the person who fills that position. (By the way, 7803(c) is longer than 7803(a) or (b) which govern the positions of Commissioner and Chief Counsel, respectively. 7803(a) was recently lengthened by the addition of 7803(a)(3), which requires the Commissioner to ensure that IRS employees “are familiar with and act in accord with taxpayer rights ….”)

  • First, the National Taxpayer Advocate “shall be appointed by the Secretary of the Treasury after consultation with Commissioner of Internal Revenue and the Oversight Board and without regard to the provisions of title 5, United States Code, relating to appointments in the competitive servicer or the Senior Executive Service.”
  • Second, the NTA cannot have worked for the IRS for 2 years immediately preceding the appointment or 5 years immediately after leaving the position (there is an exception for current employees of TAS).
  • Third, the NTA must have the following experience: “(I) a background in customer service as well as tax law; and (II) experience in representing individual taxpayers.” (7803(c)(1)(B)(iii))

Thus, according to the law, the Secretary can make this appointment without it being nominated by the President or confirmed by the Senate. The usual hiring processes for federal civil service or Senior Executive Service do not apply – the Secretary merely needs to make his or her decision, sign an appointment document, and that’s it. Obviously, there should be a background check, and ultimately a tax check and tax audit, but the appointment of the NTA is one of the least bureaucratic in the federal government. So bureaucratic hurdles are not an excuse for the delay in appointing the Advocate.

It is interesting to note that Congress sought to balance the voices that the Secretary listened to in making his or her appointment decision. Not only is that decision made in consultation with the Commissioner, but also the Oversight Board weighs in. When I was under consideration for the position in late 2000, I was interviewed by the Commissioner several times, and had a lengthy interview with a subpanel of the Oversight Board. The Commissioner produced a memo for the Secretary recommending my appointment, and the Oversight Board produced a 27-page report (if recollection serves) including observations about each of the candidates and ultimately recommending my appointment. Thus, the Secretary had ample information with which to make his decision.

Today, there is no functioning Oversight Board. The Secretary only has the consultation of the Commissioner. The Commissioner’s statutory duty is to “administer, manage, conduct, direct, and supervise the execution and application of the internal revenue laws…” One of the Oversight Board’s statutory responsibilities is “[t]o ensure the proper treatment of taxpayers by the employees of the Internal Revenue Service.” The Oversight Board brings this perspective to the selection process for the NTA. While the Commissioner may factor this in to his or her recommendation, the loss of the Oversight Board’s perspective means that the Secretary only has the IRS’s official perspective to rely on. The balance that RRA 98 brought to the selection process is missing.

Which brings me back to my original observation about the two reports released this week.

The NTA’s statutory duty is to assist taxpayers in resolving their problems with the IRS and to identify and make administrative and legislative recommendations to mitigate such problems. [7803(c)(2)(A)(i)-(iv)]. The National Taxpayer Advocate’s Annual Report to Congress is the key vehicle for fulfilling that duty. In the words of the Restructuring Commission, the NTA must “focus attention on issues that the IRS either is doing nothing or its efforts are inadequate.” In order to do this well, Congress has required that the NTA has experience in representing individual taxpayers. That is, the NTA must have sat across the table from the IRS and knows what it is like to be an individual taxpayer battling the IRS bureaucracy. The NTA must have experienced firsthand the pain of taxpayers. A successful NTA brings that knowledge and experience to every meeting with IRS officials and employees and never lets them forget it.

Today, no matter how articulate and talented TAS leadership is, that strong, independent, experienced voice, carrying with it the authority of the Secretary’s appointment, is missing as the IRS embarks on its enforcement “build” and drafts the numerous reports required by the Taxpayer First Act. This is something all of us who practice in and study the field of tax should care about.

We need a strong, qualified National Taxpayer Advocate. Now.

Some Reflections on the New IRS Collection Hiring

By Nina E. Olson

Nina Olson is the Executive Director of the Center for Taxpayer Rights, a 501(1)(c)(3) organization dedicated to advancing taxpayer rights in the US and internationally.  She served as the National Taxpayer Advocate from March 2001 through July 2019. We are pleased to welcome her as a contributor to Procedurally Taxing. Keith, Les, Christine and Stephen

Over the past four and half months since my retirement as National Taxpayer Advocate, I have been a bit busy.  I founded a nonprofit, the Center for Taxpayer Rights, which is dedicated to advancing taxpayer rights in the United States and throughout the world.  I’ve visited with the Independent Greek Revenue Authority and learned about their new Dispute Resolution Function; I’ve attended a conference on taxation and Sustainable Development Goals in Pretoria, South Africa, and finalized the agenda for the 5th International Conference on Taxpayer Rights, to be held in Pretoria on September 30 and October 1 of 2020.  I’ve participated in workshop in Sweden with 10 or so anthropologist whose work concentrates on taxation.  I went to Baku, Azerbaijan, where I am assisting the tax agency in establishing its Taxpayer Ombudsman office.  And finally, I’ve just come back from a visit to Vienna, Austria, where I attended a retreat with Erich Kirchler of the University of Vienna and his PhD students in the Department of Applied Psychology.  I’ve felt like a sponge, absorbing all sorts of information and using it to reflect on my past 18 years as National Taxpayer Advocate, along with my earlier 26 years in practice.

In the midst of all this travel, I attended several US-based conferences, and also read press reports about speeches and remarks by IRS leaders.  Last week I participated in a panel about developments in IRS Collection activities at the American Bar Association’s National Institute on Criminal Tax Fraud/Tax Controversy.  There is clearly a lot going on, with increased hiring of Revenue Officers (ROs), and the IRS utilizing teams of ROs to go out to geographic areas where data indicate there are clusters of problematic collection cases – aged accounts with large dollar amounts of trust fund payroll taxes owed, attributable to many quarters.  On the panel, the Deputy Commissioner of SBSE referred to these taxpayers as “stealing” from …. not sure from whom, the government? The IRS? Other taxpayers? All of the above?  This refrain of stealing was repeated several times.

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Now, I fully support the hiring and deployment of additional ROs.  In fact, throughout my career as a tax practitioner and as the National Taxpayer Advocate, I have believed that an experienced RO, who has witnessed myriad forms of human behavior and is really curious about what makes taxpayers do what they do, can be incredibly successful in resolving taxpayer arrears and bringing noncompliant taxpayers into compliance.  I’ve directed research studies that show, empirically, that ROs are more successful in the field collecting employment taxes than the Automated Collection Function (ACS), despite the fact that the IRS continues to funnel employment tax accounts through the ineffective ACS before assigning these cases out to ROs, so by the time the RO gets a case, it is already very old and very large and very intractable.

The IRS Collection Field Function used to talk about “Cause, Cure, Compliance” – that is, to successfully address an account in arrears, you have to first identify the cause of the noncompliance – did the taxpayer have some event in her life that caused her to get behind, whether it was a recession, a natural disaster, a physical illness, embezzlement by an employee, or simply trying to keep a struggling, unsuccessful business afloat? Or, was the taxpayer someone who, in the words of the IRS official, was intent on stealing from the public fisc?  I maintain you will know those folks when you see them; it is not hard to identify those folks; what is difficult and challenging is remembering that everyone else is not like them – they have other reasons for finding themselves in an arrears situation, even with large arrears.

Once you’ve identified the cause, you have to apply this causal analysis to come up with an appropriate cure of the noncompliance – an installment agreement, an offer in compromise, placing the account in currently not collectible (CNC) status, or moving to more enforcement-oriented approaches such as liens, levies, seizures, reducing liens to judgment or even seeking an injunction.   

Finally, the “cause/cure/compliance” approach requires you to consider how all the “cure” actions would affect future compliance, because, really, the whole goal of tax administration is to promote voluntary compliance, first, because it is the right thing to do, and second, because it eliminates future problems and instills a habit of compliance, thereby saving the taxpayer angst and the government resources.

These three components of a rational and humanistic collection strategy are deeply interconnected.  If you do not correctly identify the cause of the noncompliance, you risk applying the wrong cure.  Sure, you may get revenue, but you will make an enemy of the taxpayer, and you will certainly not achieve future compliance going forward.  You will just get some dollars, period.  If “revenue collection” is the sole measure of your success, well, you succeeded.  But tax administrations, and tax research, today, recognize that revenue collection is a short term measure of performance.  It must be balanced with a measure of long term voluntary compliance.  Did the taxpayer change his or her behavior and adopt a norm of voluntary compliance going forward, or must the tax administration continue to address the taxpayer’s repeated noncompliance in short-term and resource-intensive approaches?

I contend the IRS’s thinking about tax administration continues to be mired in short term thinking because it is inherently incurious about human behavior – why people do the things they do.  So its approaches to curing noncompliance are often overreaches – applying collection tools that are coercive where a much lighter touch would bring about the desired compliance.

Why should an agency care about a mismatch between cause and cure?  Simply put, there is strong evidence that respect for the tax agency is strongly linked to taxpayers’ perception that the government is using its awesome collection powers legitimately and not coercively; this perception in turn builds trust in the agency and creates an environment in which people who are in noncompliance with the tax laws are more comfortable with coming forward and working with the agency because it has the reputation for using power legitimately.  And this approach reassures compliant taxpayers that the agency will in fact address noncompliance in others, but through legitimate, not abusive, uses of its power.

So let’s bring this full circle.  How does one apply this approach to the taxpayers who have multiple periods of employment taxes in arrears, over time amounting to large dollar balances with the accruals of penalties and interest?  Well, first we look at the cause of the debt accrual.  Was this taxpayer playing cash roulette by using the payroll tax trust funds to keep a failing business afloat?  If so, is this business alive today or has it long since collapsed?  If the business is alive today, is it in compliance with its current payroll tax obligations?  If the business collapsed, has the taxpayer created another business that is incurring tax debts, or is the taxpayer now a wage-earner (or retired) and therefore not a compliance risk at all.  Did the taxpayer have a catastrophic event in his life – a heart attack, a divorce, a natural disaster – that caused the noncompliance and then the taxpayer just continued on under the radar, afraid to resurface because it might trigger aggressive collection actions.  Or, is the taxpayer one of those individuals at the far end of the compliance spectrum, who views compliance as a “Catch me if you can” game?  Finally, where was the IRS in all this?  Did it shelve the taxpayer’s case, or stick it in the queue, doing nothing with it for years, not even sending out monthly bills like every other creditor in the world does? As a taxpayer practitioner, and as the National Taxpayer Advocate, it was important to me to understand the underlying causes – the typology of noncompliance, if you will, that Les Book has written so eloquently about  here.  Only then could I fashion a strategy for (1) addressing the immediate problem before us and (2) bringing that taxpayer (if possible) into future voluntary compliance.

On my panel last week, I didn’t hear a lot about understanding the causes of noncompliance and tailoring its compliance approaches to those causes.  In fact, I didn’t hear a lot about changing compliance norms and increasing future voluntary compliance.  What I did hear was a lot of talk about increased revenue – how such and such an approach brought in more dollars.  Only time will tell whether these short-term approaches are actually effective in increasing voluntary compliance, the holy grail for tax administration.  There is so much low-hanging fruit around from years of poor compliance strategy at the IRS that it is not surprising that, once it starts “touching” people, it gets dollars.  The question remains whether these are dollars that should have been collected at all (under the taxpayer protections Congress has enacted or the IRS has adopted) and whether the IRS has actually reinforced noncompliance norms through the application of unnecessary enforcement measures, or promoted longterm voluntary compliance through the legitimate use of its power. 

A Message from the National Taxpayer Advocate

Friends and Colleagues,

I have been thinking what I can say to everyone who has been writing “reflections” throughout this month, and I have been having a hard time finding words.  Let me just say I am overwhelmed.  It has been my privilege to be part of a journey along which I have met so many fine people, who have dedicated their lives and made sacrifices to protect taxpayer rights, who care about access to justice and the fundamental fairness of the tax system.

 It is to you all that I owe thanks and appreciation.  That I have in some way been able to influence peoples’ lives and choices was never anything I set out to do, and I am just humbled and a bit astonished to read folks’ reflections.  I look forward to working with you all going forward, in my next step, through the Center for Taxpayer Rights.  You can reach me at neo@taxpayer-rights.org.

Nina

NTA’s Reaction to Today’s Post on Misclassified Workers

Keith’s post this morning referenced the National Taxpayer Advocate Nina Olson’s blog post discussing the Mescalero case; her office reached out to us to provide some additional information that she had intended to share in a future blog post of her own.  Below is the latest, straight from the NTA:

After my blog posted, an analyst from TEGE contacted my senior research advisor, asking how we had come up with the estimate that it took only 1 or 2 hours to identify the workers and their tax payments.  My research advisor explained that there is a systemic way of searching and compiling the records.  Apparently the IRS had been searching each worker’s record manually, which took hours and hours…..This made me feel very sad, because clearly this analyst cared deeply and wanted to do the right thing.

It appears to me that the CCA may have been driven by the IRS’s concerns that is it “did not have the resources” to do these manual searches.  My office has committed to working with TEGE to show them how to do systemic searches, and then my office will go back to Chief Counsel and ask them to reconsider its CCA.

What is most disturbing about all this is that no one took seriously enough the taxpayer’s right to pay no more than the correct amount of tax, such that someone would think to explore whether there was a systemic way to pull this information.  This shows that there is still much work to do to embed the Taxpayer Bill of Rights in every aspect of IRS activity.

Thanks to the NTA for reaching out to Procedurally Taxing, and allowing us to publish her views.

For an index to all of the NTA’s blog posts see here

The NTA plays an important role in highlighting when tax administration neglects to take into account fundamental taxpayer rights, as well as highlighting ways that tax administrators can embrace and promote those rights.

Relatedly, the NTA is convening the third international taxpayer rights conference in the Netherlands on May 3rd and 4th. I attended the first two conferences, and I learned a great deal about tax administration generally and how other countries (and the US) are faring in incorporating taxpayer rights into all facets of tax administration. Information about the conference, including an agenda and registration, can be found here.