TIGTA Report Criticizes TAS’s Approach to Offset Bypass Refunds

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Last month TIGTA released a report reviewing the Taxpayer Advocate Service’s role when taxpayers request an offset bypass refund. In the report TIGTA found 1) that TAS offices inconsistently treated taxpayers seeking OBRs, 2) some TAS failures to honor requests as to how taxpayers wished to receive their refunds (paper check, direct deposit to the taxpayer’s account, or direct deposit to a third-party financial institution), 3) some TAS actions that exceeded its delegated authority, especially when a taxpayer seeking an OBR had an open matter with another IRS function, and 4) TAS failed to record fully its processed OBRs. 

In this post I will focus on the first item relating to TIGTA’s findings concerning inconsistencies in the process and standards used to evaluate OBR requests.

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Offset bypass refunds allow taxpayers to receive a refund when the IRS would otherwise apply an overpayment to past due tax liabilities. TAS case advocates are delegated authority to generate an OBR for a taxpayer if the taxpayer has no other debt subject to mandatory offset under Section 6402 and the taxpayer establishes that she is unable to pay reasonable living expenses if the IRS were to offset the overpayment against a past due tax debt.

We have discussed OBRs a few times, including one of our most viewed posts all time, a 2015 post Keith wrote discussing the OBR process. In one of our recent posts on OBRs from this past April, Barbara Heggie discusses challenges that taxpayers face securing the needed documents to prove the financial hardship necessary to get an OBR. In her post, Barbara refers to TAS guidance that allows TAS employees to dispense with third-party documentation: 

Many taxpayers seeking an Offset Bypass Refund will not have access or the ability to secure hardship documentation such as eviction notices, late bills, etc. Determine whether the taxpayer can validate the hardship circumstances through oral testimony or a third-party contact. If so, discuss the case with your LTA to determine if a written statement signed by the LTA confirming that the hardship was validated is appropriate.

The TAS guidance reflects experience that sometimes taxpayers facing hardship have a difficult time providing a full set of documents or record that would prove the hardship.  

In its report, TIGTA found that TAS’s flexibility led to inconsistencies across TAS offices in how TAS case advocates reviewed and decided on OBR requests:

We determined that most OBR cases did not include an analysis of the taxpayer’s income and expenses before an OBR was issued. In addition, we identified cases in which OBRs were provided to taxpayers based on supporting documentation that was not current orreasonable. However, in other cases, TAS case advocatesrequired a full review of the taxpayer’s income and expenses, as well as applied stricter supporting documentation criteria, before determining whether the taxpayer should be issued an OBR. 

The TIGTA report noted specific inconsistencies, including how one office created a detailed processing form to review compliance history and prior OBR requests, while other offices did not consider those factors, and how some offices did not verify supporting documentation. To be sure, TIGTA used only a judgmental sampling approach, which is a non-probability sampling technique, but its auditor observed a pattern of inconsistencies across offices (the report does not discuss why TIGTA did not do a deeper dive). Despite the limits in auditing technique, in TIGTA’s view, the inconsistencies stemmed from a lack of detailed centralized guidance, which led to inconsistent treatment of similarly situated taxpayers. This leads to an increased “risk of abuse by individuals seeking to avoid payment of their outstanding tax liabilities.” 

The report includes are other specific examples of inconsistencies, some of which reflect a lack of use of financial hardship criteria or processes associated with assessing reasonable collection potential that IRS generally requires when considering alternatives to enforced collection. TIGTA makes a number of recommendations, including floating the idea that TAS should create OBR specialists who would have more experience. It also contrasts the TAS OBR process with other more centralized review functions, such as the innocent spouse unit.

TAS’s response to the report reflects a different perspective on its role. In addition to noting that the TIGTA observations only reflected “just a few cases” it noted that centralization could create additional taxpayer burdens. In addition, the lack of detailed process, in TAS view, was by design, and it worried that a too detailed approach in the IRM on OBRs is “unnecessary and that more specific IRM guidance will lead to employees failing to think critically.”

Conclusion

The report reflects very differing perspectives on the OBR process and on tax administration generally.  It reminds me of Gina Ahn’s recent guest post Proving Your Client’s Marital Status, Not as Simple as It Appears but Crucial for EITC where she contrasted Social Security and IRS employees in how they evaluate marital status.  SSA’s perspective is based on ensuring that people receive the maximum benefits they are entitled to receive whereas the IRS perspective is more enforcement based, with a concern that taxpayers may be gaming marital status to generate an improper refund.  TIGTA, consistent with its mission, is primarily concerned with reducing fraud and waste. TAS, consistent with its mission, is attempting to help taxpayers, especially for taxpayers who may be facing financial hardship.

In addition, TAS has offices nationwide. Unlike the post RRA 98 IRS, its employees are meant to work with and assist taxpayers who live and work in the same region as TAS employees.  The lack of centralization within TAS is by design. TAS’s decentralized structure helps ensure that its employees are more likely familiar with the circumstances of people it is charged to assist. 

To be sure, finding the right balance between uniformity and flexibility is a challenge.  Providing relief from an offset or collection action is also a challenge, as we generally accept that while IRS should have extraordinary collection powers those powers should not render taxpayers unable to meet life’s necessities. Within this framework, OBRs exist in a shadowy world of tax procedure, and the report highlights that within the shadows there is a great likelihood of disparate treatment of similarly situated taxpayers. 

What could be done to address the issues TIGTA flagged, while at the same time possibly preserving a role for TAS? In discussing the issue with Keith he raises the important issue as to whether TAS should be the initial point of contact on OBRs. Instead, perhaps IRS could centralize administration of OBRs and local taxpayer advocates could issue a directive if the centralized IRS office failed to 1) take into account the appropriate weighing of a more definitive listing of factors or 2) address unique local circumstances that may create hardships for taxpayers that employees in a centralized location might miss.  Such an approach would take some filing season pressure off of TAS, create standardization, and leave TAS to be creative when needed.  This approach may make additional sense given that during the filing season the IRS typically has additional employees, while TAS typically does not hire up for the filing season and that period creates a lot of extra work for it.

About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.

Comments

  1. Nancy Ryan says

    It is high time for Congress and the IRS to treat the EITC and CTC as the poverty-relief measures they truly are and exclude these benefits from seizure to satisfy tax debt under IRS 6402 or other debts under the Treasury Offset Program. Anyone who qualifies for the EITC (or CTC) is by definition low (or moderate) income and in need of these extra funds to make ends meet. Eligibility for the credit in and of itself provides a consistent benchmark for determining economic hardship–if the taxpayer gets the credit, she needs it to support her family, and not getting it causes an economic hardship by definition. The IRS and TAS do not have the resources to do the case-by-case analysis required to consistently administer OBRs under the current procedure. Excluding the EITC and CTC from offset will cut the number of requested OBRs to a fraction and meet the goal of consistent tax administration while preserving limited IRS and TAS resources.

    • Sometimes, offset of an EITC/ACTC refund is to recoup a prior EITC/ACTC refund that the taxpayer couldn’t substantiate/incorrectly claimed & received… so that is sort of like recouping an unemployment or Social Security benefit overpayment from the same type of benefits… I believe the SSA limits recoupment of SS overpayments to a fraction of the current monthly benefit amount… I think recoupment of UC overpayments is less accommodating… not sure about other public benefits such as food stamp/TANF/GA…

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