With talk of sweeping tax reforms swirling around Washington, the National Taxpayer Advocate (NTA) Nina E. Olson continues to stick to her knitting. The head of the Taxpayer Advocate Service (TAS) watchdog group released her mandated midyear report to Congress on June 28 (IR-2017-113). In the report, Olson reviewed the recently-concluded 2017 tax filing season and established priorities for the upcoming fiscal year. The report also contains responses to 93 administrative recommendations the NTA made in her 2016 Annual Report to Congress.
In the preface to the new report, Olson praised the IRS for running a generally successful filing season, including reducing the incidence of identity theft, implementing new accelerated Form W‑2 reporting requirements and matching Forms W‑2 against tax returns claiming refunds. However, according to Olson, taxpayers requiring assistance from the IRS still face formidable challenges. She attributes part of the problem to budget cuts, saying that IRS funding has been slashed by nearly 20 percent since fiscal year (FY) 2010, after adjusting for inflation.
While taxpayer services and enforcement activities are both essential for effective tax administration, Olson says taxpayer services require more emphasis than they are currently receiving. She points out that more than 60 percent of the IRS budget is allocated to enforcement activities, but only about 4 percent is allocated for taxpayer outreach and education.
Overview of Tax Filing Season
The IRS processed nearly 130 million returns this past tax filing season, about 90 percent electronically. Seventy-five percent of the returns resulted in refunds and the average refund amount was $2,763. According to Olson, the IRS successfully implemented several provisions of the Protecting Americans from Tax Hikes (PATH) Act of 2015, which directed the IRS to delay paying refunds until February 15 to taxpayers claiming either the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit.
During the 2017 tax filing season, the IRS answered 79 percent of the telephone calls it received on its “Account Management” (AM) telephone lines that were routed to telephone assistors. That’s up from 72 percent during 2016. In addition, the time these taxpayers spent on hold declined from 11.1 minutes in 2016 to 6.5 minutes in 2017. Thus, taxpayers generally were better served on the AM telephone lines.
However, taxpayer service was not as successful in other areas. The IRS compliance telephone lines, which are not included in the AM category, showed significant declines. Notably, the IRS received about 2.7 million calls on its “Installment Agreement/Balance Due” line. “For the most part, these calls come from taxpayers who are seeking to make payment arrangements – the sort of calls most private businesses would pick up immediately,” the report says. Yet the IRS answered only 40 percent of these calls during 2017 (down from 76 percent in 2016), while wait times increased from 11 minutes in 2016 to a staggering 47 minutes in 2017.
Furthermore, despite answering a higher percentage of calls on its AM telephone lines, IRS telephone assistors actually answered 25 percent fewer calls during 2017 as compared with 2016. This occurred because taxpayer calls routed to AM telephone assistors declined by even more -- 32 percent.
Priorities for Upcoming Fiscal Year
The report also identifies and discusses 13 priority issues for Fiscal Year 2018 (FY2018), including the following:
Private debt collections: This spring, the IRS began assigning delinquent taxpayer accounts to private collection agencies (PCAs). The NTA remains concerned that PCAs will pressure taxpayers who can’t afford to pay into doing so.
When the IRS itself is collecting unpaid taxes, it is authorized to perform a financial analysis of a taxpayer’s ability to pay and it does not collect from taxpayers where its analysis shows doing so would impose a financial hardship. However, PCAs aren’t authorized to perform a financial analysis and the IRS has not authorized them to collect financial information from taxpayers that could be turned over to the IRS for this purpose.
Because PCAs are paid a percentage of what they collect, there is a financial incentive for them to pressure even low- income taxpayers from whom the IRS ordinarily would not collect to make payments. During FY 2018, the TAS will take additional steps to ensure the protection of taxpayer rights under the program.
U.S. Passport revocations and denials: Legislation passed by Congress in 2015 requires the Department of State (DOS) to deny an individual’s passport application and allows the DOS to revoke or limit an individual’s existing passport if the IRS certifies the individual has a “seriously delinquent” tax debt. The law provides an exception allowing the DOS to issue a passport to a certified individual in emergency circumstances or for humanitarian reasons.
TAS is actively monitoring the implementation of this requirement because of the risk of extreme harm if the IRS or DOS makes a transcription error or a taxpayer is not given adequate notice of a passport denial or revocation, which could happen while the taxpayer is outside the United States. During FY 2018, TAS will take steps to address these concerns systemically and will help affected taxpayers resolve their seriously delinquent tax debts and obtain reversals of certifications in a timely manner, where appropriate.
Offshore Voluntary Disclosure Programs: TAS continues to have concerns about the transparency of the IRS’s Offshore Voluntary Disclosure Programs (OVDPs). These programs are largely governed by a series of Frequently Asked Questions (FAQs) posted on the IRS website. However, the IRS generally does not disclose the legal guidance underlying the FAQs, leaving taxpayers and their representatives with insufficient information about how to interpret ambiguous answers.
In analyzing the programs, TAS reviewed a sample of ten items of undisclosed advice about FAQs issued between March 1, 2016 and March 8, 2017. According to the IRS, the undisclosed documents had not been checked or reviewed by any disclosure experts to determine whether they should be disclosed, yet they contained substantial information that would be helpful for taxpayers and their representatives. During FY 2018, TAS will continue to advocate for the IRS to disclose all OVDP-related rules and procedures along with any legal interpretations of them. It will also push for the IRS to disclose detailed summary statistics for the ODVP and streamlined programs so taxpayers will have a better sense of likely outcomes.
Other priority issues: Other priorities that TAS plans to focus on during FY 2018 include the following:
- The IRS’ approach to international tax administration;
- The advantages and disadvantages of the heavy emphasis on online taxpayer accounts;
- Options to improve the administration of the EITC;
- Tax compliance barriers for ITIN holders;
- The inadequacy of the IRS Allowable Living Expense standards;
- IRS policies regarding levies on retirement accounts;
- Continuing efforts to combat tax-related identity theft;
- Taxpayer challenges in complying with the Affordable Care Act (ACA); lack of specificity in third-party contact notices; and
- Continuing information technology challenges, particularly in developing an enterprise-wide case management system.
Finally, the NTA is required by statute to submit a year-end report to Congress that describes at least 20 of the most serious problems facing taxpayers and makes administrative recommendations to mitigate those problems. The midyear report released by Olson includes a second volume containing the IRS’ general responses to each of the problems the NTA identified in her 2016 year-end report, as well as specific responses to each recommendation.