The Annual Report to Congress creates a dialogue at the highest level of government to address taxpayers’ problems, protect taxpayers’ rights, and ease taxpayers’ burden.

The report identifies at least 20 of the most serious problems facing taxpayers and offers recommendations to fix them. Some of the issues, like tax reform and IRS’s need to expand its various taxpayer services, affect virtually every American taxpayer. Others, like the Alternative Minimum Tax, refund delays, and tax-related identity theft, impact large groups of taxpayers.

The Taxpayer Advocate Service (TAS), led by the National Taxpayer Advocate, is your voice at the IRS. Some of the problems discussed in this report were first identified when taxpayers came to TAS for help in resolving problems with the IRS.

TAS is an independent organization within the IRS. The National Taxpayer Advocate delivers this report directly to the tax-writing committees in Congress (the House Committee on Ways and Means and the Senate Committee on Finance), with no prior review by the IRS Commissioner, the Secretary of the Treasury, or the Office of Management and Budget.

Executive Summary

IRS News Release

Volume 1

• Preface and Table of Contents

MOST SERIOUS PROBLEMS ENCOUNTERED BY TAXPAYERS

• The Most Significant Issues Facing Taxpayers and the IRS Today

  • Introduction: The Most Serious Problems Encountered by Taxpayers
  • The Complexity of the Tax Code
  • The Alternative Minimum Tax Corrodes Both the Tax System and the Democratic Process
  • The IRS Is Significantly Underfunded to Serve Taxpayers and Collect Tax



• Victims of Identity Theft and Other Vulnerable Taxpayers

  • The IRS Has Failed to Provide Effective and Timely Assistance to Victims of Identity Theft
  • The IRS Harms Victims of Return Preparer Misconduct by Failing to Resolve Their Accounts Fully
  • Despite Some Improvements, the IRS Continues to Harm Taxpayers by Unreasonably Delaying the Processing of Valid Refund Claims that Happen to Trigger Systemic Filters
  • The IRS’s Compliance Strategy for the Expanded Adoption Credit Has Significantly and Unnecessarily Harmed Vulnerable Taxpayers, Has Increased Costs for the IRS, and Does Not Bode Well for Future Credit Administration



• Protection of Taxpayer Rights in Compliance Initiatives

  • The IRS’s Offshore Voluntary Disclosure Programs Discourage Voluntary Compliance by Those Who Inadvertently Failed to Report Foreign Accounts
  • The IRS’s Handling of ITIN Applications Imposes an Onerous Burden on ITIN Applicants, Discourages Compliance, and Negatively Affects the IRS’s Ability to Detect and Deter Fraud
  • The Preservation of Fundamental Taxpayer Rights Is Critical as the IRS Develops a Real-Time Tax System
  • Overextended IRS Resources and IRS Errors in the Automatic Revocation and Reinstatement Process Are Burdening Tax-Exempt Organizations



• Taxpayer Service in the Twenty-First Century

  • Introduction: The IRS Must Confront Challenges to Delivering High Quality Taxpayer Service in the Twenty-First Century
  • The IRS Telephone and Correspondence Services Have Deteriorated Over the Last Decade and Must Improve to Meet Taxpayer Needs
  • The IRS Has Failed to Make Free Return Preparation and Free Electronic Filing Available to All Individual Taxpayers
  • The IRS Is Striving to Meet Taxpayers’ Increasing Demand for Online Services, Yet More Needs to Be Done
  • Challenges Persist for International Taxpayers as the IRS Moves Slowly to Address Their Needs
  • IRS Processing Flaws and Service Delays Continue to Undermine Fundamental Taxpayer Rights to Representation
  • The IRS Lacks a Servicewide Strategy that Identifies Effective and Efficient Means of Delivering Face-to-Face Taxpayer Services
  • The IRS Is Substantially Reducing Both the Amount and Scope of Its Direct Education and Outreach to Taxpayers and Does Not Measure the Effectiveness of Its Remaining Outreach Activities, Thereby Risking Increased Noncompliance
  • A Proactive Approach to Developing a Government-Issued Debit Card to Receive Tax Refunds Will Benefit Unbanked Taxpayers



• Taxpayer Service Within Collection

  • Introduction: The IRS “Fresh Start” Initiative Has Produced Significant Improvements in Some Collection Policies; However, Significantly More Emphasis on Service Delivery Is Necessary to Realize the Full Benefits of These Important Changes
  • The Diminishing Role of the Revenue Officer Has Been Detrimental to the Overall Effectiveness of IRS Collection Operations
  • The Automated Collection System Must Emphasize Taxpayer Service Initiatives to Resolve Collection Workload More Effectively
  • Although the IRS “Fresh Start” Initiative Has Reduced the Number of Lien Notices Filed, the IRS Has Failed to Determine Whether Its Lien Policies are Clearly Supported by Either Increased Taxpayer Compliance or Revenue
  • Early Intervention, Offers in Compromise, and Proactive Outreach Can Help Victims of Failed Payroll Service Providers and Increase Employment Tax Compliance



• Status Updates

  • Underfunding IRS Initiatives to Modernize its Taxpayer Address Correspondence Systems Undermines Taxpayers’ Statutory Rights and Impedes Efficient Resource Allocation
  • Federal Tax Questions Continue to Trouble Domestic Partners and Same-Sex Spouses
  • The IRS’S Reliance on Automated “Enforcement Assessments” Has Declined Significantly, But Concerns Remain
  • The IRS Has Made Significant Progress in Delivering Virtual Face-to-Face Service and Should Expand its Initiatives to Meet Taxpayer Needs and Improve Compliance
  • The IRS Has Improved Training and Procedures to Account for Collection Statute Expiration Dates
  • The Combined Annual Wage Reporting Program Continues to Impose a Burden on Employers Despite IRS Improvements

LEGISLATIVE RECOMMENDATIONS

• Introduction

• National Taxpayer Advocate Legislative Recommendations with Congressional Action

• Family Status Recommendations

  • Simplify the National Status and Related Requirements for Qualifying Children
  • Amend IRC § 7703(b) to Remove the Household Maintenance Requirement and to Permit Taxpayers Living Apart on the Last Day of the Tax Year Who Have Legally Binding Separation Agreements to be Considered “Not Married”
  • Amend the Adoption Credit to Acknowledge Jurisdiction of Native American Tribes
     

• Taxpayer Rights Recommendations

  • Amend IRC § 7701 to Provide a Definition of “Last Known Address,” and Require the IRS to Mail Duplicate Notices to Credible Alternate Addresses
  • Amend IRC § 7403 to Provide Taxpayer Protections Before Lien Foreclosure Suits on Principal Residences
  • Amend IRC §§ 6320 and 6330 to Provide Collection Due Process Rights to Third Parties (Known as Nominees, Alter Egos, and Transferees) Holding Legal Title to Property Subject to IRS Collection Actions
  • Protect Taxpayers and the Public Fisc from Third-Party Misappropriation of Payroll Taxes

MOST LITIGATED ISSUES

CASE ADVOCACY

APPENDICES

Volume 2

• Research and Related Studies

  • Factors Influencing Voluntary Compliance by Small Businesses: Preliminary Survey Results
  • Study of Tax Court Cases in Which the IRS Conceded the Taxpayer was Entitled to Earned Income Tax Credit (EITC)
  • Investigating the Impact of Liens on Taxpayer Liabilities and Payment Behavior
  • Options for Expanding the Remedies to Address Taxpayer Rights Violations
  • Comparing the Effect of Revenue Officers and the Automated Collection System on Future Compliance: A Research Prospectus
  • When do Accuracy-Related Penalties Improve Future Reporting Compliance by Schedule C Filers? A Research Prospectus

Previous Reports to Congress

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