U.S. GOVERNMENT PUBLISHING OFFICE

33–425 WASHINGTON : 2019

THE NATIONAL TAXPAYER ADVOCATE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

MAY 19, 2017 

Serial No. 115–OS04 

Printed for the use of the Committee on Ways and Means 

( 

ii 

COMMITTEE ON WAYS AND MEANS 

KEVIN BRADY, Texas, Chairman 

SAM JOHNSON, Texas 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

PETER J. ROSKAM, Illinois 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

MIKE KELLY, Pennsylvania 

JIM RENACCI, Ohio 

PAT MEEHAN, Pennsylvania 

KRISTI NOEM, South Dakota 

GEORGE HOLDING, North Carolina 

JASON SMITH, Missouri 

TOM RICE, South Carolina 

DAVID SCHWEIKERT, Arizona 

JACKIE WALORSKI, Indiana 

CARLOS CURBELO, Florida 

MIKE BISHOP, Michigan 

RICHARD E. NEAL, Massachusetts 

SANDER M. LEVIN, Michigan 

JOHN LEWIS, Georgia 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

BRIAN HIGGINS, New York 

TERRI SEWELL, Alabama 

SUZAN DELBENE, Washington 

JUDY CHU, California 

DAVID STEWART, Staff Director 

BRANDON CASEY, Minority Chief Counsel 

SUBCOMMITTEE ON OVERSIGHT 

VERN BUCHANAN, Florida, Chairman 

DAVID SCHWEIKERT, Arizona 

JACKIE WALORSKI, Indiana 

CARLOS CURBELO, Florida 

MIKE BISHOP, Michigan 

PAT MEEHAN, Pennsylvania 

GEORGE HOLDING, North Carolina 

JOHN LEWIS, Georgia 

JOSEPH CROWLEY, New York 

SUZAN DELBENE, Washington 

EARL BLUMENAUER, Oregon 

iii 

C O N T E N T S 

Page 

Advisory of May 19, 2017 announcing the hearing .............................................. 2 

WITNESS 

Nina Olson, National Taxpayer Advocate ............................................................. 5 

QUESTIONS FOR THE RECORD 

Questions from The Honorable Vern Buchanan, to Nina Olson .......................... 126 

Questions from The Honorable David Schweikert, to Nina Olson ...................... 130 

Questions from The Honorable Carlos Curbelo, to Nina Olson ........................... 134 

Questions from The Honorable Mike Bishop (MI–08), to Nina Olson ................ 138 

Questions from The Honorable George Holding (NC–02), to Nina Olson ........... 141 

PUBLIC SUBMISSIONS FOR THE RECORD 

The Bright Lines Project ......................................................................................... 145 

(1) 

IRS REFORM: LESSONS LEARNED FROM THE 

NATIONAL TAXPAYER ADVOCATE 

FRIDAY, MAY 19, 2017 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON OVERSIGHT, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 8:59 a.m., in Room 

1100, Longworth House Office Building, Hon. Vern Buchanan 

[chairman of the subcommittee] presiding. 

[The advisory announcing the hearing follows:] 

2 


Insert 33425A.001

(@ 

WAYS AND MEANS 

CHAIRMAN KEVIN BRADY 

Chairman Buchanan Announces Hearing with the National 

Taxpayer Advocate 

House Ways and Means Oversight Subcommittee Chainuan Vern Buchanan (R-FL) announced 

today that the Subcommittee will hold a hearing entitled " IRS Reform: Lessons Learned from the 

National Taxpayer Advocate." TI1e hearing will provide input on reforms that can be made to 

the agency based on the experience oftbe Taxpayer Advocate Service, an independent office 

which helps taxpayers resolve problems with the IRS. The hearing will take place on Friday, 

May 19,2017 in 1100 Longworth House Office Building, beginning at 9:00AM. 

In view of the limited time to hear witnesses, oral testimony at this hearing will be from invited 

witnesses only. However, any individual or organization may submit a written statement for 

consideration by the Committee and for inclusion in the printed record of the hearing. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit written comments for the 

hearing record must follow the appropriate link on the heari ng page of the Committee website 

and complete the informational forms. From the Committee homepage, 

llllJl://waysand•!' eans)louse.w. select " Hearings." Select the hearing for which you would like 

to make a submission, and click on the link entitled, "Click here to provide a submission for the 

record." Once you have followed the online instructions, submit all requested information. 

ATTACH your submission as a Word document, in compliance with the fonnatting requirements 

listed below, by the close of business on Friday, June 2, 2017. For questions, or if you 

encounter technica l problems, please call (202) 225-3625. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As 

always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to fonnat it 

according to our guidelines. Any submission provided to the Committee by a witness, any 

materials submitted for the printed record, and any written comments in response to a request for 

written comments must conform to the guidelines listed below. Any submission not in 

compliance with these guidelines will not be printed, but will be maintained in the Committee 

fi les for review and use by the Committee. 
3 

f 

Chairman BUCHANAN. The Subcommittee will come to order. 

Welcome to the Ways and Means Oversight Subcommittee hearing on IRS Reforms: Lessons Learned from the National Taxpayer 

Advocate. 

It has been nearly 20 years since Congress seriously considered 

reforms to the IRS. I am hopeful that as we embark on a renewed 

effort to improve the agency that we can work hand-in-hand with 

Members on both sides of the aisle. Working together, I am confident that we can find common ground and make progress. 

I think it is important to emphasize that our efforts to reform the 

IRS should not be seen as a punishment or a criticism of the average agency employee; instead, they are a recognition that the IRS’s 

mission is very important. Every government entity, just like private companies, can benefit from a thorough review and some 

thoughtful, long-term planning and action. And that is what we are 

here for today. 

I have a business background. I started my own business many 

years ago, and my experience tells me that we always need to look 

for ways to improve. Continuous improvement has been part of my 

philosophy over a lot of years. We always find a way to get better 

and more efficient. 

When evaluating any entity- government or business- I always 

ask myself the reason for improving, but the big goal is to have 

continuous improvement, I think, as your organization has done so 

over the years. 

The task before us today is to ask the tough questions and look 

for solutions. This work is important because taxpayers need to be 

able to trust the entity administering the Tax Code. Ninety-eight 

percent of our tax revenues come to the IRS voluntarily. Only 2 

percent is collected through the IRS enforcement action. 


Insert 33425A.002
4 

Trust is a key component of voluntary compliance. The Taxpayer 

Bill of Rights contains the right to quality service, and I think that 

is one of our biggest focuses as second on the list. An IRS publication describes the right as the right to receive prompt, courteous, 

and professional assistance in taxpayer dealings with the IRS. As 

we consider reforms to the IRS, we should keep this right, as well 

as well as the other nine in mind. 

I look forward to working with the Ranking Member, Mr. Lewis, 

and other Members of the Committee, to make the IRS a 21st century agency. 

I want to thank our witness, Ms. Olson, for being here today. She 

has been a champion for taxpayers for many years, and her insight 

on this topic will be valuable. I look forward to her testimony. 

I now yield to the distinguished Ranking Member, Mr. Lewis, for 

the purposes of an opening statement. 

Mr. LEWIS. Good morning, Mr. Chairman. Thank you very much 

for holding this hearing with the National Taxpayer Advocate. 

And I want to thank Ms. Olson for being here and for her many 

years of service. 

I would also like to thank our Members for being here. I know 

for some of us, this is a little early. 

Chairman BUCHANAN. I agree. 

Mr. LEWIS. But we are here. 

Mr. Chairman, we must approach the important matter of reforming and improving the Internal Revenue Service with a great 

deal of care. We must remain focused on doing what is right, and 

what is just for the interests of every American taxpayer. If we 

stay on a bipartisan path together, we help the IRS become a 

model of success for constituent services. 

The IRS is a large and complex organization that has suffered 

from a lack of resources for many years. Congress cut the agency’s 

budget by almost $1 billion since 2010. These cuts hurt and harm 

taxpayer services and tax compliance. 

And the IRS needs technology, infrastructure, and employees to 

provide secure, quality customer service. For these reasons, responsible reform must include strong, robust funding. As we study the 

IRS structure and service, we must also consider how much the 

world has changed since Congress last acted on this matter. 

Over the last 20 years, smartphones and internet access created 

opportunities for some and barriers for others. Both taxpayers and 

those who serve them struggle with increased identity theft, fraud, 

and scams. Unfortunately, certain programs, like private debt collection, which have been tried and repeatedly failed, just lead to 

more confusion. 

Mr. Chairman, I believe that we agree on the importance of an 

agency that would provide taxpayers with greater access to customer service online, over the phone, and in person. I believe we 

can help build a tax administration system that will take advantage of new technology, while enhancing the security of taxpayer 

data. 

I believe that we must do better, and that if we work together, 

we can do better. I look forward to hearing from the National Taxpayer Advocate today, and learning more from her experience with 

taxpayers and the agency. 

5 

And again, thank you, Mr. Chairman, for holding this hearing 

today. And thank you for your service. I yield back. 

Chairman BUCHANAN. Thank you, Mr. Lewis. And I look forward to working with you on the IRS reforms. 

Without objections, other Members’ opening statements will be 

made part of the record. 

Today’s witness panel includes one expert, Nina Olson, the National Taxpayer Advocate for Taxpayer Advocate Services at the 

IRS. And I did mention to her earlier, I met with a group of CPAs 

from Florida, and your organization was well thought of. 

And also last week, preparers that are here in Washington, I 

asked them about your organization, and they gave you high 

marks. I don’t want you to get a big head, but the point is, we do 

believe in continuous improvement. 

Ms. Olson, we appreciate you being here today. The subcommittee will receive your written statement, which will be made 

part of the formal hearing record. You now have five minutes to deliver your oral remarks. You may begin when you are ready. Thank 

you. 

STATEMENT OF NINA E. OLSON, NATIONAL TAXPAYER 

ADVOCATE 

Ms. OLSON. Chairman Buchanan, Ranking Member Lewis, and 

Members of the Subcommittee, thank you for inviting me to testify 

today regarding the operations of the Internal Revenue Service, 

and to offer some suggestions to improve the responsiveness of the 

agency to U.S. taxpayers. 

It has been nearly two decades since Congress last reviewed and 

updated the laws governing IRS operations. A lot has changed during that time, and tax administration would benefit from a fresh 

review of those laws. 

In my written statement, I make the following points: First, reforms to IRS operations will be most successful if Congress consults 

widely on its proposals, engages IRS employees and external stakeholders, and provides the IRS with adequate funding to succeed. 

Second, sound tax administration should be predicated on 

foundational principles, and the most important principle is respect 

for taxpayer rights. Not only is respecting the rights of the taxpayers who pay our Nation’s bills the right thing to do, but there 

is significant empirical data that suggests building trust with taxpayers, which requires respecting their rights, enhances voluntary 

compliance as well. 

In 2015, Congress codified the provisions of the Taxpayer Bill of 

Rights, or TBOR, as part of a provision requiring that the Commissioner ensure IRS employees receive training and act in accord 

with those rights. The challenge now is to ensure that TBOR is not 

merely aspirational, but is incorporated into the very ethos of the 

IRS, and explicitly into its business practices. 

I believe a clear statement that taxpayers actually have the 10 

fundamental TBOR rights would provide a stronger foundation for 

effective tax administration. And, therefore, I recommend that Congress enact the Taxpayer Bill of Rights as a freestanding provision 

in the Internal Revenue Code. 

6 

Third, to become an effective 21st century tax administration, 

the IRS must place greater emphasis on taxpayer service. In my 

view, there is no conflict whatsoever between providing high-quality taxpayer service and taking actions to ensure tax compliance, 

particularly on the part of persons actively seeking to evade tax. 

It should not be an either/or proposition. 

But to create an environment that encourages taxpayer trust and 

confidence, the IRS must change its culture from one that is enforcement-oriented to one that is service-oriented. 

Of the IRS’s current appropriated budget of $11.2 billion, 43 percent is allocated to enforcement, while only 4 percent—I repeat, 

only 4 percent—is allocated to taxpayer outreach and education activities. 

According to IRS data, the agency dedicates only 98 employees 

to conduct outreach and education to the roughly 62 million small 

business and self-employed taxpayers, and only 376 employees to 

conduct outreach and education to the 125 million wage and investment taxpayers. Meanwhile, the IRS has over 3,000 revenue officers who collect field collection activity, and over 8,800 revenue 

agents who conduct field audits. 

In RRA 98, Congress directed the IRS to restate its mission to 

place a greater emphasis on serving the public and meeting taxpayers’ needs. In response, the IRS adopted the following mission 

statement: ‘‘Provide America’s taxpayers top-quality service by 

helping them understand and meet their tax responsibilities and by 

applying the tax law with integrity and fairness to all.’’ 

In 2009, with no public discussion or notice to Congress or to myself, the IRS quietly changed its mission statement to read, ‘‘and 

enforce the tax law with integrity and fairness to all.’’ This shift 

in tone and emphasis from ‘‘applying’’ to ‘‘enforcing’’ the law suggests IRS leadership disagreed with the congressional directive and 

decided to place greater emphasis on enforcement in the mission 

statement. 

Accordingly, I recommend that Congress require the IRS to revise its mission statement to reemphasize a noncoercive approach 

to tax administration and explicitly affirm the role of taxpayer 

rights as a guiding principle for tax administration. 

Fourth, Congress has passed three important taxpayer rights 

bills, including RRA 98. And in my testimony, I highlight provisions that IRS has—that Congress has enacted, that the IRS has 

either not implemented, defined away through writ guidance, or 

only done a partial job. 

Fifth, RRA 98 joint oversight hearings would give Congress better insight into the IRS strategic and operational plans, promote 

dialogue between Congress, IRS, and interested stakeholders, and 

help ensure the tax writing and appropriations committees coordinate their expectations and approaches toward the IRS operations. 

Thank you for this opportunity, and I look forward to answering 

any questions. 

[The prepared statement of Nina Olson follows:] 

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Insert 33425A.003

STATEMENT OF 

NINA E. OLSON 

NATIONAL TAXPAYER ADVOCATE 

HEARING ON 

IRS REFORM: 

PERSPECTIVES FROM THE NATIONAL TAXPAYER ADVOCATE 

BEFORE THE 

SUBCOMMITTEE ON OVERSIGHT 

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

MAY 19, 2017 
8 


Insert 33425A.004

TABLE OF CONTENTS 

I. General Observations: Reforms to IRS Operations Will Be Most Successful if 

Congress Consults Widely on Its Proposals, Engages IRS Employees, and 

Provides the IRS with Adequate Funding ............................................................. 2 

II. Sound Tax Administration Should Be Predicated on Foundational Principlesand the Most Important Principle Is Respect for Taxpayer Rights ........................ 4 

Ill. To Become an Effective 2151 Century Tax Administration, the IRS Must Place 

Greater Emphasis on Taxpayer Service ............................................................... 7 

IV. The IRS Has Not Implemented, Has Narrowly Interpreted, or Has Not Effectively 

Implemented Many Taxpayer Protections Enacted by Congress ....................... 14 

V. RRA 98-Style • Joint Oversight Hearings• Would Give Congress Better Insight 

into the IRS's Strategic and Operational Plans, Promote Dialogue Among 

Congress, the IRS and Interested Stakeholders, and Help Ensure the TaxWriting and Appropriations Committees Coordinate Their Expectations and 

Approaches Toward IRS Operations .................................................................. 21 

VI. General Observations Regarding House Republicans' Blueprint Proposal ........ 23 

VI I. Conclusion .......................................................................................................... 27 
9 


Insert 33425A.005

Chairman Buchanan, Ranking Member Lewis, and Members of the Subcommittee: 

Thank you for inviting me to testify today regarding the operations of the Internal 

Revenue Service and to offer some suggestions to improve the responsiveness of the 

agency to U.S. taxpayers.

1 

In a summary of its blueprint, A Better Way, the House Republicans' Tax Reform Task 

Force describes "A Service First IRS," noting that "[a] simpler, fairer tax code will require 

a simpler, fairer IRS with one mission: Put the taxpayers first."2 

I am delighted this subcommittee is planning to take a hard look at IRS priorities and 

operations. Between 1988 and 1998, Congress passed three significant pieces of 

legislation to improve tax administration and strengthen taxpayer rights.3 It has now 

been nearly two decades since the final of those bills was enacted, and tax 

administration has changed in many ways. Perhaps the most significant changes are 

the increasing use of automation by the IRS and the increasing use of the Internet and 

other digital services by taxpayers. During this time, we have also had a chance to 

assess the impact of the changes made by the landmark IRS Restructuring and Reform 

Act of 1998 (RRA 98). Most have stood the test of time well, but some require 

tweaking. 

In my testimony today, I will make the following points: 

1. Reforms to IRS operations will be most successful if Congress consults widely on 

its proposals, engages IRS employees, and provides the IRS with adequate 

funding. 

2. Sound tax administration should be predicated on foundational principles, and 

the most important principle is respect for taxpayer rights. 

' The views expressed herein are solely those of the National Taxpayer Advocate. The National 

Taxpayer Advocate is appointed by the Secretary of the Treasury and reports to the Commissioner of 

Internal Revenue. However, the National Taxpayer Advocate presents an independent taxpayer 

perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the 

Office of Management and Budget. Congressional testimony requested from the National Taxpayer 

Advocate is not submitted to the IRS, the Treasury Department, or the Office of Management and Budget 

for prior approval. However, we are providing courtesy copies of this statement to both the IRS and the 

Treasury Department. 

2 House Republicans· Tax Reform Task Force. A Better Way for Tax Reform. 

http://abetterway.speaker.gov/ assetslpdf/ABe«ei'Way-Tax-Snapshot.pc!f. 

3 See Technical and Miscellaneous Revenue Act, Pub. L. No. 100~7. § 6226, 102 Stat. 3342, 3730 

(1988) (containing the 'Omnibus Taxpayer Bill of Rights,' also known as TBOR 1); Taxpayer Bill of 

Rights 2, Pub. L. No. 104·168, 110 Stat. 1452 (1996) (also known as TBOR 2); Internal Revenue Service 

Restructuring and Reform Act of 1998, Pub. L. No. 105·206, 112 Stat. 685, 726 (1998) (Title Ill is known 

as "Taxpayer Bill of Rights Ill" or TBOR 3). 
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Insert 33425A.006

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3. To become an effective 21'1 century tax administration, the IRS must place 

greater emphasis on taxpayer service. 

4. The IRS has not implemented, has narrowly interpreted, or has not effectively 

implemented many taxpayer protections enacted by Congress. 

5. RRA 98-style "joint oversight hearings" would give Congress better insight into 

the IRS's strategic and operational plans, promote dialogue among Congress, 

the IRS and interested stakeholders, and help ensure the tax-writing and 

appropriations committees coordinate their expectations and approaches toward 

IRS operations. 

6. Lastly, I summarize key provisions in the Blueprint and offer some suggestions 

for the subcommittee to consider as it converts the Blueprint's concepts into 

more detailed proposals. 

I. General Observations: Reforms to IRS Operations Will Be Most Successful 

if Congress Consults Widely on Its Proposals, Engages IRS Employees, 

and Provides the IRS with Adequate Funding. 

The Blueprint, by its nature, is a general document. It is not clear yet what specific 

changes its authors contemplate or how far-reaching the changes may be. As one who 

participated in the crafting of RRA 98 as an outside practitioner and who witnessed 

much of its implementation after I became the National Taxpayer Advocate, I offer three 

threshold observations: 

• Significant Changes Should Be Thoroughly Vetted. The IRS is a large and 

complex agency, and as such, well-intentioned proposals can often have 

unintended consequences. Therefore, it is important to vet significant changes 

thoroughly before implementing them. Leading up to RRA 98, for example, 

Congress created an independent commission to review the then-existing 

practices of the IRS and recommend ways to modernize the agency's efficiency 

and productivity while improving taxpayer services4 The commission, led by 

then-Senator Bob Kerrey and then-Congressman Rob Portman, was bicameral 

and bipartisan, and it employed significant professional staff. The commission 

spent a full year studying IRS operations and developing its recommendations. 

Among other things, the commission interviewed more than 500 individuals, 

worked closely with the Treasury Department and the IRS to gain a 

comprehensive understanding of IRS operations, and held 12 days of public 

hearings. 

After the commission completed its work in June 1997, the House Ways and 

' Report of the National Commission on Restructuring the Internal Revenue Service, A Vision for a New 

IRS (June 25, 1997). http://www.house.gov/natcommirs/reoort1.pdf. 
11 


Insert 33425A.007

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Means and Senate Finance committees held numerous hearings of their own 

before eventually passing the legislation. I am not advocating for an undertaking 

of that magnitude. But I do think it's important that the tax-writing committees 

take the time to talk with Treasury and IRS officials and outside stakeholders and 

to study IRS operations carefully before enacting legislation that would make 

major changes to the agency. Such consultations will maximize the chances for 

success while minimizing the risks of unintended consequences. 

• Employee Morale Affects Performance. The performance of the IRS as an 

agency is dependent on the performance of its workforce. The agency's roughly 

83,000 employees do everything from interacting personally with taxpayers, to 

writing tax forms and instructions, to programing computer code. 5 It is therefore 

essential that they be engaged and fully committed to their jobs. Because of 

several well publicized incidents over the last few years, the IRS has been a 

widely criticized agency, and many IRS employees feel besieged. Morale is low. 

I am concerned that a congressional review of IRS operations with an eye toward 

reforming parts of the agency may be interpreted as further disparagement. 

In fact, it should not be interpreted in that way. Congress has an essential and 

constructive role to play in reviewing and updating the laws that enable effective 

tax administration. That can be good for employees as well as taxpayers. Based 

on conversations with Chairman Buchanan and the majority and minority staffs, 1 

believe the subcommittee plans to work in a bipartisan manner to improve tax 

administration. I encourage Members to speak with sensitivity and avoid 

furthering the perception of many IRS employees that IRS reforms would be a 

"punishment" of sorts. 

• High Quality Taxpayer Service Cannot Be Achieved Without Adequate 

Funding. Each year, the IRS receives more than 100 million telephone calls, 

roughly five million taxpayer visits in its Taxpayer Assistance Centers (TACs), 

and some ten million pieces of correspondence from taxpayers responding to 

proposed tax adjustment notices. 

6 To fulfill the "Service First" objective, the IRS 

requires sufficient funding to hire and train enough employees to respond to each 

of these contacts and to modernize its technology systems so that employees 

s iRS. 2016 Data Book at 68 (Table 31 ). This count includes total full-time, part-time, and seasonal 

personnel employed by the IRS during FY 2016. The number of full-time-equivalent positions used to 

conduct IRS operations was approximately 78,000 during FY 2016 and 76,000 as of the end of FY 2016. 

ld. at 67 (Table 30). 

6 1RS, Joint Operations Center, Snapshot Reports: Enterprise Snapshot, IRS Enterprise Total (final week 

of each fiscal year for FY 2008 through FY 2016) (showing telephone call volumes exceeding 100 million 

in every year); IRS wage & Investment Division, Business Performance Review 7 (1" Quarter- FY 2017, 

Feb. 9, 2017) (showing 5.6 million visits in FY 2015 and 4.5 million visits in FY 2016); IRS. Joint 

Operations Center. Adjustments Inventory Reports: July-September Fiscal Year Comparison (FY 2007 

through FY 2016) (showing annual taxpayer correspondence volumes regarding potential adjustments 

has ranged from a low ol7 .3 million letters to a high of 11.8 milliOn letters and has averaged around ten 

million per year). 
12 


Insert 33425A.008

-4-

have access to complete and accurate information when they are communicating 

with taxpayers. Since fiscal year (FY) 2010, we estimate the IRS's annual 

appropriation has been cut by nearly 20 percent on an inflation-adjusted basis. 7 

At the same time, the agency has faced an increasing volume of tax returns, the 

requirement to implement the Patient Protection and Affordable Care Act,8 and a 

surge in stolen identity refund fraud. High quality taxpayer service cannot be 

provided on the cheap. If we want the IRS to provide better service, we have to 

recognize it will require the resources to do so. 

For purposes of today's hearing, I will keep my observations and recommendations very 

general. Since I became the National Taxpayer Advocate in 2001 , 1 have made more 

than 100 legislative recommendations in my annual reports to Congress, many of which 

have been introduced in bills sponsored by Members of Congress. Some have been 

designed to fill gaps in RRA 98 or to update taxpayer protections. I would be happy to 

discuss some of the specific proposals I believe would improve tax administration in 

response to your questions today or with the committee's staff in the coming months. 

II. Sound Tax Administration Should Be Predicated on Foundational 

Principles- and the Most Important Principle Is Respect for Taxpayer 

Rights. 

I believe it is important to build organizations based on foundational goals and 

principles. In the case of a tax collection agency, the overriding foundational goal is to 

maximize voluntarv tax compliance. Voluntary compliance is far preferable to enforced 

compliance because audits are expensive on a per-return basis and often don't even 

uncover much of the noncompliance on a tax return. 

In working toward the foundational goal of maximizing voluntary tax compliance, I 

believe the most important foundational principle is respect for taxpayer rights. 

Taxpayer rights deserve priority emphasis for two reasons. First, it is simply the right 

thing to do. I think of the requirement to pay taxes as a •social contracr' of sorts 

between the government and its taxpayers. Taxpayers agree to pay a percentage of 

their annual incomes to the government for the common good, and in exchange, the 

government agrees to make the process as fair and burden-free as possible. 

Second, there is empirical data that suggests building trust with taxpayers - which 

requires respecting their rights- enhances voluntary compliance. In 2012, my office 

' IRS funding is down in dollar tenns by 7.5 percent since FY 2010. In FY 2010, lhe agency's 

appropriated budget stood at $12.1 billion. For FY 2016, its budget was $11 .2 billion. Based on the 

Consumer Price Index measure of inflation, costs have risen by 12 percent over lhe same period. Bureau 

of Labor Statistics, Consumer Price Index- UrtJan (CPI·U) (reflecting inflation from March 2010 through 

March 2017). Thus, the inflation-adjusted reduction is nearly 20 percent. There are multiple measures of 

inflation, so the use of a different measure may produce slightly different results. 

3 Pub. L. No. 111-148, 124 Stat. 119 (2010). 
13 


Insert 33425A.009

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conducted a significant research study to try to tease out factors that influence tax 

compliance (or non-compliance). The study focused on sole proprietors, because IRS 

"tax gap" studies have shown sole proprietors are responsible for the largest single 

portion of unreported income. This was the first study that has attempted to link an 

individual's responses to survey questions to the IRS's estimates of the individual's tax 

compliance on filed tax returns. The study found that trust played an important role in 

tax compliance. More specifically, a taxpayer's self-reported level of trust in 

government, the tax laws, and the IRS correlated with the taxpayer's level of tax 

compliance.9 The study suggests that gaining the trust of U.S. taxpayers is not only 

good government, but it makes for effective tax collection as well. 

In 2014, the IRS took a significant step toward acknowledging the value of taxpayer 

rights. It adopted the Taxpaxer Bill of Rights (TBOR)- something I had been 

recommending since 2007.

1 These rights include (1) the right to be informed; (2) the 

right to quality service; (3) the right to pay no more than the correct amount of tax; 

(4) the right to challenge the IRS's position and be heard; (5) the right to appeal an IRS 

decision in an independent forum; (6) the right to finality; (7) the right to privacy; (8) the 

rightto confidentialit¥i (9) the right to retain representation; and (1 0) the right to a fair 

and JUSt tax system. 

In 2015, Congress codified these ten rights as part of a provision requiring that the 

Commissioner ensure IRS employees receive training and act in accord with thern. 12 

These were very important developments. The challenge now is to ensure the TBOR is 

not merely aspirations! but is incorporated into the very ethos of the IRS - and explicitly 

into its business practices. 

In our Annual Report to Congress, we now publish a Taxpayer Rights Assessment 

based on performance measures that I believe help show how well the IRS is complying 

with the TBOR. 13 These measures are organized under each of the ten TBOR rights. 

In many cases, the performance measures I identify currently exist, and where they do, 

we have included data. In other cases, we identify measures we believe the IRS can 

and should start to track. The intent of this assessment is to give the IRS as well as 

9 National Taxpayer Advocate 2012 Annual Report to Congress, vol. 2, at 1-70 (ResearCh Study: Factors 

Influencing Voluntary Compliance by S Small Businesses: Preliminary Survey Results). 

10 See National Taxpayer Advocate 2007 Annual Report to Congress 478-489 (Legislative 

Recommendation: Taxpayer Bill of Rights and De Minimis "Apology• Payments); see a/so National 

Taxpayer Advocate 2013 Annual Report to Congress 5-19 (Most Serious Problem: Taxpayer Rights: The 

IRS Should Adopt a Taxpayer Bill of Rights as a Framework for Effective Tax Administration). 

11 See IRS, Taxpayer Bill of Rights, https:/lwww.lrs.aov/taxpayer-bill-of-rights. 

12 See Consolidated Appropriations Act, 2016, Pub. L. No. 114-113, Division Q, § 401 (a), 129 Stat. 2242, 

3117 (2015) (codified at IRC § 7803(a)(3)). 

13 See National Taxpayer Advocate 2016 Annual Report to Congress 42-47 (Taxpayer Rights 

Assessment: IRS Performance Measures and Data Relating to Taxpayer Rights). 

htlps://taxpayeradvocate.irs.gov/Media/Default/Oocuments/2016-

ARC/ARC16 Volume1 TaxpayerRightsAssessment.pdf. 
14 


Insert 33425A.010

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Congress and the tax community more information regarding the IRS's performance. 

Some of the measures can be refined, but ultimately, I believe it would be helpful to 

incorporate some of these measures into IRS executive and senior manager 

performance plans so that IRS managers are evaluated, in part, on their efforts to 

uphold taxpayer rights. 

One important point to note is that U.S. taxpayers already have a significant number of 

statutory protections as a result of legislation enacted by Congress. Initially, I viewed 

the TBOR primarily as a vehicle for making those rights clearer. As I have watched the 

rollout of the TBOR and have had an opportunity to reflect on its impact and its role in 

sound tax administration, however, I have come to believe that the tax system would 

benefit from placing greater emphasis on the ten TBOR rights and using them as a 

foundational document for tax administration. 

In that regard, a significant limitation of the statutory provision reciting the ten TBOR 

provisions is that it does not use the term "Taxpayer Bill of Rights• and it does not 

explicitly state that taxpayers have any of these rights. By its terms, the provision 

requires only that the Commissioner "ensure that employees of the Internal Revenue 

SeNice are familiar with and act in accord with taxpayer rights."14 This leaves the 

practical impact of the provision murky. If a taxpayer were to assert that the IRS had 

violated one of the TBOR rights, it is open to question whether a court would find the 

rights are legally cognizable. 

I was not a party to the conversations that gave rise to this provision. My guess is the 

IRS expressed concern that if the law provided that taxpayers possess these rights, it is 

not clear how courts would interpret them and it could make it harder for the IRS to win 

cases. If that was an expressed concern, I find it unpersuasive. Courts are regularly 

called upon to interpret general provisions, and they do so by balancing competing 

interests. For example, there are many provisions that are phrased in general terms in 

the Bill of Rights in the U.S. Constitution. Yet the courts have shown they are quite 

capable of defining the parameters of those rights. The courts have held, for example, 

that the First Amendment right to free speech does not extend to falsely shouting "fire• 

in a crowded movie theater, or to spreading knowingly false and defamatory information 

about another individual, or to publishing obscene material.15 

As with the Bill of Rights, some of the TBOR provisions are more general than others. 

For example, the courts would initially have to decide how to interpret the "Right to 

Quality SeNice" and what a violation of that right would mean. But that does not mean 

courts are incapable of doing so. A court might rule that the fact a taxpayer had to call 

14 IRC § 7803(a)(3). 

•• See, e.g., Schenck v. United States, 249 U.S. 47, 52 (1919) ("The most stringent protection of tree 

speech would not protect a man in falsely shouting fire in a theatre"); Garrison v. Louisiana, 378 U.S. 84, 

75 (1984) ("(T]he knowingly false statement and the false statement made with reckless disregard of the 

truth do not enjoy constitutional protection"); Roth v. United States. 354 U.S. 476 (1957) (concluding that 

obscene material is not protected by the First Amendment). 
15 


Insert 33425A.011

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the IRS several times and wait for an extended period on hold would not affect the 

outcome of a case, yet it would consider the "Right to Quality Service" as relevant if a 

taxpayer can demonstrate that he called and spoke to an IRS employee and the 

employee put notes in the file promising to take actions that the IRS never ended up 

taking. As with any new law, there would be an initial period of some uncertainty as 

courts begin to interpret it. And if the IRS loses a few cases because it has violated the 

TBOR, the agency would realize immediately that it has to modify its procedures to 

ensure the violations do not continue. 16 In other words, it would promote accountability. 

Ultimately, I believe a clear statement that taxpayers have the ten fundamental TBOR 

rights would provide a stronger foundation for effective tax administration, and I am 

confident the courts would interpret those rights in a manner that is fair and reasonable. 

To assist them, the tax-writing committees could provide guidance in the accompanying 

committee reports. 

Accordingly, I recommend that Congress: 

• Enact the Taxpayer Bill of Rights as a freestanding provision in the Internal 

Revenue Code. 

• In addition, or in lieu of the above recommendation if Congress decides not to go 

that far, direct the IRS to incorporate the foundational role of the TBOR into its 

mission statement and structure its programs around the core principle of respect 

for taxpayer rights. 

Ill. To Become an Effective 21'

1 Century Tax Administration, the IRS Must 

Place Greater Emphasis on Taxpayer Service. 

As noted above, one of the rights included in the Taxpayer Bill of Rights is ' The Right to 

Quality Service.'

17 This right warrants additional discussion because it is central to 

taxpayers' experiences in dealing with the IRS. 

I note at the outset that I believe IRS compliance activities, including audits and other 

authorized compliance measures, are central to effective tax administration. In my 

view, there is no conflict whatsoever between providing high quality taxpayer service 

and taking steps to ensure tax compliance, particularly on the part of persons actively 

" It is also worth noting that the percentage or disputed cases that encs up in the U.S. Tax Court is low. 

In FY 2016, rewer than two percent of incividual taxpayers who received a statutory notice or defiCiency 

or a Collection Due Process notice filed a petition in the Tax Court. IRS. Compliance Data Warehouse. 

IRS Notice Delivery System. 

17 The IRS describes the "Right to Quality Service" as follows: "Taxpayers have the right to receive 

prompt, courteous. and professional assistance in their dealings with the IRS, to be spoken to in a way 

they can easily understand, to receive clear and easily understandable communications rrom the IRS, 

and to have a way to rile complaints about inadequate service.• For additional detail, see 

https:lltaxoayeradvocate.lrs.govltaxpayer-rightslright-2. 
16 


Insert 33425A.012

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seeking to evade tax. It is not an "either/or• proposition. Although beyond the scope of 

my testimony today, I have made many recommendations in the past to improve IRS 

compliance programs.18 

Last year, the Taxpayer Advocate Service (TAS) and I personally embarked on an 

extraordinary endeavor to actively engage with the taxpayers we serve. As announced 

in my 2015 Annual Report to Congress, in which we analyzed the IRS's "Future State" 

vision, I traveled the country and held 12 Public Forums on Taxpayer Needs and 

Preferences.

19 Together with Members of Congress, including Congressmen Roskam, 

Serrano, Meadows, Renacci, Becerra, and Doggett and Senators Grassley and Cardin, 

I heard directly from taxpayers and their representatives about the challenges they face 

in complying with the tax laws and dealing with the IRS.20 TAS also held "Future State" 

focus groups of tax return preparers and practitioners at the IRS Tax Forums.

21 And we 

engaged every TAS office in meetings about the "Future State" because TAS typically 

assists between 200,000 and 250,000 taxpayers a year in resolving theirJ roblems with 

the IRS, so our employees see first-hand the challenges taxpayers face. 

We also conducted a nationwide survey of U.S. taxpayers to hear directly what they 

need in the way of taxpayer service. 23 Finally, my immediate staff identified significant 

research on topics that have relevance for tax administration, including approaches to 

voluntary compliance, worldwide taxpayer service, alternative dispute resolution, 

taxpayer rights, fraud detection, online accounts, and the impact of geographic 

18 See, e.g., National Taxpayer Advocate 2011 Annual Report to Congress, voL 2. at 63-90 (An Analysis 

of the IRS Examination Strategy: Suggestions to Maximize Compliance, Improve Credibility, and Respect 

Taxpayer Rights); National Taxpayer Advocate 2010 Annual Report to Congress, voL 2. at 39-70 (An 

Analysis of the IRS Collection Strategy: Suggestions to Increase Revenue, Improve Taxpayer Service, 

and Further the IRS Mission). 

19 See National Taxpayer Advocate 2015 Annual Report to Congress xv. National Taxpayer Advocate 

Public Forums were held in the following locations: washington, DC (Feb. 23. 2016); Glen Ellyn, IL 

(Mar. 9, 2016 with Congressman Roskam); Bronx, NY (Mar. 18, 2016 with Congressman Serrano); 

Hendersonville, NC (Apr. 4, 2016 with Congressman Meadows); Harrisburg, PA (Apr. 8, 2016); Red 

Oak, lA (May 5, 2016 with Senator Grassley); Baltimore, MD (May 13, 2016 with Senator Cardin); 

Washington, DC (May 17, 2016); Parma, OH (Aug. 16, 2016with Congressman Renacci); Portland, OR 

(Aug. 18, 2016); Los Angeles, CA (Aug. 22, 2016 with Congressman Becerra); and San Antonio, TX 

(Aug. 30, 2016 with Congressman Doggett). 

20 For information about and full transcripts from the National Taxpayer Advocate Public Forums, see 

https://taxoaveradvocate.irs.qovlpublic-forums. 

Zl TAS Communications and Liaison, 20161RS Nationwide Tax Forums TAS Focus Group Report: 

Preparers' Thoughts About IRS's Proposed Future State (Oct. 2016), 

https://taxpaveradvocate.irs.aoviMediaiDefauiUDocumentsiResearchStudies/2016 T axForum FutureS tat 

e FocusGroup Report.pdf. 

22 For the results of the discussions with TAS employees, see https://taxpayeradvocate.irs.gov/publicforums. 

23 See National Taxpayer Advocate 2016 Annual Report to Congress, voL 2, at 1-30 (Research Study: 

Taxpayers' Varying Abilities and Attitudes Toward IRS Taxpayer Service: The Effect of IRS Service 

Delivery Choices on Different Demographic Groups). 
17 


Insert 33425A.013

-9-

presence and focus. We expanded our searches beyond the tax literature to 

psychology, behavioral economics, organizational theory, network theory, marketing, 

and other disciplines. These literature reviews are published in volume 3 of the National 

Taxpayer Advocate's 2016 Annual Report to Congress. 

Last year's "learning tour" culminated in a Special Focus section of my most recent 

Annual Report to Congress, in which I set forth my observations and recommendations 

to help the IRS become a taxpayer-centric 21•

1 century tax administration.24 I am 

submitting the Special Focus section as Exhibit A to this statement. It identified the 

following areas of tax administration that require particular attention to meet the needs 

of U.S. taxpayers: 

• IRS Budget and Oversight To fairly, effectively, and efficiently administer the tax 

system, the IRS must receive increased funding, but such funding should be tied 

to additional congressional oversight of IRS strategic and operational plans. 

• IRS Culture: To create an environment that encourages taxpayer trust and 

confidence, the IRS must change its culture from one that is enforcementoriented to one that is service-oriented. 

• IRS Mission Statement: To ensure the IRS recruits, hires, and trains employees 

with the appropriate skill sets, the IRS must revise its mission statement to 

explicitly acknowledge the IRS's dual mission of collecting revenue and 

disbursing benefits, as well as the foundational role of the Taxpayer Bill of Rights. 

• Understanding Taxpayer Needs and Preferences: To ensure that the IRS 

designs its Current and Future State initiatives based on actual taxpayer needs 

and preferences, the IRS must actively and directly engage with the taxpayer 

populations it serves as well as undertake a robust research agenda that furthers 

an understanding of taxpayer compliance. 

• Grossly Outdated Technology and Infrastructure: To enable the IRS to meet the 

major technology improvements required for a 21•

1 century tax administration, 

even as it fulfills current operational technology demands, the IRS must articulate 

a clear strategy that will reassure Congress and taxpayers the funding will be 

well-spent. 

• Office of the Taxpayer Advocate: To protect taxpayer rights and ensure a fair 

and just tax system, Congress should take steps to strengthen the Taxpayer 

Advocate Service. 

,. National Taxpayer Advocate 2016 Annual Report to Congress 1-41 (Special Focus: IRS Future State: 

The National Taxpayer Advocate's Vision for a Taxpayer-Centric 21 Century Tax Administration), 

https://taxpayeradvocate.irs.goviMedia/OefauiUDocumentsl2016· 

ARC/ARC1!? votume1 spe<;iaiFocus,pdf, 
18 


Insert 33425A.014

- 10-

One important takeaway that emerged from the Public Forms is the strong preference 

expressed by many taxpayers and practitioners for the opportunity to speak with an IRS 

employee directly and for the opportunity to meet with an IRS employee face-to-face for 

certain kinds of interactions. 

Yet these preferences run directly counter to the IRS's continuing efforts to automate 

more and more of its activities and to make personal interaction less accessible. Part of 

this trend is attributable to funding limitations in recent years, but much of it began 

before the funding reductions. In addition, the IRS's priorities make it appear that 

contrary to taking a "Service First" approach toward tax administration, it often appears 

to follow an "Enforcement First" approach. 

To create an environment that encourages taxpayer trust and confidence, the IRS must 

change its culture from one that is enforcement-oriented to one that is service-oriented. 

Of the IRS's current appropriated budget of $11 .2 billion, 43 percent is allocated to 

enforcement, while only four percent is allocated to taxpayer outreach and education 

activities.25 In 2014, the IRS ceased all tax return preparation in its Taxpayer 

Assistance Centers, sharply curtailed the scope of tax-law questions it would answer 

during the filing season on its telephone lines and in its TACs, and stopped answering 

any tax-law questions at all after April 15. 

The TACs, which were previously known as "walk-in sites," moved to an "appointmentonly" system this year. I previously recommended the IRS offer appointments by 

request as an option. However, the IRS's new policy against accepting walk-in 

taxpayers has led to considerable taxpayer frustration and a failure to meet taxpayer 

needs. Many- if not most- taxpayers have no way of knowing the IRS is no longer 

accepting walk-ins, so some taxpayers travel considerable distances only to be sent 

home. The IRS cites customer satisfaction surveys to suggest taxpayers are pleased 

with the appointment-only approach. But these surveys are misleading because they 

are only administered to taxpayers who have been served. They do not reflect the 

opinions of taxpayers who are turned away. The IRS has reduced the number of TACs 

from 401 to 376 since 2011.26 In addition, 22 TACs have no staff, while 95 have only 

25 Consolidated Appropriations Act, 2016, Pub. L. No. 114-113,129 Stat. 2242 (2015); U.S. Department 

of the Treasury, lntemal Revenue Service FY 2017 Budget-in-Brief 1, 

https:/lwww.irs.gov/pubfnewsroom/IRS%20FY%2020 17%20BIB.Qdf (showing that the Taxpayer Services 

appropriation (showing that only about $630 million of the Taxpayer Services account is allocated to "Prefiling Taxpayer Assistance and Education"). The IRS includes about $173 million in Taxpayer Advocate 

Case Processing, which generally does not constitute pre-filing taxpayer assistance or education, in that 

$630 million total. After backing out Taxpayer Advocate Case Processing, the Pre-filing Taxpayer 

Assistance and Education budget is about $457 million out of total IRS appropriations of about $11 .235 

billion, or four percent. Thirty-three percent of the IRS budget is allocated to the Operations Support 

account, which is used to support program activities. and three percent is allocated for Business Systems 

MQdernization. 

26 1n 2011 , the IRS operated 401 TACs. IRS response to TAS information request (Dec. 23, 2014). As of 

December 31, 2016, the IRS operated 376 TACs, a reduction of six percent. IRS response to TAS fact 

check (Dec. 20, 2016). 
19 


Insert 33425A.015

- 11 -

one employee, 27 and the IRS is considering closing a significant number of additional 

TACs through FY 2018. 

Twelve states have no Appeals Officers stationed within their boundaries,28 and 14 

states have no IRS liaisons to Small Business and Self-Employed taxpayers. 29 In fact, 

according to IRS data, the agency dedicates only 98 employees to conduct outreach 

and education to the roughly 62 million Small Business and Self-Employed taxpayers 

(i.e., taxpayers who are self-employed or own small businesses), and only 376 

employees to conduct outreach and education to the nearly 125 million Wage and 

Investment taxpayers (i.e., taxpayers who are classified as · employees"). Meanwhile, 

the IRS has over 3,000 revenue officers (who conduct field collection activities) and 

over 8,800 revenue agents (who conduct field audit activities). 

30 

Figure 1: Locations with Specified Employees in the Last Pay Period of the Fiscal Year 

1.058 958 881 795 739 

4.035 3.703 3.441 3.191 3.072 

11,258 10,502 9,776 9,090 8.871 

123 119 110 105 98 

475 444 405 386 365 

401 398 382 378 376 

1,515 1,484 1,520 1,423 1,267 

Despite this imbalance, the IRS budget request for FY 2017 sought an increase of 7.2 

percent in enforcement funding, as compared with an increase of just 3.1 percent in 

taxpayer services funding. 

31 This proposal to increase enforcement funding by more 

than twice the rate of taxpayer services funding was made against a backdrop in which 

v IRS response to TAS fact check (Dec. 20, 2016). 

211 The 12 states that lack a permanent Appeals Officer are Alaska, Arkansas, Delaware, Idaho, Kansas, 

Montana, North Dakota, New Mexico, Rhode Island, South Dakota, Vermont, and Wyoming. There is 

also no Appeals Office in the territory of Puerto Rico. IRS Office of Appeals response to TAS information 

request (June 6, 2016). 

29 The 14 states are Alaska, Delaware, Hawaii, Kentucky, Mississippi, Montana, North Dakota, Nebraska, 

New Hampshire, South Dakota, Vermont. West Virginia, Wisconsin, and Wyoming. There is also no 

liaison in the District of Columbia. IRS response to TAS fact check (Dec. 15, 2016): IRS Human 

Resources Reporting Center, RepOit of Small Business/Self-Employed (SBISE) Job Series 0526, 

StakehOlder Liaison Field Employees as ofthe week ending October 1, 2016 (Dec. 1, 2016). 

3C IRS response to TAS fact check (Dec. 16, 2016). 

·I RS FY 2017 Budget-in-Brief, at 1, https:llwww.irs.gov/publnewsroomi iRS%20FY%202017%20BIB.Qdf. 
20 


Insert 33425A.016

- 12 -

the agency has been unable to meet basic taxpayer needs. Among calls routed to its 

telephone assistors, the IRS was able to answer only 38 percent in FY 2015 and 53 

percent in FY 2016, and taxpayers who managed to get through to the IRS were keft 

on hold for an average of 30 minutes and 18 minutes, respectively, in those years.

3 

During the recently concluded 2017 filing season, although the IRS achieved a much 

higher level of service (LOS) on general assistor calls, it was only able to answer 40 

percent of about 2.7 million calls received on its Installment AgreemenVBalance Due 

line33 That is down 47 percent from the same period last year. The hold time for 

taxpayers who actually got through on the line was up even more significantly- from 11 

minutes last year to 4 7 minutes this year. 

34 To be clear: The 2. 7 million calls to this line 

during the filing season generally came from taxpayers who owe money to the IRS and 

are trying to make payment arrangements- precisely the sorts of calls most private 

businesses are eager to receive and pick up quickly. Yet the IRS did not answer 60 

percent of these calls, and it made the other 40 percent of callers wait 47 minutes to get 

through. 

There is no doubt that funding constraints have contributed to reduced service levels, 

but the IRS in a variety of ways signals to its employees- and taxpayers- that it 

disproportionately values enforcement. For example, the IRS every year posts annual 

"Enforcement and Service Results" on its website.35 This generally consists of about 

seven pages of enforcement data (including audit rates for individuals and business 

entities, enforcement dollars assessed, enforcement dollars collected, liens filed, levies 

issued, and criminal indictments and convictions), with a single page of taxpayer service 

data tacked on at the end. There is a lot of truth to the well-known adage, "you get what 

you measure." The fact that the word "Enforcement" comes first and is much more 

heavily emphasized makes a statement to the public - and to the IRS's own 

employees- about agency priorities. 

Congress has previously expressed concern about the IRS's focus on enforcement at 

the expense of service. In RRA 98, Congress directed the IRS to "restate its mission to 

place a greater emphasis on serving the public and meeting taxpayers' needs."36 In 

response, the IRS adopted the following mission statement: "Provide America's 

taxpayers top quality service by helping them understand and meet their tax 

32 IRS. Joint Operations Center, Snapshot Reports: Enterprise Snapshot (Week ending Sept. 30. 2016) 

(showing both FY 2015 and FY 2016 toll-free telephone performance statistics). 

$3 See IRS, Joint Operations Center, Snapshot Reports: Product Une Detail: Installment 

Agreement/Balance Due (week ending April 22, 2017). 

34 ld. 

35 1RS. Fiscal Year 2016 Enforcement and SeNice Results, 

https:l/www.irs.gov/PUP/newsroomlfy 2016 enforcement and service results.pdf. 

36 IRS Restructuring and Reform Act of 1998, Pub. L. No. 105-206, Title I,§ 1002, 112 Stat. 685, 690 

(1998). 
21 


Insert 33425A.017

- 13 -

responsibilities and by applying the tax law with integrity and fairness to all."37 

(Emphasis added.) In 2009 - with no public discussion or notice to Congress-the IRS 

quietly changed its mission statement to read: "Provide America's taxpayers top quality 

service by helping them understand and meet their tax responsibilities and enforce the 

tax law with integrity and fairness to a11."38 (Emphasis added.) This shift in tone and 

emphasis- from applying the law to enforcing the law - suggests the IRS leadership 

disagreed with the Congressional directive and decided to place greater emphasis on 

"enforcement" in its mission statement.39 

As I stated above, it should be emphasized that service and enforcement should not be 

treated as an "either/or" proposition. The IRS, like any tax administrator, should have 

one overriding goal - to increase tax compliance, and particularly voluntary tax 

compliance. That means, for example, that part of every compliance touch should 

involve talking with the taxpayer and making sure the taxpayer understands what he or 

she did wrong so he or she is less likely to do it again. Indeed, if the IRS engages with 

taxpayers in this way, it might even learn where it is wrong itself. Regardless, there is 

substantial research and documentary evidence that show a service-oriented approach 

toward tax administration is effective and efficient, and maximizes long-term voluntary 

compliance. Moreover, the TBOR provides U.S. taxpa~ers with, among other things, 

the right to challenge the IRS's position and be heard. The last part of that right is 

critical. It is not enough simply for taxpayers to be able to object; the IRS must listen. 

This right is fundamental to procedural due process. 

All this is not to say that IRS employees don't care about taxpayer service, nor am I 

saying the IRS is "just" focused on enforcement. But I do believe that IRS employees 

and the taxpaying public often see things quite differently. Often, the IRS doesn't 

clearly see how it is presenting itself to the public. For example, as part of the process 

of developing the IRS's "Future State• vision, each of the four IRS Business Operating 

Divisions (or BODs) began by developing its own Concept of Operations (CONOPS) 

37 tRM 1.1.1.1 (Mar. 1, 2006). 

38 tRM 1.1.1.2 (June 2. 2015). 

30 I have also recommended a seoond change to the IRS mission statement. The IRS as slructured today 

is not just a revenue collection agency. It is also a benefits administrator. Congress has given the IRS 

responsibility for disbursing funds through refundable tax credits like the Eamed Income Tax Credit 

(EITC) and the Additional Child Tax Credit, through non-refundable benefits like the child tax credit and 

child and dependent care credit, through a host of other permanent provisions in the tax code, and 

through one-time or limited-time tax benefits like Economic stimulus Payments and the First-Time 

Homebuyer Cred~. Although many of these benefits are disbursed to different types of taxpayers (both 

individual and business), there is a lot of attention focused on those paid out to low income taxpayers. I 

discuss the issue of improper payments later in this statement, but I note here that for the IRS lo fulfill ~s 

role of benefits administrator properly, it needs to recognize it is dealing with different taxpayer 

populations. and doing so requires different skill sets and different employee training. Because the 

mission statement drives strategic plans and organizational goals, I have recommended that the IRS 

mission statement be modified to recognize the IRS's dual roles as revenue collector and benefits 

administrator. 

•• IRC § 7803(a)(3). 
22 


Insert 33425A.018

- 14-

and an accompanying "taxpayer vignette" to illustrate how its vision of the "Future State" 

will work. Notably, each BOD's vignette shows the IRS contacting a taxpayer to 

conduct an audit or otherwise challenge a taxpayer's return, and in every case, the 

vignette shows the taxpayer ultimately conceding the IRS is correct and consenting to 

the IRS's proposed adjustment. At best, these vignettes reveal a lack of sensitivity as to 

how external stakeholders (such as taxpayers) will perceive them. At worst, they 

suggest to the taxpaying public that the IRS believes it is always right and the taxpayer 

is always wrong. 4 

Accordingly, I recommend that the IRS: 

• Revise its mission statement to re-emphasize a non-coercive approach to tax 

administration and explicitly affirm the role of the Taxpayer Bill of Rights as the 

guiding principle for tax administration. 

IV. The IRS Has Not Implemented, Has Narrowly Interpreted, or Has Not 

Effectively Implemented Many Taxpayer Protections Enacted by Congress. 

As noted above, Congress passed several laws between 1988 and 1998 establishing 

taxpayer protections. TAS has analyzed actions the IRS took in response to these 

directives, particularly those enacted as part of RRA 98.

42 TAS found that the IRS did 

not implement, narrowly interpreted, or did not effectively implement many of them, as 

summarized in the following list of select provisions. 

In some cases, the IRS may have made a reasonable policy call in deciding not to 

implement a directive or to interpret it as it did. But particularly if Congress decides to 

implement far-reaching IRS reforms, it is important to understand how the IRS has 

implemented similar legislation in the past. Although there is significant overlap among 

the categories, the IRS's progress can be categorized, as follows: 

Directives Not Implemented 

• Provide taxpayers with reasonable advanced notice of contact with third parties 

and periodic reports. RRA 98 § 3417 (codified at IRC § 7602(c)) generally 

requires the IRS to provide "reasonable notice in advance to the taxpayer" before 

contacting a third party with respect to the determination or collection of a tax 

41 "I find it funny that in both scenarios, there's more taxes. I think that reflects the idea that this model is 

abOut the IRS finding new ways to use technology for their benefit, and not for taxpayer purposes.• 

Statement of Audience Member, National Taxpayer Advocate Public Forum 39 (Aug. 18, 2016), 

https:lltaxpayeradvocate.irs.gov/Media/DefauiVDocuments/PublicForums/PortlandOR Transcript 081816 

~- ''I'm a CPA, and I've been practicing for 35 years ... [T)he examples here- both end up resolving in 

more tax being owed- is like, 'We were right. you were wrong, pay us the money.'" ld. at 55-56. 

42 RRA 98, Pub. L. No. 105-206, 112 Stat. 685 (1998). In this section, I also discuss one item from the 

Tax Reform Act of 1976, Pub. L No. 94-455. § 1206(b), 90 Stat. 1520, 1703 (1976). 
23 


Insert 33425A.019

-15-

liability. It also requires the IRS to "periodically provide to a taxpayer a record of 

persons [third parties) contacted." According to the preamble of a regulation 

promulgated under IRC § 7602(c), contrary to the statutory directive, the IRS will 

not •periodically" provide the taxpayer a list of its third party contacts. 

43 In 

addition, the IRS believes it satisfies the reasonable notice requirement by 

including boilerplate language in a widely-distributed publication, Publication 1, 

Your Rights as a Taxpayer, which it uses as an all-purpose stuffer.

44 

Publication 1 says, •we sometimes talk with other persons if we need information 

that you have been unable to provide, or to verify information .. .. "

45 The IRS does 

not use a tailored notice that is designed to be effective in obtaining information 

that would obviate the need to contact third parties. If the notice were designed 

to be effective, it would inform the taxpayer of the specific information the IRS 

would seek from third parties in his or her case if not provided by the taxpayer 

first. 

• Provide Congress with complexity reports. RRA 98 § 4022(a) requires the IRS 

Commissioner to report to Congress each year on the sources of complexity in 

tax administration and on ways to reduce it. The IRS produced two complexity 

reports, which highlighted issues that Congress ultimately addressed.46 

However, the IRS has not issued a complexity report since 2002.

47 

Directives Narrowly Interpreted 

• Have employees obtain supervisory approval of penalties. RRA 98 § 3306(a) 

(codified at IRC § 6751 (b)) generally requires that no accuracy-related penalty 

can be assessed "unless the initial determination of such assessment is 

personally approved (in writing) by the immediate supervisor..: except for 

penalties •automatically calculated through electronic means." The IRS believes 

the exception for •automatically calculated" penalties is so broad that it covers 

the negligence penalty when applied by a computer, even though a negligence 

determination requires more than a mere calculation.

48 In cases where 

"' T.D. 9028, 67 Fed. Reg. 77,419, 77,420 (Dec. 18, 2002) (stating the Treasury Department has 

"determined that the issuance of periOdic reports may result in harm to third parties and, accordingly, has 

determined that periOdic reports should not be issued."). 

"' See National Taxpayer Advocate 2015 Annual Report to Congress 123 (Most Serious Problem: IRS 

Third Party Contact Procedures Do Not Follow the Law ana May Unnecessarily Damage Taxpayers' 

Businesses ana Repulations). 

<$IRS Pub. 1, at 2 (Dec. 2014). 

See National Taxpayer Advocate 2014 Annual Report to Congress 102 (Most Serious Problem: The 

IRS Does Not Report on Tax Complexity as Required by Law). For the two complexity reports, see IRS 

Pub. 4105. Report from the Commissioner of the Internal Revenue Service on Tax Law Complexity 

(June 5. 2000 and Sept. 20, 2002). 

" See National Taxpayer Advocate 2014 Annual Report to Congress 102. 

" See National Taxpayer Advocate 2007 Annual Report to Congress 275-286 (Most Serious Problem: 

Th& Accuracy-R&IatecJ P&natty in the Automated Unelerreporter Units); National Taxpayer Advocate 2014 
24 


Insert 33425A.020

- 16 -

supervisory approval is required, the IRS has argued that the approval can be 

obtained long after an employee first proposes the assessment, fotentially even 

after the taxpayer petitions the Tax Court to review the penalty. 4 

• Have employees obtain supervisory approval of Notice of Federal Tax Lien 

(NFTL) filings. RRA 98 § 3421 requires the IRS to adopt procedures requiring 

that an employee's determination to file an NFTL be approved by a supervisor 

"where appropriate," and under which appropriate disciplinary action would be 

taken when approval is not obtained. The IRS has rarely deemed it ·appropriate" 

to require such approval because it has made virtually no adjustments to its 

procedures along these lines. 5° Instead, the IRS has required employees to 

obtain managerial approval if they determine not to file an NFTL (or defer filing it) 

in many circumstances. 5

1 Further, the IRS never established appropriate 

disciplinary actions for employees who fail to secure a supervisor's approval to 

file an NFTL when such approval is required (i.e., Revenue Officers below the 

level of GS-9).

52 

• Assign one IRS employee to handle a taxpayer's matter until it is closed. 

RRA 98 § 3705(b) requires the IRS "to the extent practicable and if advantageous to the taxpayer" to assign one IRS employee to handle a taxpayer's matter 

until it is resolved. However, the Correspondence Examination program3 through 

which about three-quarters of individual taxpayer audits are conducted,

5 has no 

way to determine when a taxpayer should have one employee assigned to 

Annual Report to Congress 404-1 0 (Legislative Recommendation: Amend IRC § 6751(b) to Require IRS 

Employees to Seek Managerial Approval Before Assessing the Accuracy Related Penalty Attributable to 

Negligence under IRC § 6662(b)(1)). See also Service Center Advice 200211040 (Jan. 30, 2002) 

(explaining how attorneys at the IRS Office of Chief Counsel reached this conClusion). 

49 See Graev v. Comm'r, 147 T.C. No. 16 (2016). The Second Circuit has recenUy rejected the IRS's 

narrow view. See Chai v. Comm'r, 851 F.3d 190 (2d Cir. 2017) (holding tRC § 6751(b)(1) requires written 

approval of an IRS employee's initial penalty determination before the IRS issues a notice of deficiency 

(or files an answer) asserting penalties). In light of the holding in Chai, the government filed a motion to 

vacate the decision in Graev, which the Tax Court granted. 

50 See National Taxpayer Advocate 2014 Annual Report to Congress 225, 226 (Most Serious Problem: 

The IRS's Administrative Approval Process for Notices of Federal Tax LJen Circumvents Key Taxpayer 

Protections in RRA 98); National Taxpayer Advocate 2014 Annual Report to Congress 396, 400 

(Legislative Recommendation: Require Managerial Approval Prior to Filing a Notice of Federal Tax Lien in 

Certain Situations). 

" See National TaxPayer Advocate 2014 Annual Report to Congress 396, 400 . 

., /d. 

53 1n FY 2016, the IRS conducted 1,034,955 individual audits. Of that total, 791,233 were conducted by 

correspondence (76 percent) and 243,722 were field audits (24 percent). IRS, Fiscal Year 2016 

Enforcement and Service Results, 

https:IJwww.irs.govtPUPinewsroomlfy 2016 enforcement and service results.Qdf. 
25 


Insert 33425A.021

• 17. 

handle the exam. 54 For example, it does not ask taxpayers if they would like one 

employee to handle their cases. Rather, IRS systems automatically route a 

taxpayer's call to the next available examiner - who may not be the one 

currently working on the case. 

55 This approach is highly inefficient, resulting in 

multiple callbacks and downstream re-work, and it undermines employee 

accountability for IRS audits. 

• Allow taxpayers to speak to a live person who can help. RRA 98 § 3705(d} 

requires the IRS to make a live person available on helplines in "appropriate 

circumstances," and for that person to direct the taxpayer to an employee who 

can help ~ The IRS has repeatedly declined to answer TAS's inquiries about 

whether it considers the phone lines for local offices (i.e., the lines required by 

RRA 98 § 3709 to be listed in the phone book)

57 to be "helplines" for the purpose 

of this requirement. 58 A live person does not answer these lines, and callers 

cannot leave a messages 9 

Directives Not Effectively Implemented 

• Explain the reasons tor disallowing taxpayers' refund claims. RRA 98 § 3505(a) 

(currently codified at IRC § 6402(1)) requires the IRS to "provide taxpayers with 

an explanation· of the reason for disallowing their refund claims. TAS pulled a 

sample of 100 Letters 105C, Statutory Notice of Claim Disallowance, and 

determined that 92 of them did not provide an adequate explanation.60 

54 see National Taxpayer Advocate 2014 Annual Report to Congress 134. (Most Serious Problem: The 

IRS Has Overlooked the Congressional Mandate to Assign a Specific Employee to Correspondence 

Examination Cases, Thereby Harming Taxpayers). 

"' Government Accountability Office (GAO), GA0-14-479, IRS Correspondence Audits: Better 

Management Could Improve Tax Compliance and Reduce Taxpayer Burden 9 (June 2014), 

http:J/www.gao.gov/assetst670/663840.!)(!f. 

,. RRA 98 § 3705(d) requires the IRS to ·provide, in appropriate circumstances, on telephone helplines of 

the Internal Revenue Service an option for any taxpayer to talk to an Internal Revenue Service employee 

during normal business hOurs. The person shall direct phone questions of the taxpayer to other Internal 

Revenue Service personnel who can provide assistance to the taxpayer." Pub. L. No. 105-206, 

§ 3705(d). 112 Stat. 685, 777 (1998). 

07 RRA 98 § 3709 requires that the IRS "provide that the local telephone numbers and addresses of 

Internal Revenue Service offices located In any particular area be listed in a telephone book for that 

area." Pub. L. No. 105-206, § 3709, 112 Stat. 685, 779 (1998). 

08 see National Taxpayer Advocate 2014 Annual Report to Congress 123 (Most Serious Problem: 

Taxpayers Are Unable to Navigate the IRS and Reach the Right Person to Resolve Their Tax Issues). 

See also National Ta~payer Advocate 2008 Annual Report to Congress 114 (Most Serious Problem: 

Navigating the IRS). 

"' see National Taxpayer Advocate 2014 Annual Report to Congress 123 (Most Serious Problem: 

Taxpayers Are Unable to Navigate the IRS and Reach the Right Person to Resolve Their Tax Issues). 

60 see National Taxpayer Advocate 2014 Annual Report to Congress 172, 177 (Most Serious Problem: 

Refund Disallowance Notices Do Not Provide Adequate Explanations). 
26 


Insert 33425A.022

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• Explain alleged math errors on taxpayers' retums. In 1976, when Congress 

enacted legislation granting the IRS's request to expand its authority to 

summarily assess not just math errors, but also clerical errors (e.g., inconsistent 

entries), it included a key taxpayer protection. 5

1 The legislation (currently 

codified at IRC § 6213(b)(1)) requires that each math error notice "set forth the 

error alleged and an explanation thereof. • Legislative history provided examples 

of the type of explanations it expected the IRS to provide, such as: "You entered 

six dependents on line x but listed a total of seven dependents on line J· We are 

using six. If there is one more, please provide corrected information." 

Although four decades have passed since Congress required the IRS to provide 

an explanation, the IRS's math error notices are still not as clear as the examples 

Congress provided. A typical math error notice might say: 

We refigured your tax on page 2 of your tax retum using the tax 

table, tax rate schedules, or capital gains tax computations. 

Because of an error on another part of your tax retum we were 

unable to compute your tax on Form 8615, Tax for Certain Children 

Who Have Investment lncome.63 

Without a clear explanation of the alleged error, it is difficult for taxpayers to 

determine what, specifically, the IRS is proposing to change on their returns and 

whether they should accept the adjustment or request a correction. 

• Include employee contact information on manually generated correspondence. 

RRA 98 § 3705(a) requires the IRS to include an employee's name, telephone 

number, and unique employee identifying number in any "manually generated 

correspondence." However, employees frequently send letters that do not 

include their contact information, even when they have worked the case or 

customized the letter for the specific taxpayer. 54 When the correspondence does 

6' Pub. L. No. 94-455, § 1200(b), 90 Stat. 1520, 1703 (1976). 

112 See H.R. Rep. No. 94-658, at 291 (1976). See also Joint Committee on Taxation, JCS-33-76, 

at 371-374, Assessments in Case of Mathematical or Clerical Errors (sec. 1206 ofthe Act and sec. 6213 

of the Code) (Dec. 29, 1976). 

63 1RM Exhibit 3.12.3-2 (Jan. 1, 2017) (TPNC 220). See also National Taxpayer Advocate 2014 Annual 

Report to Congress 163, 167 (Most Serious Problem: The IRS Does Not Clearly Explain Math Error 

Adjustments, Making It Difficult for Taxpayers to Understand and Exercise Their Rights). For additional 

concerns about the IRS's proposal to expand its math error authority, see National Taxpayer Advocate 

2015 Annual Report to Congress 329 (legislative Recommendation: Authorize the IRS to Summarily 

Assess Math and "Correctable" Errors Only in Appropriate Circumstances). 

"' See National Taxpayer Advocate 2014 Annual Report to Congress 145 (Most Serious Problem: The 

IRS's Failure to Include Employee Contact Information on Audit Notices Impedes Case Resolution and 

Erodes Employee Accountability). See also National Taxpayer Advocate 2014 Annual Report to 

Congress (l egislative Recommendation: Codify§ 3705(a)(1) of RRA 98, Define "Manually Generated, • 

and Require Contact Information on Certain Notices in All Cases). 
27 


Insert 33425A.023

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include a name, it is often so generic as to be meaningless (e.g., Tax Examiner), 

or is the name of the director of a unit who would not be knowledgeable about 

the specific case.

65 Similarly, the phone number often included on the 

correspondence is the IRS's main toll-free number, rather than the direct number 

of the employee working the case.

66 The failure to include the contact 

information of the person responsible for working the case undermines 

accountability and de-humanizes tax administration. 

• Include Local Taxpayer Advocate (LTA) contact information on statutory notices 

of deficiency. RRA 98 § 1102(b) (codified at IRC § 6212(a)) requires that 

statutory notices of deficiency include notice of "the taxpayer's right to contact a local office of the taxpayer advocate and the location and phone number of the 

appropriate office." (Emphasis added.) The conference report to RRA 98 also 

contemplated the IRS would "publish the taxpayer's right to contact the local 

Taxpayer Advocate on the statutory notice of deficiency."67 However, the IRS 

buries this information in a stutter notice that lists contact information for all L TA 

offices, rather than just the appropriate one.

66 According to focus group 

participants, stutters usually end up in the trash if they are even taken out of the 

envelope.

69 The IRS spends about $47,000 to print these stutters each year.70 

Thus, listing the "appropriate office" on the face of the letter would save printing 

costs and, more importantly, help taxpayers contact TAS for assistance in 

avoiding unnecessary litigation. 

Use a balancing test in Collection Due Process (COP) hearings to ensure 

collection is no more intrusive than necessary. When a taxpayer appeals an IRS 

collection action by timely requesting a COP hearing, RRA 98 § 3401 (codified in 

part at IRC § 6330(c){3)) requires the IRS's Appeals function to consider 

"whether any proposed collection action balances the need for the efficient 

collection of taxes with the legitimate concern of the person that any collection 

66 See National Taxpayer AdiiOCate 2014 Annual Report to Congress 145 (Most Serious Problem: The 

IRS's Failure to Include Employee Contact Information on Audit Notices Impedes Case Resolution and 

Erodes Employee Accountability). 

u ld. 

67 H.R. Rep. No. 105-599, at 215 (1998) (Coni. Rep.). 

68 See IRS Notice 1214, Helpful Contacts for Your "Notice of Oeficiency' (March 2017). See also National 

Taxpayer Advocate 2014 Annual Report to Congress 237 (Most Serious Problem: Statutory Notices of 

Deficiency Do Not Include Local Taxpayer Advocate Office Contact Information on the Face of the 

Notice); National Taxpayer Advocate 2014 Annual Report to CorlQress (Legislative Recommendation: 

Revise IRC § 6212 to Require the IRS to Place Taxpayer Advocate Service Contact Information on the 

Face of the Statutory No/fee of Deficiency and Include Low Income Taxpayer Clinic Information with 

Notices Impacting that Population). 

69 TAS, 2011 IRS Nationwide Tax Forums TAS Focus Group Report: Publication 1-Taxpayer Rights. 

26-27 (2011 ). 

70 TAS estimate (Oct. 14, 2016) (based on 3.5 million copies at a cost of$0.0134 each). 
28 


Insert 33425A.024

• 20. 

action be no more intrusive than necessary."

7

' If properly applied, this balancing 

test should give taxpayers confidence that the hearing is fair. A TAS review of 

applicable COP procedures and case law revealed that the IRS Office of Appeals 

lacks detailed and specific procedures for how employees should balance these 

considerations, is not properly considering the legitimate concerns of taxpayers 

regarding the intrusiveness of the proposed collection action, and is often using 

pro forma statements (without elaboration or proper analysis) that the balancing 

test has been performed.

72 Thus, Appeals gives taxpayers the impression that it 

is simply "rubber stamping" prior determinations made by collection employees or 

automated systems.73 

• IRS front-line technical experts should advise Congress about the administrability 

of pending tax legislation. RRA 98 § 4021 states the tax-writing committees in 

Congress should hear from "front-line technical experts" at the IRS with respect 

to the "administrability" of pending amendments to the tax code. When 

legislation is crafted with smooth tax administration in mind, and is informed by 

discussions with the front-line employees who may have to explain it to 

taxpayers, it is likely to be simpler, less burdensome, more taxpayer-focused, 

and easier to administer. When asked by TAS, however, the IRS could not 

identify any front-line technical expert(s) who had ever been consulted about the 

administrability of pending amendments.

74 

• Reorganize the IRS so that units seNe particular groups of taxpayers. RRA 98 

§ 1001(a) directed the IRS to establish "organizational units serving particular 

groups of taxpayers with similar needs." While the IRS's units are named after 

groups of taxpayers (e.g., the Small Business/Self-Employed Division), the IRS is 

largely organized around IRS-centric processes and functions.

75 As a result, no 

unit at the IRS can be held accountable for a particular taxpayer segment's 

overall satisfaction with the IRS or voluntary tax compliance. 

71 See a/so H.R. Rep. No. 105-599, at 263 (1998) (Cont. Rep.); S. Rep. No. 105- 174, at 68 (1998) (stating 

that •a proposed collection action should not be approved solely because the IRS shows that it has 

followed appropriate procedures."). 

12 See National Taxpayer Advocate 2014 Annual Report to Congress 185, 188 (Most Serious Problem: 

The IRS Needs Specific Procedures for Performing the Collection Due Process Balancing Test to 

Enhance Taxpayer Protections). 

n See, e.g., Budish v. Comm'r, T.C. Memo. 2014·239; Eichlerv. Comm'r, 143 T.C. 30 (2014); Isley v. 

Comm'r, 141 T.C. 349 (2013); Crosswhite v. Comm'r, T.C. Memo. 2014-179; Lofgren Trucking SeNice, 

Inc. v. United States, 508 F. Supp. 2d 734 (0. Minn. 2007). 

74 See National Taxpayer Advocate 2014 Annual Report to Congress 108 (Most Serious Problem: The 

IRS Has No Process to Ensure Front-Line Technical Experts Discuss Legislation with the Tax Writing 

Committees, as Requested by Congress). 

70 See, e.g., National Taxpayer Advocate 2016 Annual Report to Congress (Most Serious Problem: The 

iRS's Functional Structure Is Batter at Implementing Procedures than Understanding and Serving 

Specific Customer Segments, as Contemplated by RRA 98); National Taxpayer Advocate 2014 Annual 

Report to Congress 31 (Most Serious Problem: The Lack of a Cross-Functional Geographic Footprint 

Impedes the IRS's Ability to Improve Voluntary Compliance and Effectively Address Noncompliance). 
29 


Insert 33425A.025

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• Restate the IRS mission to emphasize service. RRA 98 § 1002 directed the IRS 

to •restate its mission to place a greater emphasis on serving the public and 

meeting taxpayers' needs." In 2009, as pointed out above, the IRS added the 

word •enforce" to its mission, even th ou~h enforcement had not even been part 

of its mission statement before RRA 98. 6 

• Make appeals officers regularly available in each state. RRA 98 § 3465(b) 

requires the IRS Commissioner to "ensure that an appeals officer is regularly 

available within each State." However, appeals officers are not regularly 

available in at least 12 states, and the IRS has been making it more difficult for 

taxpayers to obtain face-to-face conferences with them. 77 

V. RRA 98-Style "Joint Oversight Hearings" Would Give Congress Better 

Insight into the IRS's Strategic and Operational Plans, Promote Dialogue 

Among Congress, the IRS and Interested Stakeholders, and Help Ensure 

the Tax-Writing and Appropriations Committees Coordinate Their 

Expectations and Approaches Toward IRS Operations. 

Congress has a significant role to play in ensuring that the IRS has adequate resources 

to do its job and that it allocates those resources wisely. Appropriate oversight and 

greater transparency increase taxpayer trust in the tax agency and the tax system. As 

part of the reorganization mandated by Congress in RRA 98, Congress held joint annual 

hearings, over five years, to review the IRS strategic plan. 78 The hearing participants 

included three members (two from the majority and one from the minority) from each of 

the congressional committees with jurisdiction over the IRS- Senate Finance, 

Appropriations, and Governmental Affairs, and House Ways and Means, 

Appropriations, and Governmental Reform and Oversight. The hearings were to cover 

the following topics: 

1. IRS progress in meeting its objectives under its strategic and business plans; 

2. IRS progress in improving taxpayer service and compliance; 

76 See National Taxpayer Advocate 2016 Annual Report to Congress 15 (Special Focus: IRS Mission). 

17 See National Taxpayer Advocate 2014 Annual Report to Congress 46 (Most Serious Problem: The IRS 

Lacks a Permanent Appeals Presence in 12 States and Puerto Rico, Thereby Making It Difficult for Some 

Taxpayers to Obtain Timely and Equitable Face-to-Face Hearings with an Appeals Officer or Settlement 

Officer in Each State); National Taxpayer Advocate 2014 Annual Report to Congress 311 (Legislative 

Recommendation: Require that Appeals Have at Least One Appeals Officer and Settlement Officer 

Located and Permanently Available Within Every State, the District of Columbia, and Puerto Rico). See 

also IRM 8.6.1 (Oct. 1, 2016) (noting that a material change adopted with this IRM revision is •to reflect 

that most conferences in Appeals are conducted by telephone and to make that the default method."). 

78 Pub. L. No. 105-206, § 4001 (enacting IRC § 8021(f)) and§ 4002 (amending IRC § 8022), 112 Stat. 

685. 783-784 (1998). 
30 


Insert 33425A.026

-22-

3. IRS progress on technology modernization; and 

4. The annual filing season.79 

I recommend that Congress reinstitute these joint oversight hearings on a permanent 

basis. By doing so, Congress would provide the IRS with the opportunity to articulate, 

with specificity, its need for additional resources and its plans for applying them. By 

hearing from both the IRS and outside experts - including tax professional 

organizations, business representatives, Low Income Taxpayer Clinics, and behavioral 

scientists - Congress will better understand the challenges that both the IRS and 

taxpayers face. It can then make informed decisions about the level and general 

application of resources necessary for the IRS to provide U.S. taxpayers with a 21'

1 

century tax administration that they can trust and admire. 

In addition, joint oversight hearings require the staffs of the oversight committees to 

work together in planning the hearings and engaging in necessary follow-up actions. 

That was valuable during the five years after the passage of RRA 98, and it would be 

extremely helpful again now. I believe it is particularly important for the tax-writing and 

appropriations committees to work together to establish IRS priorities and ensure the 

agency is funded consistent with those priorities. For example, taxpayers would not be 

well served- and the IRS would be placed in an impossible position- if the tax-writing 

committees mark up legislation to require the IRS to place more emphasis on taxpayer 

service while the appropriations committees provide disproportionate funding for IRS 

enforcement activities. Deciding on agency priorities and funding them appropriately 

would better enable the IRS to comply with Congress's directives. 

Accordingly, I recommend that Congress: 

• Reinstate the joint review of the IRS strategic plans and budget provided for 

under IRC §§ 8021 (f) and 8022. 

• Require the IRS to submit a comprehensive "Future State" plan that describes in 

detail its vision for a 2151 century IRS, including an explanation of how this vision 

meets the needs and preferences of different U.S. taxpayer segments as well as 

a description of the challenges and obstacles the IRS faces in achieving this 

"Future State," including funding needs. 

79 H.R. Rep. No. 105-364, at84-85 (1997). The IRS Restructuring Commission earlier recommended 

that Congress create a joint committee on IRS administration, which would conduct joint hearings on 

similar topics. Report of the National Commission on Restructuring the Internal Revenue Service, A 

Vision for a New IRS 11 (June 25, 1997). 
31 


Insert 33425A.027

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VI. General Observations Regarding House Republicans' Blueprint Proposal 

The tax reform blueprint released in June 2016, A Better Way, includes proposals to 

reform the IRS in a manner that focuses first and foremost on improved customer 

service. 80 

The Blueprint identifies four categories of problems at the IRS: (1) poor customer 

service levels; (2) civil asset forfeiture policies that unnecessarily harm law-abiding 

citizens; (3) excessive improper payments in certain benefits programs, particularly the 

Earned Income Tax Credit (EITC); and (4) outdated IT systems. I offer some general 

observations about each: 

• Customer Service - In thinking about ways to improve customer service, I 

encourage the subcommittee to focus not merely on improving the percentage of 

calls the IRS answers, but also to think about the range of services we want the 

tax administrator to provide. In my view, the IRS should offer both competent 

personal service options and a robust and secure online account system. To cite 

one example, I believe it is a central function of a tax administration agency to 

help taxpayers understand what the law requires of them. Yet the IRS today 

answers only "basic" tax-law questions during the filing season, and it does not 

answer any tax-law questions at all during the other BY. months of the year. 

To me, this is a "poster child" example of where taxpayer service is falling short. 

Both to reduce taxpayer burden and improve compliance, the IRS should answer 

most tax-law questions through all of its service-delivery channels - in its 

Taxpayer Assistance Centers, on its toll-free lines, and by email. It is true, as 

some have noted, that the IRS should not get to the point of offering "tax 

planning advice." But it has a long, long way to go before it gets close to that 

line. Moreover, instead of centralizing its operations in a small number of 

campuses and closing TACs, the IRS should maintain a more robust presence in 

local communities. In these and other ways, the quality of customer service can 

be dramatically improved. 

• Civil Asset Forfeiture Policies - I share the concern of many Members that the 

IRS Criminal Investigation function (CI) should generally pursue only illegalsource structuring violations and should not threaten taxpayers with the 

possibility of criminal prosecution as a way to get them to agree to accept 

excessive civil penalties. I am glad the IRS has decided it generally will no 

longer pursue legal-source structuring cases. However, the practice of holding 

out the possibility of criminal prosecution to maximize leverage in the civil context 

80 House Republicans' Tax Reform Task Force, A Better Way: Our Vision for a Confident America 

(June 2016), http://abetterwav.speaker.gov. 
32 


Insert 33425A.028

- 24 -

is not limited to structuring cases. In a wide range of Offshore Voluntary 

Disclosure Program cases, taxpayers felt the penalties were excessive and 

considered "opting out; but were too frightened to do so because there was a 

risk the government could pursue criminal charges. Except in egregious cases, 

no taxpayer should be placed in a situation where he or she has to make 

decisions about how to handle an IRS audit under the threat of incarceration. 

An additional concern I expressed relates to the application of the Taxpayer Bill 

of Rights to IRS employees working in Cl. Cl has taken the position that the 

TBOR only applies to cases it investigates under the tax code (Title 26 of the 

U.S. Code) and not to cases it pursues under other titles of the U.S. Code. I 

disagree. As discussed above, the law requires the Commissioner to "ensure 

that employees of the Internal Revenue Service are familiar with and act in 

accord with taxpayer rights." Cl employees are "IRS employees," and there is no 

carve-out in the law either for Cl employees or for IRS employees pursuing cases 

under titles of the U.S. Code other than Title 26. Moreover, it is often impossible 

at the beginning of a structuring or similar investigation to know whether 

investigators ultimately will bring charges of unreported income under Title 26. 

Therefore, I encourage Congress to clarify that all IRS employees must act in 

accord with taxpayer rights in all facets of their work, except in explicitly-stated 

extraordinary circumstances. 

• Improper Payments - The EITC is a program that historically has enjoyed broad 

bipartisan support, yet the relatively high improper payments rate raises 

concerns. I offer two observations here. First, for context, my office has 

computed the total costs of running each of the federal government's major 

social benefits programs.

81 For most social benefits programs, the government 

incurs significant up-front costs to make eligibility determinations before making 

payments, but having done that, the improper payments rate is low. The EITC is 

exactly the reverse. Because the government does not require pre-payment 

eligibility verification for the EITC, up-front costs are not incurred, yet for that 

reason, the improper payments rate is relatively high. When you look at the 

combination of up-front administrative costs and improper payments, it turns out 

the overall costs of the EITC program are in the middle of the pack of social 

benefits programs. 

81 National Taxpayer Advocate 2016 Annual Report to Congress 325, 354-357 (Legislative 

Recommendation: Tax Reform: Restructure the Earned Income Tax Credit and Related Family Status 

Provisions to Improve Compliance and Minimize Taxpayer Burden). 
33 


Insert 33425A.029

-25-

Second, there are important steps Congress can take to lower the improper 

payments rate. In my 2016 Annual Report to Congress. I presented a detailed 

proposal to reform the so-called "family status" provisions in the tax code.

82 I am 

submitting this proposal as Exhibit B to this statement. Part of my proposal is 

designed to reduce the EITC improper payments rate. As structured today, a 

certain amount of EITC is paid solely based on a worker's wages, and the 

amount is then increased based on family size. In part, I recommend breaking 

the EITC into two separate components- a Worker Credit and a Family Credit. 

For reasons I detail in my report, I believe that approach would both simplify 

compliance burdens for taxpayers and substantially reduce the improper 

payments rate. I would be happy to discuss this issue in more detail today or at 

a future hearing focused specifically on reducing EITC improper payments. 

• Outdated Information Technology {IT) Systems - There is no doubt that 

outdated technology systems substantially limit the IRS's efficiency and make it 

more difficult for the agency to meet taxpayers' needs. An adequately funded, 

staffed, and skilled IT function underpins all core tax administration activities, 

including taxpayer service, prompt refund issuance, selection and assignment of 

compliance work, and protection of taxpayers and the public from refund fraud 

and identity theft. Of particular note, the IRS currently possesses the two oldest 

information s~stem databases, each nearly six decades old, in the entire federal 

government. 3 

The IRS has identified 63 separate case management systems to include in an 

•enterprise case management" (ECM) project. The age, number, and lack of 

integration across these systems cause waste and delay, and make it difficult for 

IRS employees, including TAS employees, to perform their jobs efficiently and 

provide quality service to taxpayers. This causes frustration for taxpayers and 

IRS employees alike. 

The IRS's current case management system structure requires employees to 

retrieve data from many systems manually, which requires maintaining both 

paper and electronic records. Employees transcribe or otherwise import 

information from paper and other systems into their own case management 

systems, and ship, mail, or fax an estimated hundreds of thousands, if not 

millions, of case management files and supporting documents annually within or 

between business functions for activities such as case work, quality review, and 

National Taxpayer Advocate 2016 Annual Report to Congress 325-357 (Legislative Recommendation: 

Tax Reform: Restructure the Earned Income Tax Credit and Related Family Status Provisions to Improve 

Compliance and Minimize Taxpayer Burden), 

https:l/taxpayeradvocate.irs.gov/Media/DefauiVOocumentsi2016-

ARCIARC16 Volume1 LR 02 TaxRefonm.oor. 

83 See GAO. GA0-16-468, InformatiOn Technology: Federal Agencies Need 10 Address Aging Legacy 

Systems (May 2016) (discussing aging IT systems throughOut the government and listing the IRS's 

Individual Master File (IMF) and Business Master File (BMF) as the two oldest investments or systems at 

56 years old each). 
34 


Insert 33425A.030

-26-

responses to the Office of Appeals and the Office of Chief Counsel. 

To ameliorate these problems, ECM requires a significant investment of both 

time and money to promote productivity and efficiency gains, and to improve 

taxpayer service. Indeed, success of the ECM project is critical to establishing 

online accounts that effectively serve taxpayers and their representatives. I am 

encouraged by the IRS's most recent approach to ECM, including the addition of 

new leadership and the search for the appropriate ECM platform. However, I am 

frustrated that the process has been so drawn out. To improve IRS operations, 

IT systems are a top priority and will continue to be so for the foreseeable future. 

After identifying the above-mentioned problems, the Blueprint proposes to rebuild the 

IRS by creating three major units focused on the following: (1) families and individuals; 

(2) businesses; and (3) dispute resolution through an independent "small claims court• 

that "will allow routine disputes to be resolved more quickly, so that small businesses no 

longer spend more in legal fees to resolve a dispute with the IRS than the amount of tax 

that was at stake."84 

An independent dispute resolution mechanism is central to effective tax 

administration.

85 However, I encourage you to proceed with care. In my view, the IRS 

Office of Appeals was intended to provide exactly that mechanism. Unfortunately, it is 

falling short. There is a widespread perception that the Office of Appeals is not truly 

independent. Contributing to that perception, the IRS sometimes includes Appeals' 

leadership in policy discussions regarding enforcement policies. Moreover, when the 

IRS publishes its annual Enforcement and Service Results, it breaks down 

*Enforcement Revenue Collected" into four categories: Collection, Examination, 

Appeals, and Document Matching. When the IRS itself classifies revenue raised 

through decisions made by supposedly independent Appeals Officers as "enforcement 

revenue; it sends an ominous message to taxpayers about independence. For context, 

the IRS does not classify revenue collected through decisions of the U.S. Tax Court as 

•enforcement revenue." 

For a dispute resolution function to work for taxpayers, it is also important that the 

procedures be sufficiently flexible so that unsophisticated taxpayers can use them 

without having to hire representatives. It is also important that taxpayers have the 

ability to meet with the decision-maker face-to-face. The Office of Appeals' procedures 

are not perceived as sufficiently user-friendly, and Appeals has been making it 

"' House Republicans' Tax Reform Task Force, A Better Way: Our Vision for a Confident America 

(June 2016), http://abetterway.speaker.gov. 

es The U.S. Tax Court does an admirable job of providing a dis pule resolution forum for taxpayers- both 

individuals and small businesses. Moreover, the Tax Court hOlds its trial sessions at dozens of locations 

around the country. Thus, unlike when dealing with the Office of Appeals, every taxpayer receives the 

opportunity for a face-to-face trial in a nearby city. However, there Is considerable time and expense 

invOlved when litigating cases in court. and it is critical that there be an effective administrative dispute 

resolution process to minimize the cases that require judicial involvement. 
35 


Insert 33425A.031

-27-

increasingly difficult for taxpayers to obtain face-to-face hearings - in part, as noted 

above, because the Office of Appeals no longer has any Appeals Officers in 12 states. 

The Blueprint suggests it is important for small businesses to have access to an 

independent dispute resolution function. I agree entirely but also note it is important for 

individual taxpayers to have similar access. There is much that can be done to make 

this vision a reality, but I would suggest it may not be necessary to create a new 

function. By whatever name it is called, the independent dispute resolution function will 

be fulfilling the role that the Office of Appeals is designed to fulfill today. I see little 

benefit in creating a second dispute resolution function. In my view, it would be simplest 

to assess the strengths and weaknesses of the Office of Appeals and make whatever 

changes are deemed appropriate to strengthen its independence and improve its 

accessibility. 

Lastly, and in general terms, I want to emphasize that I strongly support a "Service First• 

approach to tax administration. For the reasons I have described, I believe that 

approach is not only the right approach to take for taxpayers, but it is the best approach 

for maximizing revenue collection as well. 

VII. Conclusion 

It has been nearly two decades since Congress last reviewed and updated the laws 

governing IRS operations. Much has changed during that time, and tax administration 

would benefit from a fresh review of those laws. 

In my view, respect for taxpayer rights should serve as the foundation for effective tax 

administration. One important taxpayer right is "The Right to Quality Service.• That 

right requires meeting the needs and preferences of U.S. taxpayers in their attempts to 

comply with the tax laws. While the use of slogans sometimes oversimplifies complex 

issues, I generally share the view that the IRS should emphasize "Service First." 

At present, service levels stand at unacceptably low levels. Part of the explanation is 

lack of adequate funding, but there are many ways in which service levels had been 

declining before the agency's funding levels were reduced. To a large degree, this has 

been and remains a question of agency priorities. 

The "Special Focus· section in my 2016 Annual Report to Congress presents my 

perspective on the steps the IRS should take to become a taxpayer-centric 21 '" century 

tax administration. I have tried to summarize some of my concerns and 

recommendations in this statement. 

I would be happy to try to answer any questions you have today, and I would be happy 

to work with you in the coming months as you develop a more detailed plan to improve 

the responsiveness of the IRS to address the needs and preferences of U.S. taxpayers. 
36 


Insert 33425A.032

SPECIAL FOCUS 

IRS FUTURE STATE: The National Taxpayer Advocate's Vision for a 

Taxpayer-Centric 21st Century Tax Administration 

INTRODUCTION 

Special Focus 

In the 2015 Annual Repon co Congress (ARC), the National Taxpayer Advocate idemified the IRS's 

plans for its "Future State'" as the- number one most serious problem facing c:axpayers.1 Among ocher 

things, she cited concerns about the IRS$ lack of transpare•tcy with WJ»)'«$ d Congress about c:he 

pbns; the l'nOVC: aw·Jy frOm person ... tc>-person assisu.n<:t a.nd oomplianoe C<mC<1Ct$ it\ nvor of impersonal 

elec;uoni<: "sclf·scrvi<:c: .. :and the rcli:\nce on private third p:mies to provide for· fcc otS.Si$r:tnce for core t-'lX 

adminiStr.nion $Cf'Vi~ 1urviously provided by the IRS for frcx,t~reby increasing taxp:aycr costs (or the 

"'privilege .. o( p<~ying their taxes. 

The IRS has pani.llly addressed the N:uion:ll Taxpayer Advocue'sconcern.s. For example, almost 

immediately after the issuance of the Annual Rc:-port to Congi"C$S, the IRS ere.attd a wcbpage on irs..gov 

dedic:uW to the "future State" and uploaded. nun~rous docume:nts.1 The IRS Commissioner :Uso 

made deJr in congrmio.uJ testimony •t d else'ivhcrc: dut rhc IR.S did nOt in rend co clinlinatc phone 

or in·pcrson assisc.ince.J Moreover, during 1hc Na1ionwide 1iax fonmu rhis sumntcr, the IRS held~ 

presem:nion on the .. fmure Stare." ~nendcd by over 2.200 practi1ioners d preparers, :and ~lso spon.sotro 

a suggestion booth.• 

These seeps. however comn~ndable, have nor (ully add~ssed 1he core or the Nalional Taxpayer Advocare's 

concerns, namely, dtat the lRS has fail«! co :1dequardy study and incorporate into its "'Futurt- State'" plans 

che ne«<s and prtfc~nces of United Staces l:axpayers - an incredibly djve.fS(' :and contplex population. In 

a budgec enviro1tment in which the IRS h;u: ~1\ irs :;lJ1nuaJ :~ppro,'>ri:uion d«reased by abou1 19 percen1 

on ::tn inflnio•1·adjusted basi$. ic is tcmpring :and even undersc:andable for the IRS ro cry ro n1ove tUpa.)'ers 

Nauon.allaxpayet Advocate 2015 Annual Report to Congress 3o13 (Most Serious Problem: TaXf)a)'er Ser~: The tRS Has 

Oe\'e.loped 11 Comprehens~·~ 'Futur~ Sr..te• Pkln That .AJms to Tr4t1Sform chc \Vl:ly It IIICoracts With T.tx~)'C>I$. &It It$ Pfbrl May 

l~ Cr1t.JCbf 7a~yer Need$ ~M PYttlerences Unmct). 

2 IRS, httPS:/ /WWW,II$ gov/u&e:/news,oom/u$ofuturo-tuuo (&est visited Dec. 20. 2016). 

3 "As • Improve the online expenence, we understand the responsibility we have to serve the needs of all taxpayers. whatever 

lhclf aee. income, or tocat10o. We recoc,nito there wdl always be t.axPI')'ers who do not hoYc aceen to the internet. or v.tK) 

simply otefer not to condvet t.helt U'll~•ons W\tl\ the IRS ont•f')t. The tR$ temaln$ committed to Pf<'r'ldllf'C the: services those 

taxpayers need. V\le do not •ntend to curtail the ab'llty of taxpayers to dea1 with us by phone Of in person: Tax Reti.lffl Fil1ng 

Snson: Hov~~C Before the H. Subcomm. on OvwsJtm. Col"nm. on Wars and MeMs. 114th cone. (AP". 19. 2016) (V~·nuen 

$te~ement ot John Ko$kif'loet'. COmmis~ lnte!l'l81 RcvetWe $ervloo}. Se-t •M Clft the IRS Protoe[ T~~yer;t · Per$Ciltll 

lnfonnadon? Hearing Before thft H. Subcomm. on Research and Technoloty, Comm. on Science, Space and Technology, J14th 

Cone- (Apr. 14. 2016) (statement of Jofwl Kos.Wncn, Commtssloner, Internal Revenue SttMCe). htt.ps;J /WNW.irs.CfN/~Jae/ 

wr'ltten.testi~-commJS$iont:r~k;ner\obcfOf'e>the-hOuse-u•c~·"'*tcchnoi0()''¢01'n!'nlttoe-on<:yf.)ers«unty>&ndprotecbng·taxpaye,.-lnforma\lOR, and John A t<Qsklnen, ConvrMSsloner of lntemel Revenue. Address Before the National Preu 

Club {Mar. 24. 2016). tlttps://MW~ iTs.gov/uac/Ma ch-24-2016·CommissiOncr·Koskinen.SpeectKo.NatioM~ss-Ciub. 

10.723 t:)faCtiUoners and preparets attended the IRS Nauonwlde Tax Forums. Of those. 2,263 attended the presentation "IRS 

Future State lflftiatrve' at rwe lax FoNms in 2016. Email frOm IRS Office of Onhoc ~to lAS (Dec. 13. 2016). 

Taxpayer Advocate Servfee - 2016 Annual Report to Congress - Votume One 
37 


Insert 33425A.033

Special Focus 

to kss costly rmthods of communieuion, or channels. including digital sdf-servi«- options.$ But as tax 

:~dmini.s- r.ttOI1 rhroughwr the world h~ve learned .. :l 1~d as the NarioMI Tax~yer Ad\'OC<\te djSt:uS$C$ in 

this :~ nua_l (CJ>Ort. m::~ y of these shifts ~re on_~)• svpcrfici::..lly le$$ cosdy.' This j s $()because even the bescdesigned digital environment cannoc accommodate the sh«r complexity of the rax cOOe and the limitless 

''afiety of u.xpa)-ers'livtf aJ~(,i ciK.t.Jmstan«$. This con&lf':'inc-d communication, COt.l~) «i wi(h auronuxed 

impersonal 2nd often hamlfuiiRS acrion$, can alienate the t:tXp:aycrpopuhuion and over rin\C may 

undem1ine compl «~ Even if ther<' is no negarh·e complian ce impact (whkh the Natio nal Taxp.1yer 

Ad\•ocate does not bdiew:). it is not a rt..-cipc for good go\'ernment if a large portion of U.S. taxpayers 

:.re :llien:ued fronl :~nd distniS-di.JI of 1he one govemmem :~.gency they inreraa wirh :11 le:.n :l.OR\t<!Uy 

throughout their adult li\•es. 

... even the best-designed 

digital environment cannot 

accommodate the sheer 

complexity of the tax code 

and the limitless variety 

Fof these rmsons, and given htr smnuory role a.s •an independent voice for tht' 

t'aXpaycr within the IRS.007 in thi.s Sjxcial Fcx:w. the National Taxpayer Adv~te has 

:~ em <:d ro idenrify and make rccommcnd:nion$ t O :.ddre$$ the chaUengC$ rbe IRS 

fac<'S to becomt' a 21st Ct'nturr. l'.txpayer-cencric rax administrator. The tirsc and mOS-t 

obvious is the oompdling need for tax reform. In our hrstlcgi.slarivc recommendati ~ 

Simp/iff rhe /nuntt~l Revtnut-eMf' N()w, we describe in det:.ilthe burdens 1he current, 

hidoously complex Code impose.'$ on :n,~yers :md the IRS alike. But suffice ir to 

say here thar 3 Code consisting of four miiJion worm'* and requiring six billion hours 

of taxpayer time when meeting their filing rtquirtmen($9 i.s $imply too complex to 

administer well. Add tc) that the (act that the feder:.J government '"$f>C1lds" more 

money through the tax code e:ach y<'".ar than it spends to 1\md the em ire fedcral 

of taxpayers· lives and 

circumstances. 

In FY 2010. the ageocy'$ appropriated budget stood at $12.1 btlhon. For fY 2016, rt5 budget "''U $11.2 bil ~. a reduction 

of ncorly ei~t peroent OYer the six.ycar period. lnflaoon 0\'Cr the some period is c&t•m&tcd ot neorly 11 percent. Sec 

Office of Management and Budget, F~ar Year 20!6 8u<t~r of {he U.S. Govemmenr. H/,s{QIIctJf T1ble$ (230-31 •• Tat>Je 10.1. 

https:j /www.whrtehoose.gov/sites/clefau1VtiSes/omb/budgeVty2016jassets/hist.pdf (showii'C Gross Domesuc Product (GOP) 

Md year-t.<>)'C3r II'ICfCbsel In tho GOP}. In •cklttlon. ttt. IRS has '*' to m'lpletnent thO SUIMory requrrements Of thO Patttnt 

Protection and Affordabie Care Act and the Foreign Account Tax Compliance Act dur!Og this time. causing e further drain on its 

resourc:C5. 

See Most Senous Problem: Worldwide Taxpayer Service: The tRS Has Noc Adopted ~ses:-.in-C1ass~ Taxpayer Sefv~ Despite 

F<teiflg MMy of the Same CMtrengcs as Other Tax Admimstrations tlnd Utcntture Rerit:w; T~xp&rer Service il'l Other Cocmcr.ic.s, 

vol. 3,/nfra. 

NatJOn81 Commls:SiOn on Resttuetunng the lntemal RC\<enve ServiCe, A V1$1on 101 aN~ IRS 48 (June 25. 1997). 

To determi()e the number of words "' the lnternbl Reve-nue Code (lRC), lAS downloaded Title 26 of the U.S. Code {te .. the IRC) 

frocn the webslte of the U.S. House of Representatives, httP:/ / uSOOde.hOuse.gOI/. \\'e oopled the tile Into Mlci'O$olt Wofd, and 

used the 'word count' feature to compute the runber of wocds. The online version of Title 26 we used was cutrent through 

Oetembe>t12. 2016. In WOn:J. me document ran 10.928 s•flalo&<SQaCed ~>a~tes. The: printed c04e oon~ns eert&in infonn&tion 

that does not have the effect of taw. such a-s a description of amendments lhat have been adopted, effective dates, cross 

reference.&, and captions. The WOld count feoture ttlso oounts p~ numbers. the lbble of contents. bnd UlC Lke. Thefefore. 

our count some-....t.at 01.-erstates the number of words that are officially considered a part of the tax code, although as a 

pf8ctical matter. a person seeking to determine the law wiD likely have to read and considtu many of these ack:lltional words. 

Including tt1e¢~,...c dates. ¢1'0$$ re101enees. ~ ¢0'1)110nt. Other onempts to cte;erm~t~e the 1~ I)( the COde I'I'I8Y rwwo excluded some or a-ll of these components, but the-re Is no clearly correct methoclok>gy to use, and we found no easy Will to 

$CICCtNCiy delete lnformooon fr<wn o document or this lcn~h . 

The lAS Research functiOn omved &t this C'S-limate by multlplyint lhe number of copies of e<K:h form tiled f01 calendar year 

2015 b'f the ove.rage amount of time the tRS estltnlHed •t took to complete me form. While the JRs·s estltn8tes are t~ 

most authontati'o'e available. the amount of time the average taxpayef &pel"ds oompleting a form is diffiCUlt to me-asure With 

preeis1on. Thts TAS estimate~ be low because It docs not~ Into oecount t~fl fOfl"'"r$ ttt'Kf, &s noted in ~ ~xt. •t dOes nOt 

include the amo~t of ume taxpayers spend responding to post-tiling nouces, examinations, ot eotlection actioos. COC"r'f'ersety. the lAS estimate may be hiCh because IRS t1mc estitn3tes hOYe not ncccssanly kePt poee fully w1th tochnolot& imPfovement$ 

that allow a wl6er range of Cltoeessin& acd~1ties to t>e completed via automatlon 

Speelal Foeus - I.RS Future State 
38 


Insert 33425A.034

Special Focus 

government through fht": appropri:.uions process.

10 dearly. the lnfem:d R~enue C".odc (IRC) is du~ for an 

O\'erhaul. 

In Public Forums, Tax folUm Focus Groups. and TAS Workgroups. cwo odlC"r brood themes emerged. 

Fim, ours is a volunr.uy complianct system th.at IUU on the cooper.uion of t-axp:t)'Crs. large and small. It 

requires eng.:~ gement with rupaye11. For 1:ucrx-yel'f lObe eng:.ged, the IRS needs lO talk 1~ h~ tiL'</'If)Vt'l 

Here i$ how one TAS employ« $tated it: '"Somelimes nothing can tq.'>la« the $c>und a.nd the tone of a 

human vofce, c.-spcci:dly in :a crisis si1u:nion. IRS musr prcscm a human side co tht": agency to f~ter and 

kttp \'olunr2ry compli.l.nce.'"11 

Tht": last brood them<': is the n«d for establishing minimum stand:uds of and festing for comptrcncy 

of federal 1:ax return prcparcrs. ll,e National Taxpayer Advoc:atC' has long: r«ommc:nded a pragmatic 

oversigln regime designed to pr<.'ltC'Ct U.S. taxpayer$ from unscmpulous and incompetent return 

prqnrers. 11 She rciter.ues: that r«omnlend:.uicm hm, and nores rh:at wirhout S-u<:h s•:and3rd ~ :and 

ovel'$ight,thec:ntirc rax S)'$ttm is :n rl k. 

lo :tddilion (0 chew rhrcc round:lrional rhcmes, chere ~re $eV(r.&l orher :areas or t:)X adminisrr.uion 

requiring auemlon before the fRS can become a world-class 2 1st a:nrury rax ad i.s ~tio . 1"1lCSC' 

challenges include: 

• IRS Budget and Oversigh1: 10 F.tirty, dTcccively. :and ef'liciendy :tdmini.ster rhe cax sys.tem. tht": 

IRS mu."t ccci'~ incrt':3$«1 l'i.tnding, bm such fimdings.hould be t ied 10 additional congressional 

oversight or IRS Strategic and opc:r.uional plans) 

10 In FY 2016, tN Treasury ~rtment OSllm&ted ·w eli.Pendttt.ue$" omourned to mate tN!in $1.4 trillion. At the tame time, 

d1scrwon.ary apptopnations amounted to less than $1.2 trillion. The federal bu~t eons1sts of diSC1et1onary spend'"' for &ovemmcnt Ol)efations that Con&r6$S sets tht'Oueh Ol'lnual opl)fOpriatlon& octs and mandotory $pendln• that Is emb&&hed 

thr~ et.g.t>-hW eod beoeflt tormu&&s. $ueh " Soei~ Soevflty end Medleare benefrtJ. es well es fntetett on the todetal 

debt. For FY 2016, appropnated funds totaled about $1.17 trillion. See: toncressiOMI Budget Office, An Update co fhe 

Btldger and EconomSc OuUoo.k; 2016 .ro 2026, Table 1-3 (Aug. 2016). httpsVfww.v.obo.lOY/51tcs/dcfeuft/fi~s/5U1S. 

2016-()$.8vd&otPro.leetlons.xts)l:. Foe • l~t and Cle.scriptl¢n of tax ~penc:hturet. see OffiCe of Tax Analysts. u.s. Dep&f'l~Y*"t 

of the Treas.ury, Tax EKpendicures (Sept. 2016). httpS://W'f-.w.treasury.gov;resooree-centerjtax-poltey/DoeumentsfTall· 

Elrs>enditure&-FY2018,1)df. Tho Joint Comtntttee on Taxation &ls.o publishes estmates of tat expenditunl'$. Thefe ate SOf'l"'e 

d•trCtWnoes U'l me-\hodOiogy bet~n the Treaury De~ttmer'lt'.l methodology- and u.o Joto~ C<lt'M'IItnee·• methodoiOCY. ol'ld 

the Jo•nt Committee's 0'10$1 reoem C$1~te of tax expendttures for FV 2016 was mote than $1.3 trill100- aJ$0 creater than federal appropriations but s0f'l1e'lotlat less than the Treasury Department's estimate. See J. CoWM 0/'o T.u'11, JCX· 

141R·1S. Es:Cima!es or F.cdf!ral T•• EIIS>Cnd~UIO$ for F•sc•t Years 201$-2019 {Dec. 2015). https:// .... wwJtt.COV/~.c::attOM. 

htmr?ruf'ICC$\8rtdown&ld=4857. 

11 lAS. E.xecurivo Sriefmg. Futf.lfe State 0~ Analysis 41 (Sept. 2016}. Hero iSI'I"'IO'a wisdom from lAS employees: 

The Future State Cf)«<Q4et~ chan&es the eq>ectauons that the 1axpey.na pW11e can ~ of the IRS. T~ wpooyers heYe 

always known they oookt come to an IRS wark-tn offtee or call the IRS tofl.free {ine m ordef to have their questions answered. 

However, U\is •.t e eh~ •n the bu;e ·cor'w.et- be~ the IRS Md the t8X.Pavit'C public. TI'Ms means that $OtnO 

tal~P8)'ef1 win be comfortable one:! conf'M:Ient In therr abiHty to understand t.he lOX 13'W end mee:1 thetr Obligations. white otner 

taXJ)a>'ers wm r1kely feel 'left behind" In the Future State. ld. at 18. 

AM: 

You «;en"\ rel)lttee ve~l ~lcatJoOn end e.«:tcl sn voluntory c:ompbanee. nor custotr\lef scrvi'CC. td. ot 23. 

12 Naoonlll laxp&Jet Ad\'OCate Frscat Year 2015 Objec:tNeS Report to conc:rus 71·78; National Taxpayer Advocate 2013 Annual 

Reoi)C)ft to COtllress 61·74 tMost Setlout Protlk:m: R'ege~J.tUM of Re:ct.tm Pte~rOr$: T~rs •M Tit Adm;l)l~tJon l?em.Wns 

vutnentble ro Incompetent ttnd Un.SCfu,ouiOU'$ Recurn PreplJfers WhiJe tht!> IRS Js Enjoined From Continuing tl$ Elf«ts ro ElfecrNely 

Regulate Unentolled Preparet1); National T~r Advocate 2009 Annual Repott to Co ... Ms 41-69 (Most Serious Problem; The 

IRS lOCk$ o Ser~ Re(Ufl) Pttparer SUOtt"ty): N&OOI'I.&I l~~ ~to 2006 An~Wal Report tO C~$$ 197·221 (Most 

Secious Problem: Ovetslglu of UnetlloNed Re-tum Prepatel$); Nat10n81 TaxP8)'el ~te 2004 Annual Report to Ccnatess 67-88 {Most SeriOUs Problem: OvcrsJght of UneNolled Re-turn Prepare-rs); Nattonalla)(pa)'Cr Advocate 2003 Annua& Report to Coneres.s 

27o.J01 (lb&isle\ive Rec~oon: FerH:t~l n..t Retcum Prepa,ers: ~t.;,llt MCf COI'npN.111Co}: Nallooal tax~r AdvOetltt 

2002 Annuel ReQOCt to Congreu 216-30 (lflglslatlve Rocomm.endahon~ Re~clon of Federal Tax Rewrn Prepatel$}. 

Taxp.,-.r Ad't'OCat• Servl« - 2016 Annual Repof't to Concrut - Yolum. One 
39 


Insert 33425A.035

Special Focus 

• TRS Culture: To create an environment that cncoumgcs f:txpaytr trust and con6dcncc, the IRS 

must c.h2rlgc il$ cuhure from one that is cnforcenlenr.-oriented to one that is scrviOe>oriemed: 

• IRS M.iuion S(atement: ·[0 tnSur¢ che IRS r\.'Cruits, hi ret, ~nd cr.ains emplOy«$ witt. the 

:'l.ppropti~tesk iiJ $('($• che IRS must rcYise iu tni$$iOrl tt<'ternent co explicitly acknowledge rhe IRS's 

dual mi$$i<:m of collcccing R.!vcnuc :md disbursing lxncfics. as 'vdl as chc found:uional rok of 1hc 

T:.xp:tyer Bill of Rights; 

• Understanding Taxpayer Needs and Prefe~n«S: To ensure rh:u che JRS cksigns iu O. r~nt 

and f·uture State inici:ativt"S bc,astd on ac.tu:U mxp:ayer needs a.nd prefcrenct's, the IRS must octivdy 

and direc:tly engage with the taxpayer populations it serves as well as undertake a robust rczc:arch 

a-gcnc.b ch;~~t fun hers M un\krsfanding of rn.xpaytr compliance beh~vior. 

• Taxpayer Righu and the Future State: To ensure that r"xpayer rights, and the Taxpay« BiJI 

of Rights spocifiaJiy, are the found.uion for tmc adnliniscracion the IRS $hould urldertake a 

comprehensive review of key f:txp;a)<er rights provisions in the IRCand L$.$uc propo$ed guicbn« for 

public comment, upd11ing. thclK' provisions co protc.'Ct caxp:t)'er rights in rhe digital \.'1lvironmcm 

cn,•isioncd by the JRS Future St'.HC~ 

• Grossly Outdated Technology and Infrastructure: To enable the IRS to meet the major 

t<..·chnology irnpro\'enletllS required for a 21st cc:ntuty t;tX :adminiA.r.uion, even as it fuJfills currenc 

oper.tciortal technology dcnunds. chc IRS mtr..~t .-nicul:tte <t d<..~t urnttgy chat will reMSute 

Congrt'$$ :and caxp:tyers the funding will be well-spem; :tnd 

• Offic:e of cite Taxpayer Advoc::ace: To ptoccct c~xpay<:t righu and enRart a fair and just tax system. 

Congre.ss sltould mkc Sleps co s:rrcngthcn the Taxp:t)'Ct Advoc.nc Service. 

The National Taxpa~r Advocue h.u ist~!<!. the n«d for :additional IRS fimding :and 0\·ersight ~rst because 

without adcqu:ate fi.anding. t.Up<l)'Ct$ Me being and will be: hamlcd by dK "efliciencic$" che IRS imposes 

codetJ with budget reductions. However, she links d-.e JRS ne«l for more fUnding wirh c~ need for 

more congressional oversighc of the agency's priorities. C'.ongressional O\'ersighl is necess:ary to cnwre chat 

chc l RS ~pproptiatdy alloc;U('$ 3nd ap~-, ics lltat funding, and th:u tu:p<\ytr ne«ls- noc ju$( the :~ogcn<::y's 

intcm:M ~-.;ls- :•tc: ll'\oel. 

Spec.l&l Focus - IRS Future State 
40 


Insert 33425A.036

Spccml Focus 

To achieve the appropri:..ce ~d and allcxacion of JRS fUnding. in the sea ions that foUow, the National 

Taxp:tycr Advoc:ue identifies and discusses key dements (hat ffiU$t be <1:ddrt$$Cd, including a change in 

IRS culture from enforcement·focu.scd to service ~tst . We musr embed uxp:a.ycr rights into every aspect 

of the agency'S mission. We must understo:.nd how to improve tupayer mor:ale, including what &ctorr; 

inrluence taxpayer compliance- behavior and what taxpayer'$ need :and p~fer in order 10 m«« thdr tax 

obligatjons. Similarly Y.ith tax reform - \Ye must undersc:and eompli;~.no: bdla\·ior e'•cn as we legislate 

t<\X policy. Otherwise,~ will pass l:lw$wich which t;axpaytrscannot comply. 

In writing this Special Focus. the National T:lXpayer Advoeate Ius rdie<l heavily on the .... ~tl1 of 

in(onn:uion obt:lincd throughout 2016 (rom her 12 Public Forums on T:axpgyer Ne«ls :lnd Prc(crences~ 

focu.s grouf>S with protctitioners a.nd pr(p2rcrs about l.hc '"Fmure St:uc'" hcld :n five Nationwi~ Tu 

Forums; and discussion m«tings held with all employttS in <'ach offi« of the T.'lxpayer Advocate Sc-rvitt 

(fAS). AJI of these materi:als. including fi.tll trnns-cripc-.s of the Public Forums, arc available to the public 

at https://caxpay~r.tdvoc:<.lte,lr$,go'•/pub ;c fomms. In addition, we indude in Volume: 2 of this rc:pon the 

interinl findings of.- nacionwide t!\Xp.iytr $-Uf\·ey :JI\>otU their nt«l$ :1nd prefer(ll«$.

11 Thus, tO 2.0 UO~I$tt:'ll 

CXH~n1 for go\'Cf0Jl1C'n1, dle an<tl)'tiS a.nd fet.'On\mend<tfiOn$ presenred here reftect the:- perspc<llivt$ of 

trucpayc.oq and thdr representatives, :as wdl :u the combined experience of th<" Nation:ll Taxpayer AdvOC".ue 

and her cmplOyt't'S. wt.osc job it is to advocate for l':aXJ»~rs. 

13 See- Resealdl Study: Taxpayers' Varymg Abllirle$ and Altitude$ Toward tRS Topay« S«vloe: 1M Effect. of IRS Se~ Delivery 

C'hofrces on OtffCJcnl OcmogtbphJc Grouo:s. voL 2. infra. 

Taxpayer Ad¥OCat e Setvlce - 2016 Annual Aepott t o Congress - Volume One 
41 


Insert 33425A.037

Special Focus 

IRS BUDGET AND OVERSIGHT: To fairly, effectively, and efficiently administer the ta~ 

system, the IRS must receive increased funding, but such funding should be tied to 

additional congressional oversight of IRS strategic and operational plans. 

Simply put, thC' IRS c:a.nnot fUnction well in thC' 21St c~mury with thC' budg~t it has today. More: fUnding 

is p;ar.amount-for t.axpa)'U ~rvic-(", for com ianc~ functions, for the :ag~ncy's cnforament function 

(Criminnl lnvesdga.tion), for technology, and for its "'support• oprnuionslik~ security and r~.al cscat~. 

The Natiol'l.al TaxP'.ayer Ad\•oeJ.te lw SC:r'\'ed in her position for owr 15 years, an<.i she h:t.s witnessed 

6rs.th~ d how IRS offi«rsand employtesstruggle to mrtt the ofren oompecing demands pl:tec'd on them 

by new l~isl nion, congressional priorities, ru~ruml and <Hheremergcnc.i<:s,thc identity rhe.fi: q>idemic:, 

and t:ax.payer needs 3nd prefe~nces. E:tch year the IRS must ddi\'er :a filing $C"JSOn in which ic prOCC'S$t$ 

some 150 million individualt:ax rrturns and issu<"S over 115 miUion rdUnds totaling 0\'C.r $345 billion,._. 

whiJ ~ guarding against bttwc~n $22 :and ~'14 billion in identity the(t and refund aud. ~ Ar th~ samC' 

time, it must incorporate: n(W legislative dtang('$ - almost 5.900 s-ince 2001, an ~venage of o~ than 

one a day'-and m<~jor new prog.r.;ams like the Affordable ea~ Act (ACA) and che Fo~ign Account 

T.u Complia.ncc Ac:t (FATCA). Thus, the IRS spreads thin the ruc>uro:s it has. and e\-ery d« ision 

co~pl>ly resour<:es in one place means thou anOther:arta goes beggjng. Und<:rstan<bbly, ic focuses on 

wh:u i1 considers its major obligations-dte tiling season. new legislation, nd dte are~ ofinformonion 

1~hnology and cybers<"Curity. 'lne conse<(U<'O<."('$ of this .. big item" focus are that smaller, important, 

taxpay1.." ~f. <:ing So~:rvicc is reducxd or diminatc-d. induding the community prC'SenoCe of education and 

oulrea h. ~payer Assistance Cent<: I'$ {TACs:), oompliance pe:rsonnel, and Appeals officei"S. For aamp!e: 

• Despite' the IRS's increased ability c-o ha l~ tnxp:t)'t'.f' calls using "autotrultion. the percent~gC' of 

calls t1te IRS amwen:d from caxpa)'trt5eeking co s.pe:ak with a telephone a.uistor dropp«t from 

87 percent to 53 percent btt'wecn fi5Cal )'t:tr (FY) 2004 and FY2016.'' A.mot1g the eilltl"$ who goc 

tht'O\Jgh. 1he :t\'Cr:tgt' cime spent iti ng on hold in~~sed from jllit over 2.5 minutes in FY 2004 

to nc.1rly 18 minutes in FY 2016." Comparing FY 2004 with FY 2016, the number of an~ 

c:he IRS received from taxpa)'~rs on its Accoun1s Management telephone lines: increased from 71 

million to 104 million, yer th~ numbe.r of calls answco:red by tdephone as:sistors dedinW &om 36 

mi.llion tO 26 million . .., 

• In 2014, the IRS cosed allt:ax prepar.uion in thC' TACs and di at~d post·April 15 ax law 

phone and TAC assistanc:e. 

• The IRS has :also rt"duccd rhe number ofTACs (also known as W'Jik·in sites) fmnl40llo 376 (siX" 

pcn:cnt) since 2011. ~ Additionally. 22 TACs have no sr.arr, and 95 have only on~ em oy~ 1 

14 I~S Pub. 558, IRS Data 8ook 201S (M&r. 2016), Tebles 2. 7 end 8 F"cwes &e fOf FY 2015. 

1$ TreaSUI)' Inspec-tor General for Tax Adl'nenistration. Ref. 201!>-40026. Efforts Are Resulting 1n !lle Improved ldencifJcatlon of 

Fraudulent Tax Rcrum.s lrwotvi~ tcknrity Theft 2 (Apt. 24, 2015}. 

16 fotan in-dePth dise~on of tM need fOf tax refOf't'n and the methodology of this eaku1ab0n, see Legislative 

ReoommeodatJon: Simplify the Internal Re\o'enue Code Now, infra. 

17 Compare tRS, Jotnt Opefl!ltlons Center, Snapshot Reports; Enrefprise Snaps.hol (week endtng Sept. 30, 2016) Mlh IRS, Joint 

Operations Center, Snapshot Report$~ Entet/KM Snapshol: (week cndu .. Sept. 30. 2004). The Aoeounts Mana(emcnt 

lelel)hOno lines {l)fovto\l$1y knOwn •• tho Customer A<:~t 5el'iK:es tetcClhotle lines) reeerve the lf&(lifiCant maf<>nty or 

talq)lt)'er caus. ~r. tax;payer calls to compUanc:e phone lines and certa•n olhCM ca1egones of calls are ('J(Ciuded from lhi:s 

total. 

18 1<1. 

19 ld. 

20 In 2011. the IRS operated 401 TACs. 1RS response to lAS 1nf0f"mat1on requ~ (0cc.23, 2014). Today the IRS operates 376 

TAC$, o redUC\IOn of s~ l)trc:Of"'t. IRS ~SC tO TA$ tact ¢hedl. (Dec. 20, 2016). 

21 IRS response to lAS fttct check (Dee. 20, 2016). 

Special Focus - IA:S Future Stat• 
42 


Insert 33425A.038

Special Focus 

• SixtC'cn states havC' no A~ s or SC'ulcmC'nt Officers present within thC'ir bound:.uiC'$, ~nd 14 states 

have no IRS liaisons co Small Busjness/Sdf.Employed r.upayC'rt within their boundaries..U 

Figure S.l shows the reduetion in IRS geographic prt$1!nce and cmployrts between 20 II and 2016. 

FIGURE 5.1, locations With Specified Employees In the last Pay Period of the Fiscal 

Year'> 

1.05S 795 

4.035 3.703 3.441 3.191 3.072 

11.25$ 10.502 9.776 9.090 $.$71 

123 119 110 105 9$ 

475 444 405 386 365 

401 39$ 3$2 37$ 376 

1.515 1.4$4 1,520 1.267 

At the s:amc time, taxpayer rc:t'urns and forms filed increased betw«n tax year (TY) 201 1 and 1Y 201). 

O~rall. ings grew nearly four percent from 234.567.000 in TY 201 1 to 243.249,000 in TY 201).

14 

\Y/¢ diw.l$$ the erfec.u of this r'«il ti on io our Most &riot•.s Problems, herein. on d1e $tntehlre of rhe IRS 

J' d the I:Jck of:.- g~ph c prest-nce in communities:. tl 

22 Appeals r8$ponS.C to TAS information request (June 6. 2016). Pue.rto Rico lack& on Appcols or Settlement Offtettr in addttton 

to the 16 s-t.&tes .. IRS response to lAS f&et cheek {Dee. 16. 2016). lAS Human Resovrees Roportlnt tenter. Rti>Olt of SBISE 

Job Series 0526. Stakeholder Ualson Flekl Emp(O)'ees as of the week ending October 1. 2016 (report gene:I'Bt.e<J Oec. 1. 2016). The District of Colwnbla lacks an IRS ltai.son In addiuon t o the 1A states. See Most Senous Problem: Geographic Focus.: The 

IRS L<teJ<s tm AdcQwte !oettl Ptcscncc In Communitfes, Thereby Limi(jng fts Ability to Afcel the Needs of Specific T~xoayer 

Popul{ttiOM and tml)l'O'IO voruntary Compti~neo. lnfr8. 

23 FiturC$ fOf Appeels Off.ee;~s. Revenue Otrioet'$. RC\'enve ~~.&ents, StbkehOI<!er Uaison Outreach. SPEC Outreach. ond T~r 

A.Wstanee Center (lAC) Sel"hCe Rep~esent&t \•es ere from the IRS fesoonse 10 lAS feet ehock (()ec. 16. 2016). TA.C CV$tOmer 

service reptesentative figures are from the IRS Human Resoui'Ces Reporting Center, Position Report by EmpJoyee Lisdng for 

the ending pay period for FY 2011 to 2018. NOY. 2. 2016. The IRS response to TAS Foct Chock (Dec. 16, 2016} showed the 

folfawlna, counts for TAC ¢UStomet se(Vi(e reprosent&llve: FI$C&1 Year (FY) 2011 • 1.977, F'Y 2012 .. 1.839. N 2013 ... 1.17$, 

FY 2014 -1,803, fV 2015-1.678, and FY 20l6-1.477. TAS was unable to repbcate the IRS lAC empSoyee tigutes. lAC 

Office f\gures fOf fYs 2011-2014 from IRS response to l AS fact check (Dec. 23, 2014). lAC Offioe figures fot FY 2015 from 

V'rfa4c ond Investment (W&O enaly.st (Oee. 13. 2106). TAC Off100 fi'ures for FY 2016 from the IRS respon&e to TAS f<'t<ll check 

{0... 20. 2016). 

24 IRS, Datebook Returns Filed Tax Year (TYs) 20ll·2015 (Nov. 30, 2016}. This total Includes indivtdu.al 1000me tax retums. 

bu$;ne.$$-Cn\fty income w rctvrns. ~mpi()'>Jme t tax. retums. estimeted tax forms, ond oerlaio O(her tetums tlnd fOtm$. 

25 See Most Serious Problems: IRS Strucrure: TM IRS's Functional Structutc Is Not WcN-$uitcd for identifying and Addressing 

WhDt Oifferenl TYJ)e's ol T.txp.1~ HeM~ eompr-y, Md GtK>grbPtlk Fow.s; The IRS Lbek$ M AdeQv.tte Loe4J P,es.enee 

fn Communf(le$, Tllefeby LJm~tint rrs Abill'ty co Mee( rhf: Needs of Speeme T&~-er Popvlations and tmproWJ VOiutttary 

CompNance, infra. See aJso Uteratvre Rev!ew: Geog,aphic Consideraliomo for Tax MminJ'svar.Ion, vol. 3, infra. 

Ta:xp.ayer Advcxato Se ri~o - 2016 Ann\1-al Report to Contro .. - Votumo Ono 
43 


Insert 33425A.039

Spceial Foeus 

Doums-trt'am Cosrs of fRS Budget Cuu Cm Out~igb Snttingl. bttrt'au Taxpttyrr mu/IRS 

8ul't[~,, nuJ Erode 7iup~r Trust 

Far 100 often, in response: 10 budget con~minr , 1he IRS makcsjXnny-wise:, pound-foolish decisions. 

For example, the rttendy announced revised rules about t!u:: limited availability of Eu::e-to-f.tcc Appeals 

confcrcnu.s, and changes to .sndcmcnt authority of ccrtain Appeals' personnel, has ltd co critic.ism from 

key mx proft.ssional groups. • The ti oAAI T.~)"t't Advoeace peMnally provided SC\'C:t.tl $uggC'$lions to 

che ~f J\pj-~ 1\d mher $Cnior Appeals offici<'ls th", ir 3dopccd, would :~ ddress many of Appeals' 

concerns abour wise usc of resourc" while not viri:uing che caxp:t)'t'r's riglm to np~al nn IRS Ju.jsion in 

an indtptluitm fonun ;1nd t6 "fiti,aJul jtlJJ MX lJSWJt.21 hur~Jd, f:tt ftom rt:c.iudng ovtr:all cons. Appt:-.11s' 

proposed procedures wi.ll incre.u< costs for both the IRS and che taxpayer by shifting issue rc:solucion 

to more expcnsivc litigation venues or downs1ream to the IRS compliance" fimctions or the Taxpayer 

Advoca.te Servi.ce, i.ncreouing un ~cc.ssary rewodc. E.itht"r WJ~y. taxpayer con6<knc::e in <\nd patience with 

the IRS is eroded. 

lnitiacives designed to U\'e IRS reso rce~a.I'C 100 often f()CU,S(:(j inwatd on che IRS's own needs- how it 

can 8f1in CO$t S:t\'ings in o ne are-.a so it can reapply rhem dSt:wher<:. Ag;ain, while chi~ is undersmncbble in 

che present environmem, iris not righ1. These da:isions do not ad«tu.·udy n.tkc accounr of ~p."Lyer needs 

and prefercnces, taxpayer bu.n:kn, or thc downscrea.m costs incurred because ta.xpayt".rs ha\'e not rcxtivcd 

the: assistance they need. 

For (·x:unple, o,·er the l:u.1 lWO ~rs, the IRS llas been mo\·ing slowl>· to an appOintmt·nt·only s)'$tcm 

for m i,g:<1 nce in the TACs.. These loc~uion.s were formeriy kno·wn .u wa k· n Clenteu ... but for all intents 

.-.nd purJ>Q$<$, in the 201 7 filing $('.)$00. the lRS will not be ao:ep<ing ~v:alk ins ... While the National 

l :t.xpayer Ad\•oe:tte has long recommended the IRS offer taxpayers the op1ion of nuking nppoinrmenLS, 

she is opposed 10 m 1-.. king TACs aV'.lilable,xc/usiw/yby-appoimment.!t The following cescimony from ahe 

National Taxpayer Advoatte Public Forum in Sa.n Antonio illustrates the myopia or chis policy: 

(S)t'V<'-ral momhs ago I had a d iem ahat I was .usisting to hdp make sure 1h~t he did noc gn 

alien filed. And so from chat pcNpect.ive hc had 61ed a 2014 tax retu.m and underpaid by 

SC\'Ct.l.l hundred thou52nd doll3rs. 

Wdl. he $C1.tk-d chat case :..nd came into the money dl.:lt he needt:d w pay fO the JRS. So J 

said, okay. v.-dl. C\Jt me d1e dt«::k nude O\U to a he IRS. folks. of course. And, and (will go 

26 See. e.g., letter from Joan C. Amokl. Americ-an Coli* of lax Cooosel, to Kirste-n Wtelobob. Ch1ef Appeals (Oct. 10. 2016}: 

Coftlrtion fot Etteeti~ (U'M:t Effteient Ta.x Aclmini$tR!tion,letiA-• to Kn$tttl Widobob. O'liof Aj)pe<'lll (OCt. 21. 2016); Memortn<klm 

rrom t<ennet,h M. H0tw11.l, Texos Soc::~'Y of Cerur~ Public Aooountants to C()n'WT'Ii$$1oner ot lntemel Revenve (May 13. 2016) (Preserving and tmprovin( Access to face-to-Face Appeals Conferences). S~ atso Statement of Jaime Vasquez. Chamberlain, 

Hrdlicka. White. Willtams & ~try. Ne.tJOna:J Taxpbyer Ad\'oc.ate Public f'ort.n1 !>2 (AIC. 30. 2016): 

So \'!hat I'Ve seen i$ that ee$8S that don't need to go to (TJax IC)ourt can be resolw:d with the lAS eppeats offiCe. And with 

the cutback of the number of local IRS appeals officers. what's happeniflC is that people ·s cases are gettin( shipped to IRS 

cam.pus Offlees c thcy'fo not CCtM& a f&co-to.facc person who can help te$OIVO theft caU:. And you kOOW", as we &II 

IQ\ow, $OMO\IMOS ~n )'Ou're Cleal.ng vnl)l $OmCOI'ItC ft'<:e (0 face W.rtlkitC them U\tOUCJ'Ilhe pant¢ular records $1\d 1,helr life 

o:rcumstances, cases tend to be resolved. ~se are 'Nhy such things as mediations are so successfuL 

27 FCC' a detailed d•seut.SIOn of oue ns aboul. Che Offcc of Appe.ols conccl)t 01 ~tlonl. s.oe M<»t Scnous PrOblem: 

AppeaJs: The Otf.oe ot Api>Nis' A,pprOliCh to Cct$8 Resoh.ittan ts N~J her CcH.IiJbot&trve Nor Taxpayet" Friendly and Its •future 

Vision· Should lnGOfJ)Ofate T~ Va~s. (nfra. 

28 See National TaxP<l'f-c.r Advocate 2014 Annual Report to Cooemss 122-33 (Most Senous Problem: Access to the IRS: TaxPB)'ers 

An: Un~t.f>lo to Nttv~le lhe tRS t:~nd ~<tch the Right Pwson to Resotvc Thefl Ta~ Issues); Nabon.W TtaxPlf)'er Advoeatc F'tSeal Year 2013 ObJ«tNes. Rel)()tt to ~est 42-45: Nat•onal Tax.f)8Yecr Actvoe~ue 2012 Annuli Repoct to CC~n~t..-ess 302·18 {Most 

Senous Problem: 1he JRS Lacks a ~ewide Strategy that Identifies Elfecdve and Efficient Means of Oellvering Face-to-Face 

Taxp.aycr Serviefl}. 

8 Special Focus - IA:S Future Stat• 
44 


Insert 33425A.040

Special Foeus 

and ,.,...Jk it into the IRS onic:t. Well. that was jun whe-n I found out t..hat t.h.at local omce had 

just been closed. So chere I was with a f$240,000) dtc:dc d, you know, J was like:, you know, 

I m .. 1de sevtral phone c.alls. No $liCXCSs. 

And ;~ ::~ week of s. ui g with cbis$240,000 c;h«k. I w.t~s getting re;t]ly embcarr:t.$$«1, of 

cou rse. No o ne wants to sir on thac much, you know, money for, for someone dse. Finally 

goc in touch with :an IRS reve-nue officer who pUI me in touch wich che collection of'fi~r for 

che day wf•o said chac, and wf1o had finally. chey could ae«pc che [$240.000) <heek. And I 

thought to 1nysdf, you know. this is ridiculous. 

You know, h<-re l :lm crying to, you know, hdp my dia:H geuing in compHanee with the IRS 

and ~ c.1n'r <:Ven pay che RS ~ 

The Role ofCongrrsliollnl Oc-trtig/11 inlklli~t.li11g EJfecth·~ 2111 Cmtury 7it.'( Admit~isrr,,l,.on 

As S-taced above, the IRS has co ma.ke d ifficult c:hoice1 e\'<:ry day, a_nd chOSC' c:hoi<'C'S: ha\'C: con~qocn<:e$ for 

~xpaycrs and C;\X admjniscr:nion. The Nation<ll T..xp.'lycr Adv()Cl'lre believes there :~n m:.my things the IRS 

can do 10 apply irs resources more dTectivdy, panicularl)• wirh respcc1 to complian« in iria1ives (indeed , 

1he Na1ional Taxpayer Advooue publishes over 1.000 pages :1. ye.1r, vi;a her Ann ual Repons to Congress, 

idenlifying areas for Lmprovcn)(_ nt and making rtOOmmendacions). But the simple f.l<.'t renuins. even with 

th~ improvements. the J RS needs more funding. h cannoc become ;a 2 ht ceniUry cax admini.str.uion 

without adequ•ue support from Congt't$$. 

Sometimes nothing 

can replace the 

sound and the tone 

of a human voice, 

especially In a crisis 

situation. IRS must 

present a human 

sfde to the agency 

to foster and keep 

voluntary compliance. 

n l<lt $uppon is noc jus1 fin.1nc;i;al. The National Tuparer Advoone bd_icves there is :a key 

role for congrusion<ll ovc:rsighc both 3S a preliminary to ::~ d a cooseq\lcn« of addition~ 

Funding. Thi.s <wel'$ig.ht shotJd (OCU$ on the dfectivt.nm of IRS setvice and complian« 

~ctiv ti« with respect to the 150 million individual t-npaytrs :tnd ten million business 

l:lxp;I)'C"t$. esp«i:ally small businesses :~ d $elf-employed individuals. Is theIRS a\':liling 

itWf of che most impon:am insights o(beh:avior:al science?.., For enmple. during the 

first two \\'ttks of Janu.ary bd"ore 1he 2016 filing season, the N:~t l Ta.x~ycr Advocate 

sent out about 7,100 ~ccers co rax a~rs who fud claimed the Earned Income Tax Credit 

(EITC) on their 2014 return$ bu1 w fuMt claims we:rt flagged by lhe IRS Dependent 

Database (DDb) as being highly questionable. The JRS did not audit these taxpayers 

becau$e ofin$uffic;knt resources. The lenen: wert srricdy cdua tion."'.. and t-ailored to the 

spec i~ c rule "broken"' by the ~pay<:r; dlty ~re wrinen in :a hdpful tone :.and cle.ul)• 

st.ated the taxpayer w:u n04 under audit. These letters had a stacistia lly significanr positive 

m~ct on che Errc compliance of 1his group of t'..u-payers. Thus, projected against rhe 

populatlon of EITC file($ who \•iolaced these particular ruJCS". tOr the CO$t of a le-uer and 

postage:. the IRS could pf'e'\·enl S47 million in EITC noncompli:uwe.J1 TAS ls repeating 

rhis t(${ in the 2017 fili_n g$t3son: in this vmion. we wiJI be offering$0mc EITC taxp:tyen 

2'9 Statement of Jaime Vasquez. Chambertain. Hrdhcka, \Yhite. Williams & Aughtry, National Taxl)o3'fet Advocate Pvblc Forum. 48-49 

CAu&. 30. 20161 

30 For • di5<:Ussion of the application ol bell<Morallnsi~ts to tax edministrabon, see Most Serious Problem: Voluntary 

Cotnptranco: The 'RS rs Overly Focused on $o.CalJed "Enforecmenr • Rewmue and Pr'OductMty, and Docs N~ Make Sufficienr 

liM of 8eh#ViOIOI ~csurch fttSII)'Ict co rnerea$0 VOiunt8t)' T{IX CotnJ)J.iOfiCO'. ln(r~ SH •ItO Uter&tvre ~e'Yltw BW>Aofll 

Sc*nce Lessons for Taxpayer Cotnp,liance, val. 3,1nfra 

31 Fof e COP/ or the leltett -sent, t~nd o OO:utded d~:SCV$$1on of this res.eorch ttud)'. '"' Rete8teh Study.' Srlldy of Sub:seqvetJt Filing 

Behavior of Ta)(J>a)'ers Who Qalmed Earned rncome Tax Credits A/>panmUy ln ~and Were Sent an EdueatSon letter ftom the 

NDtion•J TttX/HtYCf Ad\'oc6tc. \'ol, 2. infr&. 

Taxpayer Advocate Servk:.e - 2016 Annual Repon to Congress - Volume One 
45 


Insert 33425A.041

Spceial Foeus 

a ded.ictn~d '"Extr.- Help'" line Ln wbkh trained TAS employm wlll answer taxP'J.ytr questions INfo" d\e 

taXp:tycrs file rheir retunu. 

NevcnhdC$5. rhe IRS rd ~ on audiu :as it$ prim.uy compli:ance rool for m:.inraining rqxming 

compliflnce- closing ne:uly 874.000 intiividua_l r:a.xp:t)'er :.udirs in FY 2016. wirh 84 pc:rccnr orr hOSt 

through correspondence.'! To understand the dfecth·eness of this application or ft"SSUIUS-. \\"C n~ to 

know wf1ou pcrcemage ofJRS audits resuh in no change. by rype of audir. Research has shown rh;u when 

an <tudit rt$ult·s Ln no change. the tUf»)'<t is mort likely to t'C'pott leM income in the future.'' Whett 

there is an ill!<$1m<nt, what p<«rntag< of audits ar< l<l)p¢Md lat<r M audit re<»nsid<r.uion~ ruuhing 

in unn«ess:uy downsueam re-work? Of ~ audits rh:u rc$ult in :a T:a.x Coun case. what perccnl2~ ;~rc 

scrtl~- and why -by IRS Appeals or ChicfCounsd employees? How much audir acriviry rey.Jits in 

furure voluntary compli:.1.ncc? Sine<' the poin1 of an audit is not just to assess additional tax but to ensure 

that d1~: same errors or positions do not occur again, what percentage of audited axpay~:rs undemand 

why the adjusrm~:ncs ~ nuck? TI1t$C are jusc :.. few of the questions chat ~I'$C.'tl1 shouJd be aski.ng of 

che IRS to ensure dut currem a.nd a.dditional funding is spent wisely md eA'cccivcly. 

t\s p:uc of chc rc:org:miution mandated by Cong.te$S i11 the ltnernal Revt1Hte Strvice: ~Vs:erueturing a.nd 

Reform Aet of 1998 (RRA 98), Congrcs..c; hdd joint annual hearings. O\'er live years, to re\•iew che IRS 

Slrnrcgic pl:tn . .M The htaring parric p:~nts included rhrtt membcn (rv.•o majoril)' :.nd one minority) from 

rnch of the congrt'$Sional commiuca with jurisdiction over the IRS- Senate Finance Appropriacions, 

and Governmental Aff.tirs; and Ho\I.S(" \'<lays and Means Appropriations and Governmental Reform and 

Q,·ersigJu. The hcating.s were co cover the following topics: 

(I) IRS progJC$S in tn«ting. its obj~tives und~:r its suactgie and business ans~ 

(2) IRS J>rogress in improving taX(X)yer $trVi« ;l.nd ce>1npllanceo 

(3) IRS pcog.reu on t«hnology modtrniz;ation; and 

(4) l11eannu.al filing SC'.a$0n ,J1 

Tilt~ Natio <=~) TaxP'Jyer Ad,·ocate recommends tho:u Congrd$ reinstitute chis c:omntend.able pnctic:e. By 

holding rt<urring joint oversight hearing_s., the lRS will have the opp<>rtunil)' to anic:ulate, wirh sp«i6cicy. 

its: n«:d foe addition~ resources and irs pl:.ns for :~pplying them. Hearing. from both the IRS ~d Oul$ide 

expcru - indudiog w professional org.anit.1rions, business ctpresenr:ariw:s. Low locome Taxpayer 

Clinics, and Jx:ha,•ioral scientiSis- Congress willl>C1rer unders.rand the c:haJienges 1ha1 both r~ IRS -:~nd 

LtXp:l)'CTS fitcc. h can then make infom1ed decisions about 1he lc\•d and general :tpplic:uion of ~soun:a 

nl!(t'.uary for the IRS to provide U.S. raxp;tycn with a 21st c:cnwry tax administration they am tru.s• and 

admirt". 

32 IRS, Co«<pplenee O.ta ~rehouse. Automated lntonnati()O Management System {.AIMS) Cloted Ca$e ~tabose. 

33 National T~ A~ e 2015 AnnWl Report tO Congreu vet. 2. 67·98 (R~rch $tvcly. Avd1t fM~( Srvd)'): N&tlonel 

TaKpayer Acfvoeate 2014 Annual RePOrt to Congress vol. 2. 27-42 {Researeh Stuctr. Esttmarlrtg the Impact of AtJdilS on 1M 

SubseQwnt Reporring Compliance of Small Bttsiness TCJxpayers: Prf!lt'miMry Ro:w/ts). 

34 Pub. l. No. !OS-206. § 4001, e""""" IRC § 8021(Q, ond § 4002, ..,...,,., IRC § 8022.112 SU.L 685,783-84 (1998i. 

35 H Roo. N<>. 105-3$4, ot $4-85 (1997), The Resuueturing Conlml$$i0n eot11e< reoommencled that CongrHs e.reate a joint 

COO'I'nlttee on IRS administration, whl<:h wouJd condoc-t jOllnt heanngs on slmiller topics. Nat.tonal Commlsston on RMttucturing the IRS, A Vision fOt lt Now IRS 2.J CJWK! 15. 1997). 

10 Special Focus - IA:S Furure Stat• 
46 


Insert 33425A.042

Spccml Focus 

Recommendations 

The Nouio1\.0lJ Tax~yer Ad\'OClte I'«Ontmcndi rh:u CoJ)gi'C$5: 

• Rcimuare 1hejoinc rcvicwof'hc: IRS strategic plans and budgtc provided for under JRC §§ 8021(() 

and 8022. 

• Require' the IRS to submit a comprd"K":nsive "'FumrcSt:ate" plan that d(.'$(ribes, in suflici('nt detai.l, 

its vision for a 21sc C<'ntury IRS. including an explanation of how that vision tn«'lS the needs and 

prcfertn«S of different U.S. wp:.aycr $CSI'n¢nts. and describes the dt.:~ll enges and obst.ades the l RS 

fuct.$ in :~chic\•i.n g chis .. Fun•tt Sfatc." 

• (lrovide funding for IRS ini1iacives that enhance and main1ain voluntary compiQnce, align \\~th 

che speci6c n«ds and preferences of t~)(l"'lyel'$ ai they anempc fO comply widt the rax l:aws, and 

elimin:.ue unn~ry downsnca1n re·work. 

Taxpayer Ad¥OCate Service - 2016 Annual Aepott to Congress - Volume One 11 
47 


Insert 33425A.043

Spec:tal Focus 

IRS CULTURE: To create an environment that encourages taxpayer trust and 

confidence, the IRS must change Its culture from one that is enforcement-oriented to 

one that is servlce·orlented. 

In irs SnAplhot of A &ua \f!-9' for Tax Rrform bl ~print. the HoUSe' Rcpublkuns' Tax Refonn Task Forte 

describes '"A Strvic:<' First IRS ... noting that "(a) simpler. fairt"r r.axeod.t will require a simpler. fairtr 

IRS with one mission: Puc the taX~)'el'f firsr.""' Congl't$$ h:uaddrc:ucd this issue befort. In the IRS 

Rcstrucruringan.d Reform Act of 19<J8 (RRA 98). it directed the IRS H) '"resc:uc its mission ro pbce.., 

greater emph.-uis on serving the public and mttting r:axpayers' nttds. "R 

Yet 1oday, rhe IRS's annual appropriation of$11.2 billion allcx :n~43 JX'KC-nt to Enforcement, with only 

21 percent attributable to tax-payer service. Of the $2.3 billion :allocation for Taxpayer .krvice. 73 percent 

is :auribut·abk to opcr.1tiona.l items like rect·iving and processing tax returns and payment$, and only 

27 percent is auribut-able co functions such :u outn:a<:h and educ.'ltion • .w ln othe-r words, outreach and 

edueuion :acth·ilit$ constitute k$s d\.1-n $iX ~')(I'C¢.nt off11e IRS bud~. 

... outreach and 

education activities 

constitute less than 

six percent of the 

IRS budget. 

f~ t.-x :a.ge04;y view$ iiJ: pri ~ry mis-sion as "' forci'~ t{ dle tu b.w$, it will design il.$ 

procedures: and ~pp )• iu rc$0Ur«S ro .. hum down" rh0$C: taxp:aycrs it vte'vs :u no compli~nt." 

It justifies 1his approach by rationalizing th::u law·abidi ng ru payers want ro know th:u all 

mxpa)'t'rs an- paying their F..ir share. The problem with this approach is that i1 undermines 

the willingncu of t.upayerS to <omply by {OCU$ing most of its f($()u00es on chose who are noc. 

willing to comply. Taxpayers who art willing co c:omply are ldi without adequate suppor1. 

In an enforcc:nltnt·oriented ru agency. if raxpaycr$ don't gn the help they need to comply and 

they n1.:1.ke a misra.ke, they are tre:ued :u: if1hey :tre t~ evotdtrs. lllj$ 1reument in tum br«ds 

teK'ntment and inc~s th<' risk that the taxpay<:r who was willing to comply is no longer 

willing to do $0. In thi.t ' ""Y• che mHlel'lying :wumpciol'l by the t:uc agency that caxpaye11 will 

evade t-ax b«omet :a sdf fulfiiJing proposition. The agency ends up COih'C:rcing a compl~nc 

,:l.xpayer into :a noncompli:tm one.~ 

What if the rax "gency adopted a dlfferenc ;~.pptoaeh coward up:~yetS? What if it :LSSunted duu taxpayetS. 

hy d large. wo1med t o obey the law and 1ha1 the primary mission of the f:tX agency W;LS t O f':acilitate th:at 

compli.ance by providing 1axpayers with the :usinance. educuion, and clarity they net'd to meet their 

tax obligations? \'V:hat if Wt' started out accepting that taxpayers will m:lke mistakes and, umiJ prov<"n 

otherwise, \W\lRle tho.sc tniuakc-$ are not attributable to a tax evasion morivt? l l l is matters. bcau.se tax 

no eompl <~ ce.like n'IO$( human behavior, i.s drh·en by a broad Spectrum or f.tctors., from just plain 

36 Hou5e Republicans' Tax Reform Task Foroe, A 8erter way tor tex Ref<>rm. http://ebetterwey.speaker.govj_a.s.sets/pdf'/ 

A&rttetWay.T.ax-SnapshoLpcff. 

37 RAA 98. 1>\b. L. No. 105-106. Totle t, § 1002, 112 Slat. 685 (1998). 

38 COt\$~ida e<f .AWrOI)(t8bOf'IS Act. 2016. Put>. Lew U4·113. enacted Dec. 18. 2015. fY 2016 Oper6ting PIM. tntetr6te<f 

f'tnanesal S)'stem (IFS). 

39 Seo Wnuen Statement o{ Pbm Olson. Priecwatcrbou$CCoopctS. NooonaJ lew>OYCr Ad'o'OC:atc Public Forum 20-22 (Feb. 23. 

2016); 

Those of you v.tlo know me know that IW not been fond of use of the word enforcement when tt comes to lhe IRS because 

llhtnll. enfOtein& tho 1~ tS M 3Cb0n Nt ~peels peoi)Jc to do someu.nc Mel 1t •s not somethine that has to bO v1SrtCd on 

the aYe,.ge ttur;payer. The 8\'ere«e ~r wants to voluntanly oomdr and we jlt$t need to make sure lh<!y htiYe the toots 

and the resouttes to do rt. They may need acMce or assistance but rarefy do they need an enforcement action to corrtpel 

them to PAY their tox Of to punish them ror f&~IIIOC to do so. 

40 FOt a dls<:us&l()(l of tho dnvers of voluntary compliance. see Most Senous Problem: Vofuntary CompJia~: The IRS Is Overly 

focused on so C.lle<l ·f,.,IC)rcomt.nc· R-ovet'lvo af'td ProdCKrMty,l/ld Ooes Not .W.ke Svfflt~r Use ot ~MvforaJ Resu~~:h 

Insights to Increase Volvntary Tax CompiJ.anct!', infra. 

Spoc:lal Foeus - IRS Futu,. Stat• 
48 


Insert 33425A.044

Spccml Focus 

This is not to say we should ignore those who are actively evading tax. 

Rather, It Is to say we should design our tax system around the taxpayers 

who are trying to comply, Instead of those who are actively trying not to. 

ordC'SSilC'$$ ro ignorance coconfwion ro polemics coaV':IriCC'. By foo.a$ing on the .sour« or rc-~son$ for 

11 tuparcfs noncompliance:", :and nCM jusr on the end rt'sult of the behavior, we ha\'c a bcucr ch.1ncc of 

changing the bto.h:wior and improving cax compli:an« going forward;u 

This is not to say we should ignore chose who a~activdy C\-:tding tax. Rather, it is to say\~ should 

dNign our tax sysrem around che t:upaycrs who are crying to comply. instead of those ,vfto arc actively 

trying not to. 

8rlngr'ng Abo11111 Cultural Shift: M>u Ctt Wh111 ~~~ ldttUUrt 

The Nacion:l.l Commission on Restnl(;(\uing the IRS $\lmmaritc<l tlu: agency"$ culcure in thi1 '~y: 

11u:· cuhurc of IRS is overly risk a''erse, based on a lr.tdition of ''aluing ch«ks and controls 

over crc.ative approaches to solving problems. In ordcr to tvolw: into a more taxp.l)'Cr focused. 

rC'Sponsive organization. a cultural shifi must occur ac the IRS. The positives of the cuhure 

are that employ«S will exocute order$ and follow directions. The neg;tti,·es <tre 1lut the IRS 

cnvironmcnr oficn docs noc encourage personal or org:tni'l:.lrion:.J growrh. and sriAe$ crenivicy, 

innov:nion, and quick problem ~olurion.~ : 

Omnging :m org01niuuion$ c:ulrurc begins wirh undemanding wh.1r drives cmployca:' nnd officers' 

~havior. Basically. you get wflat )''OU measure. l11c IRS's own annuotl announc<"ment of m<"asures and 

successn ~A«ts this <"nfonxm<"nt~hcavy mentality- cnfon:c:mcnt dollars d (v~ li<"ns and levies), 

enforoemen1 dollar$ collected, lk:ns 61td.levies isst•ed . .., It includes li\-e p:_tgc:s of"enfor«Jnem" rUtJfs 

and only one pag.e - six items - of rax:payer ser,,ice resultS. 11lert is no melltio•l ofhow m\•ch in the 

w·.ty or ru or pcnahies a~ ab:tred annually becau.~ rhcy were incortte~ly or inapproprimdy assessed. or 

how m.-.nyTAS CI.SO r~hcd in fUll or panial relic(, or hO\\' m.any ourrc:tch orcduanion cvcnrs ~re: held 

~p:rson so that IRS c-mplo}'«'.S and officers (including those in the audit and coll«lion f"unc1ions) could 

ho.r djr«dy about raxpay~r concerns. The JRS does not tr.tck how many people w~:rc- curned away from 

TACs (formerly known :u "'w.alk~i n sices· bu1 now :appo n1ment ~o ly).44 

d1 SH Wtlnen St.atement of let.ho Book, ProfCUOf, WI&I\OYl.'l Lew SChoOl. N3t.otllll fa~t Adl.«.ate Pubtle FOI\II'l'l $5 (feb, 23. 

2016~ 

I think, howevel. tcttJRC bad!. to trust and how that relates to ta.xpoycrs there ls no questJOn thGt sanct•oos ak>nc is rtally 

.no~ the wtiJ. • senetiOf'led bas.ed &Pf)n>tCh 1$ not tho only Wf1Y to encovtt'lte VOII,I"'t&ry oomJ>lianoee. l'her~ needs to be*' 

emphasis on in!>-unog that intemctfons with taxpa')'ers enhances trust and tnJst between the taxpaye~ and tM IRS is a two-

~ 5tteet but Jf the taxpa)<ers have an absence of trust in ~t the IRS is dolf'IC it leads to kind of spirals and 1ncreas.es 

no<>«lft\1)1~. 

42 N&tional conmssion on Restruetur~n& the Intern&! Revenue Semc:e. A Vi$ion for a NtJW IRS 12·13 (June 25. 1997). 

43 IRS, F1$C1tl Year 2015 Enforcemenr an<1 $etvice Results. htt..ps:j /WWW.irs.(.<N/UltC/r'lf!WstOO«t./fiSCa~at·201&.!nforoement.and­

&ervll»fesUits 

44 Since 2014, the Hat1onal TaltPCJ)'Or Advoc-ate has publfshed in tho Annual Report to Coogtess a -report card" on the IRS. l&·stiMC 

meUUres that would elvc a .sense of wtlet~r tho IRS Is ttUt.W'lC t6Jtpayct5 rieJ1L This. li"$t or meas.u* i$ oreanucd Wldct ci.'ICh 

of the ten t~f'R')'er rights mted In l.he Taxpayer S,tl of Allthts end c:ould serve os e s.c.artlng point for a more c:omprehensNe 

and balanced set of petfonnance measures. See Tupayer Rights Assessment.: JRS Performance Measutes and Data Rel.atmg 

to Ta)'J)I!t)'er Rights. infr<t 

Taxpayer Ach'ocate Service - 2016 Annual Report to Congress - Volume One 13 
49 


Insert 33425A.045

Special Focus 

If we want IRS employees to 

focus on increasing taxpayer 

confidence and trust In the tax 

system, if we want taxpayer 

to feel engaged In the tax 

system they are all a part of, 

then we need to find ways to 

encourage and reward the IRS 

workforce for engaging with 

the population and viewing 

the taxpayer as a partner In 

trying to achieve or maintain 

voluntary compliance. 

J( ~ w:tnl IRS cmplo)'eet ro focus on incl'dSing taxp:tyer confidence :and 

lrust in dle tax system, if we \Wnt t'Upaycr$ to fed en!?ged in the tax system 

they arc all a part of, then we need to find W".lY$ tO cneoumge and n:w·.ard theIRS workforce for engaging with the population and viewing the taxpayer 2S a 

partner in ctying to achieve or nu.intain volunf2.ry compli.-nce • ., 

Notwithuanding chc ubiquitous use of the {Crm .. ~for cmeni' throughout IRS 

tr.ajning. guid:.1 ncc (including rhc lnrernal Revenue Manual), and testimony, 

t.here is only one true .. enforcement" function in the IRS. a nd dl.1.t is the 

Crimin:al lnvet;cig:.uion funccion. Every other l'<11Xp.1ycr·f.'tcing JXIH of rhe IRS 

is in the husincss of serving the uxP"ycr by encouraging vol un ~ry compliance. 

Yn, there arc some employees who utilize tools that compd action, like lkns 

and l<"'·ies. But :tetivitin sud1 asaudiiS :utd app<"ab shot~d be viewed fint :and 

foremost as cd.ucnion:al opponuni1ics. not .. forc~m~nt " rn«.h.1.nisms. ln 

an :.udit. the IRS ean rn about the ch:tllengd taxpayers fuce in complying 

with che l:awt-, :and taXJXIyert etn le~m about wh:ac. in 1he cy¢$ of the JRS.lhq 

rcpon~d incorrecdy on the r.:turn. In some inscance.s ~ taxp.1yers can lear-n th:n 

rhcy can't gt't aw:ay with so hi g chq thought they could; on dte other hand. 

rhe IRS mig,hl jus.t le.un that ir w.u wrong aboo1 :an i.ssuc. or ac:cually ch:angc its 

pos.irion on an aSp«l or taX );tW. 

As we discuss in rhe M05t Serious Problem about IRS sln.Jctu.rc hercin. che gre-atest economies for a 

krviee~or- CntC'd Org:.antt:nfon ate achieved by Opc'r.tling <lS sm:ttl units th;&.t ate Jocuced in the prOXimity or 1hdr ouromcrs.* Through s1ructurnl design, pcrform:ancc measures. and. most impo1tan11)'• tt;tining chat 

rd n(orces &ab'C.nle t with the tupayer and undcrSr-..nding raxp;aycr needs and prc.ferencd, the IRS <an 

pr0mocc volunrary compli.-.ncc :lnd beoon\(' a respccrc:d :and .-.pproci<'ted fedtr.d age1\C)'. 

Recommendation 

The nall~paycr AdvQc:ue recomnlends th:tt 1he lRS publish a_n annual rcpon clfd on 

comprehensive me--.asures dut n01 only show lraditional "'enrorcement'" me:tsures but disdo~ how 1hc: 

IRS pc-rfomu::d in providing a.ssi.st:.ance and service in meeting {axpaycr needs and prefe-rcntes. as wtll as 

incre:u:ing volum2ry compliance over rime. These mc.&sures, in mrn. should form the b;asis (or Executive 

JX-rfornt:ancc commitments :and asst:ssmems. 

45 See Wnnen Statement of Ehzabceh Atkinson, l eCtalr Ryan. Nabonal Taxpa)'("f AcM:>cate Pubfte Forum 29 (Mll)' 13. 2016): 

Out \$X eooe Is very, very Con'IClltCOted ~ h'$ bottft( ror m. lA'S to be in o PGtl\fOn or U:StC!nln& to the' taXH)'Or than ~ 

an euthontanan type of reg,me that not only makes the taxpayer feel tike he or she ts not be~ listened to, but sometimes 

le3dl to lneottect fe$1.11t$ end downs~bm e«npl'loneo l)t'Oblcms b«evse tho pef'l()n ts &O wtr'led ott to ~ tt»: tystcm b'l 

their experience, they don' t teel l llle comptymg anymore. 

46 See Most Serious Probiem: IRS SuucltNe: The IRS's Fcmctional Suucrure Js Not WelhSu#red for Jdentlf)'fnt and Addressing What 

Different 1fPM of T-'X'Pt'I)'Cf$ Need to ComQty, infr~, 

14 
50 


Insert 33425A.046

Spccml Focus 

IRS MISSION STATEMENT: To ensure the IRS re<:ruits, hires, and trains employees 

with the appropriate skill sets, the IRS must revise Its mission statement to 

explicitly acknowledge the IRS's dual mission of collecting revenue and disbursing 

benefits, as well as the foundational role of the Taxpayer Bill of Rights. 

In RRA ?8. Congress dirc'Ct«l the IRS co l'dtate its mission statc.mc.nt with an emphasis on raxpayn 

SC'I'\'i<4:.'"' Accordingly. the IRS adopted the following mission st;uert\C'nl: .. Pro\•i<k America's taxpayers 

top quality~~ by hdping them undel'$ta.nd and nl¢CI their rax rcsponsibilitits and by applyint ''" 

tax lAw wid1 imegrity and f.oim($3 10 all.""' (EmphlUis added.) In 2009. wirh no public dOOL$$iOn. rhc 

IRS quietly made a profound c.h:mge co chac mission st:uement. which now re.1ds: .. Provide Ameriaa's 

caxpayus top qu:aliry st":rvice by hdping them undersr.md and mea their t:lX responsibilicies and mforu 

tlx hlX lmv with integrity and f.airness to all." (Emphasis added.) As noted in the preceding discussion of 

IRS cuhure, this shift in tone and emph3.Sis, from "apply" to .. enforce," has .signi6cant con54:quence.s for 

t.-txpaym. and is clo.sely related to the i.ssue of agency et~tutc". 

A $t:COnd problcn1 with the agency's currtnf mission S1atemcru is its failure tO :acknowfcdge and 

anicul:ue chat the 2 1st century IRS h:~os two sp«ific lint$ ofbusine$$: both revenue coll«:tor and benefits 

admini.s~ r.ator. The IRS colleen O"er $3 trillion annu.aUy :and issues over $403 billion in rdiands.. _.. The 

Earned Income T:ax Credit (EITC), a rt'fun<bble credit (or low and moderate income working F.tmilie:s 

and individuals., accounts for almc»t $67 billion in (red.its. paid to 27 million ca.xpayCTS." The tax code is 

incre-.uingly used to promote various social and t."'Onomi<: policies through the ~anism of tax credit$ 

3nd other t<lX expenditures.)' Tald1lg :an enfoi'CeJnt·m·orie:ntt:<l ~pprooc:h co tht$C inherently complex 

pn.wisiol'l.$, insc:cad of one based on problem idenfifia tion :a.nd undeur.tnding of d1e root causes of 

noncompliance, a n decer d igible mxpayen (rom claiming bendits tO which they are entitled under rhc 

law and prevem indigible taxpayers from underst:lnding what they did wrong. 

Instead, by aplicitly rccogniz.ing the IRS's role as a benefin administr:uor in its mission statement, the 

IRS willll<tvc to rethink how it oonducu m.ajor.up«ts ofiu: work.Y To fulfilllhi.s aspect ofits mis:sion, 

i1 wiD have to hire c:mplO)'CC'S whose skills are bcuer suite-d for this educational and c.»mpliancx wolk. 

Thus. for the EITC ;:~..nd other cax provision.$ speciflcaUy c_~cd to the low incon1e ')()pul:u on. fh¢ IRS 

wilJ h;we to hire or rr:~ifl employ«s with skills tb:n are drawn rrom the $C.X ~ work profc:s.sion.» Thc:se 

47 RRA 98. PIA>. L. No. 105-:z«i, T•Ue I.§ 1002, 112 S .. l. 63$ (1998), 

4$ IRM 1.1.1.1 {Mar. 1. 2006). 

49 IRS Pub. 558, lRS Data Sook 20l5 (Mar. 2016), Table t. flgures are for FY 2015. 

50 IRS, AbOvf £11C. U)S://'IM'W,ettC.irs aov Encc.ntr~oV8boute-rtc {1&&-t \'\$tted Oee. 31. 2016). For l*" Year 2015. 21.3 

mtlllon taxpayers had clalme<S $66.9 billion In EITC (after math el'l'Ot proc~tng, best poor to any audit of thew return}. IRS. 

Compt~ance Data warehouse. tndlvidual Rettffns Transac(ion File (Includes T.u Year 2015 returns poste-d as of cycle 47). 

51 For a discussion of the complexity and lack of transparency these provi-s.ions cteate, see Legislati"Ye Recommendation: Simplify 

the ln:cmal Revenue Code Now, intr-a. For f9c:Of1'Wnend.o.tloos about rcformlne the EJTC and olhcr Famtly Status ptOVisiofls. see 

LegiSiattv>e Rocommet'\dat.to~ r~ Reform: J?tosut~e!Vte the £(1(n$d tncome r:.x Credle aM lfeletf<l F8mily Sttti<IS Prl:witiOI'I$ co 

Improve CompNance and Mmimtze Ta~ 8utden, Infra. The NabOnal Taxpayer Ad'toeate has cwevlously diSCUssed desl"' 

elemtmts that shoutd be conStdered ¥rtten running soc.al benefit ptogllllms thrQUCh the tax eode. See National T~t 

Advoc&te 2009 Annual Report to Conete-ss. YOL 2, 75--104 (RunnJng Social Programs Thtou_g,h the TaK Syst&m). 

52 See Statemcnl of Pam Olson. PricowaterhouseCoopers llP, National Taxpayer Advocate Public Forum 47 {Feb. 23. 2016): 

11hlr'l:k U'lo n'IO$t lmport&nt U'lirc •s ft>t the IRS to fully embreee IDe mutllfoct-te<l respons.ibihues the~ •t hot. Wtth t'O'Spect to 

both colleet.ng tax u wen " admlnlste-rlnc ~nelit ststeom and admlnts.terlrc lots of other thiOC.S and making sure that tt Is 

facl.on"' tMt into how it pW!s rts scMce. 

53 Fot a detailed dlscuss;on of the chalk!:nges faced by EITC taxpayers, see Most Serious oblem~ Earned Income Tax Ctedlt 

(EITC'; The N.truro State's Rc#Ja()CC on Online Tools WiN Htum EJTC Taxpaye,s, infra. 

Taxpayer Ad't'OCate Set\'lu - 2016 Annual Report to Congress - Volume One 1S 
51 


Insert 33425A.047

Special Focus 

employees wiJIIta\'( d1e skills noc: only to employ inte-rviewing t«hniquC"$ that are desig.ned to dicit 

infomt.•uion without fei\r, but abo to focu$ on edua uing the t:l)(p.tycr going for.vard. 

Final!)'• chc IRS mission should explicicly acknc>wfcdge th::n the T:tx:p:"I)'Cr Bill ofRiglHs (T60R) underlies 

:.11 ofirs:tction!. As we discussl:ater in rhis rcporr, while dlC IRS has done :l commendttble job publicil.ing 

the TBOR to raxpaycrs, it still h:.a.s considerable work to do intq;.r:uing the TBOR in the life. tr.tining. and 

ethos of the age cy.~ Explicit mention in the mission suue:ment would reinforce co J RS employees, and 

reassure caxpaycn. tlut the TDOR is a guiding principle: fol' all IRS Qlc:tions. 

Recommendation 

The National Taxpa)rer Advocate recommends that the IRS revise its mission statement to re--emphasize 

a non-ccx"rcive :tpprooch to rax administration, recognize the IRS's dual rolc.s of rc'venue collector and 

benefits adruini.stl'<ttor, 01.nd cxplicidy affirm the rok of du: TBOR .a.s the guiding principle for w 

:~dJl1ini$truion. 

54 See Most Serious Pf'Obtem: Taxpayer BIN of Righ!s (TBOR}: The IRS MtiSt Do More to Incorporate the TBOR mro lis Operauons, 

mfra. 

16 Specia l Focus - IA:S Future Stat• 
52 


Insert 33425A.048

Spccml Focus 

UNDERSTANDING TAXPAYER NEEDS AND PREFERENCES: To ensure that the IRS 

designs Its Current and f uture State Initiatives based on actual taxpayer needs 

and preferences, the IRS must actively and directly engage with the taxpayer 

populations It serves as well as undertake a robust research agenda that furthers 

an understanding of taxpayer compliance. 

In 2005, Congress directed t.~ IRS to conduct a comprehensive r<""Vtcw of its curn-nr portfolio of sc:rv~ 

and develop a 6vo-~:u str.uegic plan for t:lX(X'~ r servK:.c-. ,, lll.:lt plan, the Taxpayer Assiscanc:c Blueprint 

(fAB). hauince been up<b tcd 2nnually, by congrosional direai,e." Far from being asuotegic pl>.n. 

chc TAB has de:tcriora,tcd into:. IU:t of unrebrcd initi:nrives;. Meanw-hile. 1 RS budget <:uts <1nd coo.sequcn1 

elimin:uion or rndictl res.rruau.ring of' core t:axpay<'-r services have incre:ascd f.:txpaycr burde-n and cost. 

An ~J dcrs ding of t<~~Xp:tyer n«ds 3nd prtf¢reoces: is a prerequisite for cff<erive rax :JdminisU"::nion.n AJ 

Figure S.2 shows, the IRS and TAS h:t\'e separmdy underrakc-n different sun•cys attempting to idC'fltify 

faxpaycr n«ds. 1"he w.a.y one asks questions on thesurvC'ys, and the very method of conducting thesurvey, has constquences. for the rt.liabilicy and usef\•lness of che dat'3 collected. For ex:tmplc, a rectnt 

Pew Rt:s.car(h ~mer an:.lysis of survey c«hniqucs conduded chat online-onJy surveys ha\'e a bias aga.i.nn 

AfriCln~Anlerians and Nisp.anK:s.,. 

55 H R~. No. 1()9..3()7, at 209 (2005). 

56 ~ $. R01. No. 113-&0. et 27 {2013): see ttso IRS Pl.lb. 4701. Annl.l"' 'tepcrr 10 Con,rcm: T1te Toxp-'tef A.s:s;sr~l'IC'e Stvtptmr 

Taxpa~r Service Improvements {NCN. 2015}, httP:/ foore.pubhsh.no.irs.goot/pub$/pdf/p4701-2015-11.00.pdf. 

57 see sunement of leslie 8ook. PtOfouor. Vtll4nov• SchoOl Of law, N&tion&l ta,x~ ~te PubliC Fon.m 27 {Fob. 23. 2016}: 

I think a fundamental start•n& polm 10 thinking about service ts that the IRS needs to knOw whom It Is $erving and the 

c:harDCten&tict and all~es as.soeiated wrth a partiCular (roup of taxpayers ot parties rt is retulatirC. ft sounds easy 

ti'IOV#I bul kriOwln& thO tb.KI)a)'et ac:tU6IIY IS a very te$0\.ltCO lntetiSMt endetwor. AI'! q.oncy fe<,toel on Ctf<iel'll;y and 

deltvering serwces at lowe5t possible short tetm costs without knowtf'ltl the impact and burdens of Its actions may find ftself 

pu5hlne more serious problems. doYm ~ road ~ilo at the same lime jcopetdiMC lalq)ayer riChts. 

58 Pew Research Center, Evaluating Online NonprobltbWty SuiYeys: Vendor Choice Matters: Widesptead Ertofs Found frK Estimates 

&ts.od on Bt&elc$ "nd HlsP~Jnk$ (Mav 2. 2016), http:/ /www.I)OWI'MoMc:h.or&l'2016/05/02/evbluaUnf,.onhno.nonpcobob'llty.-

wrvfffS/ ~0n1100 nonPf(lbabth\Y $Utvey ventJors want to ptOY•<'e sams>les that are tepce#ntat.Ne ot 'he d•vefttt)' of tl'IC U.S. 

populabon, but one Important quesbon ts \l!hether the panelists who ate members of racial and ethnlc m~nonty groups a.re reptHentativc of these troui)S more broadly. This study SOCI(ests they ate 1"10\. • ld. m 4. 

Taxpayer Ad't'OCate Set\'lu - 2016 Annual Report to Congress - Volume One 17 

Insert 33425A.049

t; FlGURE S.2, Summary of Taxpayer Surveys 

Data Collection Survey 

Survey Methodology Sample Size Frequency Conducted 

low Income The low Income Talq)B)'er Clink: (UTC) Progtam ptovldes tax rep- Telephone Random Digit Oiated 1.143 One time 2014 

Tox;payer Clinic re.scntation or advice to law lnoome incHvidutll.s 'W'bo need help (ROD) truldline and «»llphonO 934 Enfish 

s....., resolving issues with their federal Income tax rotums. 2()4 $t>&nl$h 

TAS f1'M.IItli)Urposc study to le.m more ®out taxpayers. who arc 

eligible for help from LITCs. The study gathered information on: 

• eligib4e taxpayets' ewarenns and use of LITC services. 

• tht \YJ>C$ of iUUC$ for which !hey would consider us+ne, 

dinics. 

• cfemof;raphic information. and 

• o1hot items.. 

flnd.-..ts. arc rCI)(OSCI'ItOtiYe ol the tow income popuiOtion 

(hOU&ehOid inc01'1"16 at or belOw 250'Jrr. o1 tho I)CNOrty te-Yel), 

lnckldit'C Spanish S.PC&Mra of this population. 

ThtTupayer Telel)h<>I'IC Random 0181ed 1.014 us One (ime 2014 

Advocate TA$ Mu1li1)UrP0$0 $\udy to taxpayer koowte<lge, (ROO) l&ndllne enc;t cellphQne c.ne ... 

Service: beliefs, barriers and perception of lAS and the IRS among US Population 

Hispanic" HiSP<Joics. H1span.ics 

s.. • ....,. OJie$18 •"" older 

432 English 

582 $j>&nl$h 

Sttviee TAS Multl·purpos.o w;payet survey to Tolephono RondOM Olgit 01&10d 4.000 2016 

Prioritit$ SUrvey • Taxpaver$' vM ot lAS SCf'lkto$ by deli'Yery dl8MCI$, &$welt (ROO) klofldl1f'le Md CC!IQhOr'le Sym;o. fund"'& 

as setvlee uws satisfaction and I ..we with NOYembet, 

s.ervioes. end to use and ln'lport.ance of delfvefy 1.910 

CI'W\nel$; ._.. .. 

• of thetr rights and re•ponslbl,tles 1.106 

with lR$ landline. 

• Internet use and abilities 804 cell 

"' phone l Taxpayer Muftlilorpose taxpayer survey to eXI)Iote: Online Panel 1 Phone 3.689 Anfk.lal.ly 2016 !: Experience · awareness and U$e of IRS seNices and {2.986 online f Survey channels. as weU as service users satisfaction with services: English; • Taxpayers' behlrviot patterns and potential areas fot 403 online 

I lmp((Yvements based on their filing, and post Spani$h; experiences (includes e)q)erienoe with refunds & notices); 300 Phone 

ii •"" English} · Knowledge of ACA requirements. 

--

M next f>4,_., > 

"' i 

Insert 33425A.050

it RGURE S.2, Summary of Taxpayer Surveys (continued) 

1 Data Collection Sur\'ey 

f Survey Des-cription,.·' Purpose Methodology Sample Size Frequency Conducted 

;; 

! 

I 

I 

;; 

I 

I 

f 

i 

!: 

TAC 

Expectations 

SurYey 

Web · f if$l 

Strtteogy 

ConJoint 

IRS Overs&ght 

Soard· 

Taxpayet 

Attitude Survey 

(CTAS)2015 

Survey of TAC users dcsli(nod to c&pturc TAC customer 

detnOCf'aPhic profile. measure CM!fal and service delivery sat· 

isfactioo, and the extent to which TN:, customer service and 

perfo-rmoncc exPCCtations were met from the UIXI)llycr pen; I)(» 

tive. Data from this research endeavor Field Assistance 

assess lind moddy its busfleu model. 

ConjOint survey 3itn&d at hOW taxl)tlye;s· 

l)(eferenoes Shift with cnange, to offerings. ThJS con-

)ofnt sutvey offers P3rtl¢ll>fW\tS dltferel'lt S¢01'18(ioS tor seMcet.. 

with tr&<Seo«s to see v.tUch options &1'0 the most imt>Ort&l'lt to 

partlclpant.s. The study objectives ere to: 

OetermiM: the of I)C)lent.iol wvloe: changes 0t1 

preference foe T/IC and phone. 

A$Se:SS baseline prefeleooes foe online Hrvlces ooo identify 

I)O{en\1&1 memods fOI tncroasfng prefelei'ICe f01 Ot'lllne SO;f. 

.;.ces. 

Explore how potential service cl\aoges. Including the addition 

of new online seMce oWons. effect texpayer preference for 

hChe'r cost chan.Ws, such as TAC ood phone. 

Suggest how the IRS can facilitate a Cl(eference shift to wet> 

fii'St service OPtions. 

Telephone survey which captwes taxpayets' tax compUance 

attitudes, seMce channel prefemnce, and behaYlOfs (can be 

compared to findings from surveys) 

Paper /lo-ocrson 1.519 in Evocy lh4'co years FY 2013 

Used cluster analysis to FY 201.3 completed. 

TACs. 3 visits (pre-filing, filing. 2016 in 

post•fi1lne) tc> cbeh of the 5 dif· analySis 

tcrent lAC types for a lOUd of 15 

wsits: 

· High volume. Higl'l YA'it: 

· Medium Volume, 

o...M•d: 

• Me-diwn volume. LOW 

· tow Volume, Less 

Ond 

• lOW' Volume. Coml)lelt Te:SII.. 

online. P81'l01 1.604 yebr or two 2015 • 2016 

depending on 

turMSing 

Random Digit Di:tlled Telephone • 1,000· Annually. Survey 2015 

landline and oell phone 707 land'ine. may be d1scon293 cell 

llhono th8 UflCertain 

status of the IRS 

Oversight Board. 
55 


Insert 33425A.051

Special Focus 

The IRS has I1C".1.Vily rdied upon chc WdJ..First Scr.tcqo• Conjoint Survey ro build its online account. 

That survey, conducted fully online, is hel1>ful in undernanding wh:n t:t_xpayers who :~rc alm:dJ tmlin~ :are 

willing ro do wich revrd co tmlint' IIIX tt.dminiurrrtion. But the $lJr\'C'}' ignore$ rhosc f<\Xp;l)'Cf$ who :ue nor 

online or who are unwilling to panicipate in online surveys)' 

During the lout year. TAS has condua<"d a sur\'c:y by telephone (landline and cdlphone) of U.S. taxpolyer.s, 

induding those caxpaycrs who have used IRS .scr\•icc channels in the recent p:m . .o Ahhough our anatysis 

is preliminary. TAS is able co reporc re$ulcs on particular segments of the individual I;'UCPQ!yet" popularion. 

in<l!lding; 

• No• Low Income caxpaytn (taxpayers with tOtal posicivt income (fPI) above 250 pcr«nt of the 

fede01l f'O>'<" Y level);' ' 

• Low Inc-ome taxpayers (t:.u:payers 1"1>1 at or below 250 rxrcenr of the federal poverty t"Vd)~ 

• Elderly taxp;ayers (raxp;ayers :~ge 6S or oldc:r): :md 

• DiS;,lbled t<lXp:!)'<'t'$ (c:.axpayeu who sdf idc uifled as h~ving::. sig.nificanc disabilily). 

n ,e StJI'\'C:Y findings for rhesc c::Jltg.or1es of ra>epcayers, reponed bdow. ::~re sr:uisriCtlly reptcSenr.uive of :~II 

ta.Xpc•yers in these c,ucgorit$.. ~ The impon:~ncc of the: I'¢Sp¢n-SJeS of the low incon'e a>epa~r population is 

JXlnic:ularly signilicant, sina- these mxpaycrs constifute over 46 perc<"nt of che individual taxpayers filing 

rewrns in 2016.~ TAS conducted this survey emirdy by tdq>hone {landJine and mobile phon<") in ordt'r 

co ensure it \\~.u not biased against rax-pa)'ers who were not online or unwilling lo answc:r .sur·.,·eys onJinc. 

The study found that Low Income, Senior, :and Disabled taxpayers are I<"SS Jikdy to ha\'e broadband access 

and more likd)' 10 have no in(erne( access than the Not low lncoll)( taxpayers. MoR: rhan 33 million 

U.S. ta:<J><'yt'C$ have no broadlxand aocC'SS a1 home. indudlng 14 miUion U.S. t3:<polyers Ytho have no 

internet .-cceuat home. Norabl)•. 2-3.5 percent, 40 percent, and 31.9 percent oft_he low Income. S<:nior, 

:md Dis:tbled ta:<~yert, resp«.ch·dy. h:~d no broadiY-tnd 3C«SS til honle, signiflc:mrly limiting their online 

activities. 

59 For a mote doett~IJcd discuss.on of our ec>neerl\$ eboul tho IRS onlrne oocoun1, sec Mo$t serious ProbJt:m: Onf.no Aceounrs: Reseatch m-to Tatpa~ and PntctJrtoner Needl aM Ptetereoces Is Critical as the JRS Oeve#op$ an OnllM Taxpayer Account 

System, mfra. See also Utemture RevieW: Cus«mer Considerations lor On/me Accounts lnfloduction, wL 3, fnfra. 

60 $ele Res.tud'l Study:: T~~yers ' Va,.,., AbJJ,t~CS attd AWtudes Toward IRS T-.xpayer $ef'\'icO: Tho £flee! of II?$ Se~ OeiJvety 

Chokes on O!ffetent Demographic Groups, vol. 2, Infra 

61 Tota• Po$.~ Income (TP'I) 1s calculated b)' summ104 tM positive values from the follOWing ilnOOme fieldS trom a taxP8)'et's 

most recently filed Individual talc rerum: waee.s: intetest: 6'tvidends; distribution from partnerships, .small business oorporabons. 

estbtes. or WSl$: Sche<fulo C I'* pt0(1ts: Sc:heduW, F net prohl$; and other .neome suet'! ~s Schedule 0 profrts ond tapt'l;&l 

gail\$ diSI.IlbutJM$. losses reponed t~ 6rY'f of these values are treated es lero 

62 For this interim enal)'&is, the confidence interval rqes from +/· 3 percent to 10 perc.m. depcodinc, on tho SOMJ)Ic s.l~& for 

eech quesoon. wath mot.t avestiOf'ls '"'lin& Into tho +/• r"OngO: ol S percent or better. TAS Resoerch expects confidence levels 

to lmi)C'QVe upon r«elpc of the complete data set of 4,000 surveys. For a more detailed discussion of the $01'\'ey design and 

methocSoloey. r.oe Reseoo:h Study: f~X.Pa)~ts · Varytng Abilities and AU/tudes Towatd IRS Ta~r Service: The EJfoct o/IRS 

Setvie-e Oer!wry Chokes (1'(1 Olffef'ent Otmolf'f)hlc Groups. '101. 2. 'iflfr•. 

63 Of the 135.8 million lndlvidum Uti(paycr$ who had tiled TY 2015 individual Income tax. returns th~ C)dc 43 of 2016. 

nearly 63 mtlbon taxpoyers (46.2 percent) h&d TPI et or below 250 l)ef«::~ of (edetel PO\IOrtY level. These I'IUt'nbef'S excluc:te 

filers 'l'lt)o are claimed as a dependent oo another tex retum_ tncllvldual Returns Transaction File fOf Tax Year 2015 (returns oroc:es.scd ttvouc,h October 31. 2016) on the IRS Compli.Oncc O;,ttl Warehouse. 

20 Specia l Focus - IA:S Future Stat• 
56 


Insert 33425A.052

Special Focus 

The IRS has heavily relied upon the Web-First Strategy Conjoint Survey to 

build its online account. That survey, conducted fully online. Is helpful In 

understanding what taxpayers who are already online are willing to do with 

regard to online tax administration. But the survey Ignores those taxpayers 

who are not online or who are unwilling to participate In online surveys. 

FIGURE S.3" 

Taxpayers Withoot Broadband Acoess at Home by Demographic Group 

19.0Mdl;on 

FIGURE S.4" 

Taxpayers Without Internet Access at Home by Demographic Group 

8.9 mrllion 

7,0mll110n 

4.3mmtOn 4.8rnliUOt'l 

64 See Rosearch Study: Taxpayers' Vary~ng Abilities artd AtiJtudes TOW<Jrd IRS Taxpayer Set\'100: The Effecl of IRS Ser~e DetrVCHy 

ChoiOO$ Ot> Ortferom DeMograJ)Ne Groups. VOl. 2. infrtt. 

65 ld. 

Taxpayer Ad't'OCate Set\'lu - 2016 AtlnU81 Report to Congress - Volume One 
57 


Insert 33425A.053

Special Focus 

The Not Low lneom< taxp;ay~r g.roup i.s online more frequently (fl'om home, W(lrt.:, or eh~"··here) than 

the \<ulnernble group$. Alm0$l 19 percent or the combined low Income. St!nior. :and Disabled uxpayer 

populations d 1hey go online IC$$ than once a w.:ek or never. 

FIGURE 5.6 .. 

Taxpayers Who Access the Internet Less Than 

Once a Week. or Not at All. by Demographic Group 

U .lmiDIOn 

Low Income 1axp:t)•ers are more: likdy chan Not low Income 1axpaycrs 10 accxss the intttn~ from 

libr:ariC$ or 1hrough cheir snurcphones.fil Access 10 IRS online accounts via p ublic computers an create 

SC'rious risks co lhe privacy or caxpayt"-r <b.t:a.. Morc'Over, taxpayers whose internet access is through their 

snu.rtphones repon being serious!)' dis:.~dvantagcd in performing tasks like uploading resumes and tilling 

ou1 onJjnc job :1pplic-.uions... 6l Other complex r.1sl<$ S\lch as filing"' rax return m:•y also pose simib_r 

challt:nges. ll'ese findin(;$ h~vt: signifieam oonsequenCC$ for<' brgc pan of the t:lXJ»ytr popubcion 2$ the 

IRS shifis to online accounts, audi1s, :tnd communicnion. 

The IRS h::l$ publi$hcd sevc.raJ•vignenes" rh:at depic~ how differenr type$ of r~~)'(-1'$ wiJI ime~ct Qnlinc 

with che IRS of rhc- fUcu rc-f" BQ(h the Individual (fJTC) c:upayc-r and the Small Business taxpayc:r 

vigncnes contemplate in#home or in· work broadband access and taxpa)'CfS who areromfortable with 

online ra.sks. TheTAS sun.•ey findings show that for large portions of the t..Xp;t)'er population. raxpayen 

continue to be uncomfon:~ble with ""'">' :aspccu of online int·(T3Clion. For ~.mplc, ~II of the vulnerable 

gt'O\•ps (low (nconle, flderly, :and Di.s:~~l>IW) ~re less comfortable $Cnding emalls on the internet tban 

the Not Low Income. Similarly. all of the vu)ner.able groupS;, p.tnicu.J:trly ~niors, fed they :ue less 

66 See Reseatth Study: T•~rers· VDf)'irlg Abilities Md AUttvd~ Towbrd IRS Ta;q»)'tr Service: ThO Elfeer ollRS Setvice Oelim"y 

Chokes on Otfferenr Oemotraphk G(()Up$, vof. 2, Infra. 

67 FOt UI'I<Jerty;ng d&l&. soeld. 

68 Wntten Statement of Aaron Smith. Pew Recseatch Center, National TaxPII)'er Advocate P\Jbliic Forum 1·2 (feb. 23. 2016): 

In • r«ent Su:tWY th~t we conducted ebout JOb soekll'll oollne. tor example. theM '"smortphotle only'" usen were tar more 

IIMty than oUler Americans to have used their Stl'\Mtphone for htghly compleJt taSkS, such as titling out a jOb apphceuon 

or tiVM creall"( a resume ot cove, tette-r. And in atcnerat. a substantial number of non«oa<l>and adopters indicate that 

performing even relatively basic online Jo«>.$ee~a ecttv•ues - svch as ema•lq en em~r. 01 fllllt'IC out en on.lino 

apelfleauon -can be ehalleocln& w•thOut the benefit of a dedicated hOme connection: 

69 .se.t hnps://ua~a<tvocate.irs.&ov/I)IJbi~C-forums OOd hnps://www.lr$.p/u$C/newsroom/fvtu,...itate-an6.t~tle s.. F01 

a detaijed discussion of the ftawed asst.mpbons relatl!lg to the lndMduat (EfTC) vignette, see Most Serious Problem: famed 

lfl!COmlt Tax Credit IEITC): The FutiJIC State·s Rcl•ancc on OnliM Tools WiU Harm £/TC Ta~l'$. infnt 

22 Special Focus - IA:S Future Stata 
58 


Insert 33425A.054

More than 33 million U.S. 

taxpayers have no broadband 

access at home, Including 

14 million U.S. taxpayers who 

have no Internet access at 

home. Notably, 28.5 percent, 

40 percent, and 31.9 percent 

of the Low Income, Senior, and 

Disabled taxpayers, respectively, 

had no broadband access at 

home, significantly limiting 

their online activities. 

Recommendations 

Spcc1al Focus 

skilled than the NOt Low Jnc:omc at doing rt.Seaoc.h on the inc..·rn<'l. And 

nl0$t importantly. more rh:m h.alf of rhe low Income. Senior, ~nd Dis-abled 

raxpayeN St;tttd they did nor f«:l $«\Iff: sfuring p¢1'$0113.1 fi :~ clal inform:nion 

over the Internet. Indeed, evt•n among the Noc Low locome population. over 

43 pc:rcent of raxp01yers said they do not fed .secure $haring their per$0nal 

financial infommtion ('JVer the lnternt"t. 

FinaJJy, significant ptrctnt:aget of aU t.u::payer segmcr1t$ did not fed socuce 

sh:.uing pc:rsor1al information with a go,·C'rn•mnr agency. Only 38 pcn:C'nt of 

the Nor low lo<:omc popu ~rio , 33 percent of rhc Low Income, 17 pcrcem 

of the Senior'$, AAd 32 percem ofDiS3bled t<'xpayers were comforf2bJe $~ti l'lg 

personal information with the government. These 6ndings have profound 

impltcnions fo r raxp.1ycrs' willingntSS to inrcr:aCl with the IRS online in all 

but the most rudimenra.ry of action.s. 

Thek$ufVC'y findings we~ mirrored in te3timony and corncne.nts n~de 

at the N;~.t l Taxpayer Advoc:ue's Public Forums on T:axpa)'cr Needs 

and l'rcfertnces. as wdl as the Foau Groops~r IRS ~x Forunu ;:and TAS 

employe..: moetiJ,gs..10 From u «he d:a~ :a.nd pub! it suggestions, i« is t&e:.r thai 

an inadequate emphasis on and provUion orin-person assisrancc will Mrm 

U.S. mxpr.aycrs in the 21 s1 ccncury. 

To sure rhat both the prtSCnt <'nd futute sr.trcs of tht IRS serve- r:axpayers we.IJ. the: Na.rion:tl Taxpayer 

Advocate teconunend$ th•u: 

• The IRS. in collabor.uion with the Na1ional 13.xpayt'r Advocate, undertak<' a compn:hC'nsivt' 

study of GLXpa)"C't needs and prcrt"rcnces by taxp.1.yer SC'gment. utilizing telephone, online, and mail 

surveys. foa.IS g.roup1, town haJI$, public rotum$, and researd\ studies. Thc-.se iniri:ati,·es shouJd 

be designed co solicir t~'P"J" n«<b and prtfert'c\Cd, d noc be biased by tlle IRS's OWl\ dci:ired 

dircc.lion. 

• Congress rt"qujre the IRS and tht' NouionaJTaxpaytr Ad,•ocnc 10 jointly rcpon on the ~subs of 

thi$CORlprehensivc study lhroug.h :a rc-in,•igor.ued TAB. 

70 5oe. tJ,g •• Oral St8tetnel'lt of So$811"1 Oiehl, PenSt.rv Pf3n ~. II'IC .. N8bOI'I&J Ti!IXP3YCt Acfv0e6t~ Public f.ol'\ltl\ 18 (AI)f. 8. 

2016): 

What I 1\ir\'e observed Is that the new 1ndiv1dual and boslneu tallp;ryer e>:peoence of the futwe model seemed to prawdo 

htU~ room f<>! pet-S01'181 (;()(lt&et. Gt&nttd. th•s wi• tit wen into U'le e<>ns.tr8il'lts ot u-.e bvelgct. but 1 fet~r that l'n&ny w11t sufff:f 

and suffer (featly. lel's consioor rebree$ who h8Ye extremely' invoiYed questions.. IA'ho will Mlp them? Wdl th1s model 

result in m0f8 unanswered phone calls wrth no resolutton, or a resolution that comes too late h!Mlg the taxpeyer me 

I)MOity Sftu;&tlon. 

See etso Taxpeyet A<Nocete Service. Executive Bnetmg: Future State Oiscuss.lon AnaP's 18 (Sept. 2016): 

The tR$ ¥~11l be facele$$. A taxpayefs only lntetO«ioo''s with a human at \he IRS will be when there tt 81'1 enforcement.()1)8 action taken w1th r~d to the t~(s account. tl will lcaYe many taxpayers Without bas«:. services needed to oompty 

w1th IJ'I.& we. $y$tem. on ~ hand. the deSCribed seeNn<> might dec ~MO eolts 8nd $\bfflf'\S durin& thO iRI\l•t proee~ bvt 

It ooutd \'01)' euity increaw calls end steff~ ohcr proeus.lng belcouse the taxpayer reqwes el&flfiCatton of d\enges and 

adjustment to hls/het account. We have expenenoed numerous calls 'o\tlen the bar on the •Where's mt refund .. epptkatlon 

et.ane.es u~xpCc:tedly. 

Taxpayer AdYOCate Senotce - 2016 Annual Report t o Congress - Volume One 23 
59 


Insert 33425A.055

Special Focus 

TAXPAYER RIGHTS AND THE FUTURE STATE 

Sinct' adopring tht' NationaJ 1'Upa)~r Advocttt''s propoSt'd Taxpayt'r Bill ofRight.s ( J"BOR), tht' IRS has 

nu.de commendable eOOru to lnform (3X(>3f'Cr1: about their rights.71 As we obst'r\'e l:atu in this report. 

howt'ver, the fRS has a mote unt'ven record in complying with the congressional mandarc, codi6ed in 

lonem>l Revenue Code (IRQ § 7803(•)(3). oo edu<o<e IRS employe<> •bouo ohe TBOR.n 

The N:uio11--.J Taxpayer Ad\'ocne believe$ ch:u (:IXpayer righu. and the TBOR specifically. should be 

chc: found:uiQn ror {:\)( ~dminiStr.uion. ind\tding a.ny Stt:'l.ttgk: visiQn for the future. Yet few docunl('Ot$ 

pt"rtaining 10 1ht' Future State that have ~en made av:ailable tO the National Taxpayer Adv()Clrc: addrt'Ss 

the ·rsOR, and those t h.'lt do only nominally mention i1, uriJtz.ing a checklist :tppro:tch :u best . None 

explains how the prOposed Future State design and initiative'S wiU s.p« f~ y advance the general rights 

stated in the TBOR and che $ped6c prO«ections :tlforded by the IRC.7

.) 

At c:Jch of the N:uiortal Taxpgyer Advocate's Public Fon•tn!l on Ta.xpa)ttr Needs and Pr(fcrcncts, chc 

pcand iSts and audienu members wt'fC' provided copiet of IRS Fu u~ Sc11te '"vigncn¢$" j>C'ttaining 10 

individunl and sma.ll bwint$S taxpayers." ·nH:$(' vigJ1CU('S provide the Ol4»t det:Oied reprC'SCnt;ttion of 1he 

Future Stare made public co c:bte. As such, they offer insigh1 into how the IRS tl1inks it will interact with 

che taxpaycrs of tl1e fUture. 

At C'\'ery Public Forum. pandisu and audience members exprt:.sscd .serious concerns about the interactions 

described in che vignenes. A threshold conc<:n'l \ V<11$ thar the S)'$t¢m the IRS is designing sec:nu to be 

sraekt<l in the 1 RS's f:.avor- i.l'., in boch vi-g.ntttc-s. the taxp3yer lose; he or she was wrong. Nowhere 

did rhe vignette demonsu•ue how rhc UX(>IIlyer C(IOld prevail in the $f$tcm of the future. P~ tc Fon1nl 

paneliSts and audience member$ allke commemed on thi.s -:I.SJl«l of rhe Future S~::ne: 

I jit~d it fotmy t!Jnr in bcKh ~enari os, 1herc:'s mor-e taxa I rhink rh:n reflects 1he ide.t rh<tt 

rhis modd is abomche IRS finding new w.ays 10 use r«hnology for rheir benefic, and nor for 

c:axpa)'er purposcs.7) 

Jj, n CPA, and 1\·e bttn practicing for 35 years, but my primary muon for cominghere, at 

least - l read your ycar-.end report. and even just .seeing these: future st:uc diagrnms here., and 

what $truck me is the.re's an ari'Og;tnct unfortUIMtely of che IR.S t11at they can do rhis dltm.sdvcs, 

and they don't need any input from r-.ax '><li)'n$· And the CXM'Iplcs hert-borh end up r('SOiving 

in more ra.x ng. owtd, is like,'~ were right, you we~ wrong. P."Y w the money.~ 

71 Seo taxpayer Sdl of RiC'lts (TBOR). v.ww TaxpayerM\iocat&.ns.gov/taxP<I)'e:r-ttgJ\ts. The ri~ oontamcd in the TBOR &e now IISte<:lln ttw: Internal Revenve Code (IRC). ~ Consell<f~ ed ApprOI)ri.etk>nS Act. 2016, Pub. L No. U4-113, OMs.ion Q. 

Trtle IV,§ 401(&) (2015) (COdtlied at IRC § 7803(a)(3)), 

72 See Coosolldated Approprit~tions Act. 2016. Pub. L No. U4·U3. Division Q. Tltfe rv. § 401(a) (2015) (codlfted at 

IRC § 7803(eX3)), For a de1.blltd dtS(uSS•on of the IA:S·s T80R effOrt$, see Most Senous Ptot>iem: T•XIH'rt:r StN of Rttflts 

(TBOR): 1M IRS Must Do More to tncotpOrare rhe TBOR Into res Ope~ations, mfra. 

73 The Notionol T~t AdvOc:&te h&s lde:ntrlied t.peeifiC t-...poyer riihtS conc:emt. relet~ to 'Re&l Time· w bdtninattrtltiOI'l 

befo.oe. See Nattonal Tali.P8)'er Aclvoeate 2012 Annual Report to Congreu 180-91 (Mo$t SeRous Problem: The Preservation ol 

fundamentat 1ax(»yet Rights Is Critical as the IRS Develops a ReaHlmt! Tax S)'Stem): National Taxpayer Act.<ocate 2011 A.nnuat 

Report tO COrereU 284-29$ (MoSt ScriOv$ Probloem: AcceltJtot~ Thitd ~rty tnfotmacion ~eport•ng and PTt·PO,>t.ll.ocfd Returns 

Woukt ROd~ Tal(pa~ Burden end Benefl: T•:r AdmJtllstJation Bur re~ PtCM'e«ions Mu$t 6~ Addre$~. 

7 4 httn:/ lt•x-peyera~oeet~. rs goyJpubNOofOtUI'nt. For tt teprO<fuctiCM"'l'IN dr$CU$$i01"1 of lhe E.ITC 'o'IJtnett~. tee Most SeftO\It 

Problem: Earned Income Tax Cred1t (EITC): The future Sta ~'s Reliance on OrMine Too.!s Wllr Harm ErTC Tsxpa)'l!f'S, Infra 

75 Stotement of Al.ldienee Me . Nt'loonel TIJXP3YCr Adv«&te Pob'fC FOrum 39 (Ava. 18. 2016). 

76 Statement of Audience Member, NatiOnal T~cr Advocate Publ.ie Forum 55-56 (Au&. 18, 20 16). 

24 Special Focus - IA:S Future Stat• 
60 


Insert 33425A.056

Special Focus 

Other p:tildists noced tJ,ar d'C' basic <1.S;kltnptio•lS about the taxpay<"r pof>ul;uion iiJustr..ted in d'e vigneUC'S 

were seriou$ly fl~w·<~d " For «2mple, the vigneuc for individual taxpayer$ involved :an EITC cl1in\:l.nt, 

3nd as w~di.scuss in :a Mon Serious Problem l;ttcr in chis repon. it ;w:umes th:u the.-ver;l.gc ElTC 

I'C'Cipicnl has bro.1dband access and :a desktop computC"r in her home. h:u a high enough education ~·d 

co hold a nliddle--sc::hool math t~che r job, has a sufficient crtdit history to C«.-atc :.n IRS online aceount. 

:and n n:avig;nc and undentand the complo provisions or the t<l.X ode. ~ None or chc.sc :mumpciollS i5 

:w:cur:ne with m-pea to the wet:tge E.ITC rteipient. For example. in eight of the II cicies in whic:h the 

N:arionai 'I:.Xp:tyer Advcx;ue hdd Jlublic Forums-. the $t:aning $:1..l;uy of:. middle $Chool m:uh teacher is 

above the EITC inromc eligibility fora two-p<non household. In as<cn«. the emir< vignnt< is b:JS<d on 

a nona:istcnt t.o~xpaycr pro6k Yet this has nat stopped the IRS from building its ''ision upon this illusion 

or, at a minimum from using this grossly inac<:ur.tte profile to illu.«r.~tc it·s vision. 

Morrover. t~ IRS Futurt Sr:.ate \'igneues Sttm to envision a completdy digir:.al intc.r:action with r.upaycrs 

about hutnsely &c:cual and specific nt:attet$. P-Jrt;cipanM in C\'try Public Forum, C\'tryTax Forutn focus 

grO\•P· d every TAS grout' meeting (eh chis vision w.u unrWis.tic and h:.~rmfl.J! to raxpcaytt'$." Here are 

just .. r~v of cbc $(~11(0\ent$ &om Public Forum pani.c.::ip:tnts. 

Bun~Ue nnllffi kilullliDn.J ofnal pHpl' :.rc. so unique rh:u you couldn't ma_ke rhem up~ 

you know. they just -che w::ty rhat people come. to us :.nd wich their circumsmnco. you go. 

Oh my God how did this h:appc-n. but this is the w:ay it is and you have to dC"".J.l with it. And 

you're helping them. \VIe couldn't ~c.n imagine it. 

And again. it'.s just \'eryarrogant of any computer person who decided t'O design :and think 

chat that's all the opcions chat chere a~ n,ert's alw<')'$ - you have to be :.tble to chink &~.1tsi e 

the box. That'swherea li,·e human bei •~g will alw.o~)'$ bebcuer.*' 

TlufuturY vUiot~ oflhe IRS :a.ssumes that :axp:t)~rs have :access 10 technology and will be 

able to navig:ne the IRS's online systc.m ro resoh•e d1c.ir tax issues. We know from represenring 

\•ul erabl~ populations. such as the poor, disabled :and elderly, in dealing with our current 

cax sys•cm thal they will ha,·e no easier rime na"igating some new online sys,em. There will 

set! I be barrierS crtattd by poor licer.tcy. rntntal :1.nd physkal irnJXl,irtnenrs in the compliated 

nature of our mx $)'$tem. :as well as new ones, such as XC<:S$ tO technology 3nd unders-unding 

how to usc it. Given 1his. the IRS's f\.nure s1:.te vision could make the nax issues of low 

income and othcrwiM vulner.able tax~ye-rs woi'S(' if they USC' th<' online system without fully 

appreciating what thty arc agredng to :and what righiS they m:ay be foregoing. 

77 See Ofal Stotement of Polly 8one. Texos A:~nde l.etal Aid, lne., N~tlonal T~xpayet Advoeote Public Forum 5.4.55 (Aug. 30. 

2016): 

rJrst of art, this vilt(leltc. I'm wondennc wtYy whOever wrote •t moy think U.s •• ~ly rcl)f'e$Cnt~tive of ~ peopf~~t VIM Q.et the ellmed kloome \$X cred•t . ... I looked up the $tartlng salaries of te$Chel'$ here ln SAl-SO $Od with what. one child her 

full year. she would not qualify for en earned~ tax credit ... . So this -sn't reJ)fesentative at alt. My cbent would more 

tMn ltt<.ety bO someone who WOUld be a Pf'Q'ndcr or e health home prOVtde" SOfl"'6th•f'C th&t coos •n and tb~ care ot eldcrty 

~>«~Pie durtng 1M day Of someone who WQtkS In hOul-ekeeP4!ng e~t one or our metYf hot~s hoere tn ~ Anton.o. 

78 S.0 Most Senc>us Problem: £•1"ne(tlfiCOti"'C' T.x Cf'edtl (EITCJ; ThO Futwo Sr.ourt #?e~;t(I(C on OnliM Tools W•N Hltlm EJ1C 

Tax,oa)'e'IS.Infra. 

79 t\ttps://~f8dYOC3tO,irS.\lOV/puba,c..fOf\ll'n5. 

80 Statement of Audience Member. Nabof'lal T~cr Advocate Publ.ie Forum 57-58 (Au&. 18. 2016). 

Taxpayer Ad't'OCate Set\'lu - 2016 Annual Report to Congress - Volume One 25 
61 


Insert 33425A.057

Special Focus 

In addition. gh·en the i$$ues the IRS hu in replyir~ gto .nail.l do noc. have n)ucll confideno: 

that electronic oommun~rions will be acced upon in a rimd)' manner cirhcr.*1 

Ou,. firtt ~hoic1 of nrlio,, typically. ifir is fairly sctaighlforw:ard we can compare' numbers 

and 5('(', okay, yeah. lhcre was a mistake, something was missing. We didn't have cen:ain 

infonnarion. Whatever it might lx. We could probably h:andle tlut by correspondence. 

Write ached.: or write a lcttcr. We wiJI get it rt$O)ved. A lot of rin~a we need to grt on the 

phone. 

So one concern that 1 h:~.ve.l rhink our office has in gcnCT.d wirh rhc fUture sure is really 

looki n~ t OW.ird$ hC".~vy reliance on dcccronic:s, technology, co be able ro r.dl us the inform::uion 

ch:u we neM. Our experience has been that tdls us half the story. It tdls us wh:1t the IRS 

chinks is going on or what's in their system that might be causing a problem. Bur it doesn't 

acntally fdOive everything. We have had acc-ess co online sc:rvt«s in che f>"SC.. and it gh•« us 

sorne information about what is going 0 1\, why c:he IRS is $C'nding this no1 i«, what might 

h~ve triggered it. ch:u w~ (2.n maybe I'Q~ eshoo• ~nd 6gUJe out here is what is missing. or 

here's what •hey don't h:avc. But 1he rt'$1 of rhe story typically t-akes a phone ctU.a: 

Ami ngnin, bun use people need back tnx h,tp, they n«<l to get copies o( their transcripts. 

In looking :u the differrnt Y.,tys ch:u the 1 RS is considering how to~~ tr.mscri.pts, I think if 

you're there: on ~ 1Udday online, the moon i.s w.u:ing and. you know, thetr'$ like ~gerbil in lhe 

room, you qu3lif)r. I think it'Jilke a ve:ry narrow KC of people t:hat are going to be :able to use 

ch:u . .., 

Digiwl Commm1icatitms n11J tb~ .. Mailbox Rule .. 

Underlying rhcse grnt'r.ll concerns is the f)O(enriaf for erosion of vc,ry specific t3XP'ytr rtg.fus. For 

cx:am,,le, under IRC § 7502. if a r.txpayer c:an demo•utr:ue he has nuikd a parricul:ar document co 1he 

IRS on or before' the .st:lfutory due d:ue, it will be de<'mt'd ro bt' timdy 6lt>d. The Secn,:uy isauthorittd. 

to promulg:ate regulations setting forth how .. prima fori' ~idence of ddivery and the postmark cbte shall 

apply to ctrtified mail and d«tronic filing."'--' 1l1is rule is known as the ''cimdy maiJed,timdy filed"' Or 

'"mailbox" rule. ·ro d;ue, the IRS ha.s: nOf explained how rhis n.lle will be 01.pplied in the Future St;ue. 

For example, tel's look :u ~ne, the EITC (a:<paytr <k.scribed in the: IRS'$ vigncnc. Suppose Jane rccdves 

a m:~th error notice under IRC §6213 giving her GO d:t)'$ co rtque!$t ab:ncment of the cax~nd recei,·e 

deficiency procedures. On day 60. J::-me log.'5 on ro her IRS accoum :tnd sends an em:.lil requesting an 

abatement. The IRS ~iYes 1he enl.'lil on day 61. In discussions with the- Office of Chief Counsel, the 

Nation:..l Taxpayer Advocate Ius bttn advised that the m3.ilbox rule would not apply to this em:ail. :a.nd 

thus Jane did not respond timely. the :aS$C:$$mtnt sc:and$, a.nd she loses her Nght to ddldency procedure$., 

11Ji:S means she also loses the opportunity to petition d1e United State$ Tax Court, r.ht y judicial 

81 Wntten Statement or Arthur &ruett.leaal Servlcect of Southem PJedmont. NatJOMI TSXP8)'er AdVoe<&te Publle Fora.m »21 

, .... 4, 2016}. 

82 Oral Sl&tement of R~hn J. Groseclose. Johnson Pnoe Sprinkle, National T~r Advocate Public F"ocum 25-26 (Apr_ 4, 2016). 

83 Oral Statement of Robin Met<.i.n~. M~ CASH Ca.mpaiiJl, N8tiOMI1P.~t AdYOee:tO Public Forum 44 (M.oy 13. 2016), 

84 IRC § 7502(cK2J. 

26 Specia l Focus - IA:S Future Stat• 
62 


Insert 33425A.058

For the Future State to 

succeed, the IRS and 

Congress should consider 

how the mailbox rule 

will apply to digital 

communications, 

weighing the alternatives 

in the light most 

favorable to the taxpayer. 

Spec1al Focus 

forum in which :a taxpay~r can challenge a deficiency without paying the mx lim, 

undermining her rig/11 to npp<lll111J!RSd«isiiJI1 Utili/ intkpmdmt fomm. When the 

National Taxp:ayer Advoc:ue pointed out that the caxpaytr could prove when the 

enlail w.as stnf (jus-t as :a facsimile log an shO\v when a fax trJnsmission occurred), 

rtpmcnnnives of the Office ofChiefCoun.sd Stated rhat email$ and f:aaimile d.1tes 

an be altered by the taxpayer, ju.s:r 2$ po$Uge meter d."ltes c:m 1x altered. :tnd 1hereforc 

th<' maJJbox rule should not apply to digital communications. Under chis approach, 

only the unsophinic:ued will utilize digital communica1ions where the done of a 

docuntent is c:ritkal. 

Here. then, we have the heart of t.hc problem with the FuiUrt Srate. It is designed 

around a fundamenral su.spieion chat aU raxpayers are likdy ro cheat, rather th.tn 

giving taxp.::.yers the benefit of the doubt and assuming they will not manipulate dates. 

I( w~ really care abom raxpa)•er righl$. including the right to appeal co an independent 

forum, wt-should design a system th:u is b;ased on the premise that most taxpayers 

are willing and trying to comply \vith the tax Jaws. For the Future' Sr..ate to succ«d, 

the IRS and Congtt":SS should consider how the mailbox rule will apply to djgitaJ 

conununic.uions, \\'t'.ighing the alternati\'tS in the lighc most fuvorable co the tupayer. 

Wlulli fill Amlit! Tn.xpa~r Rights anti &al· Tim~ AJju.sf'lltfflfl Duriug tbe Filing s,ltSOII 

An e\·tn rnOI'C' troubling issue ariSC'S when \ote consider dte impac:t of the IRS's incrC"aSing abiliry to idC"ntify 

errors and questi on."~.b e rerurns while :a I'<'Wrn U: being prOC<:$St'd and befo~ a r¢(und is Wued. In general, 

che ac« e~ted d\•e d:lre for FomlS \V/.2 :tnd IOC:>9~Mis:<: h!S«i to tq>On non·emp!oy« compensation)" is 

an extremely importllnt and posidve ck\·dot'tmnn. one d'l.;\t the Naciotl...1 lax-payer Advocace has proposed 

sin« 2009.~ But shifcing examin:uions of returns into the 61ingS('ason lw prof~.~nd i•nplic:uions for 

t:l.XP"ytr rigfus th:u the IRS has neither :l(:knowfedg<:<l nor addr~d. For cxample. there is a quC$tion 

abour what rights :tO:I'\Ie during income·m:uching and ocher pre·rdUnd "revieW'$'" of mums. 

The N:uionaJ 1!t.xpayer Ad\'ocu~ has previously wrin~n :about .. real" versus "unrc:al 00 audits. 

IRC S 7602(a)(l) grants the IRS the authority to examine any books, papc-rs, r«ords. or oth~r data that 

may be rdevam to as<t:.ttain the corttttncss of any «'tum. The IRS interpretS this provision narrowly; 

thUS: Autotnated Undtrreponet (AUR), Autom:ucd Subsdtute for Return (ASFR). Sltbstitulc for Rttutn 

(SFR), .-nd m~th and clc:riea.l error assessments. along with the entire e.tegory of questionable ~fund :a.~d 

return prOC"edures arc noc cl:mified as .. rnJ" ::ttJdirs." As f-igure S.6 .shows. chis classific::;nion system resuh$ 

in thc majoriry ot C:lJCpayc:r c;:ompli:tnce com:-tcts being "'unretl"' audits - r.u outstripping wha1 r.hc IRS 

classifies as .. audiu'" and th~ National T.upayer Advoc;ue c.::aJis .. r.:-~1'" audits." 

S5 PuC), l. No. 114-113. Oiv'isat>n Q, T!Ue II,§ 201. 129 S\et. 3040. 3076 (2015}. 

86 Seo N.7tlonol Taxpayer Advocate 2009 Annual Report to C~rcss 338-45 (le&ls&aliVe Rcc:OfMIICnd.otlon: Ofrcc;r Chct rrcawry 

l)epartment to Oeve'® • Plitt U) R~ cho •1>4y RetuOOs Fir$(, Vtulfy £1Jt_i'blf!ry Utter· At>Dfoael'l to T#X l?ert.n'n Proeess:JI'Il):: 

see atso Natiooaf Taxpayer Advocate 2012 AMual Report to Coogtess 180-91 (Most Seoous Probfem: The PresetWdon of 

Fund~tmcntat TIIXP<JY'Jf Righi$ Is Critical"$ Clwt IRS Develops 11 RebJ-Time T"X Sys:tctm); Nation&! Taxpayer Adl.·oe&to 2011 Annual 

Repott tb Conctess 284>95 (Mo$\ Serious Ptoblem: Acct-lerate<t ThlfdkPercy lnfctrn~t.-on ~portlf'Ja Md Pfe.Po(xiJtced Return$ 

Woukt Reduce Tax~r Burden and 8eonefa Tax Administration Bur Ta;.rp.a)'er ProtecrJons Must 8e Addres$ed). 

87 An a:ttemp\ to resotYo .e dt$«ePMcy bet~n • tMP3Yt'f'$ retum &I'W:I thtrd party d<l dc>et not c:OM\flute &n ex.atn~nauon 

beeaut.e the IRS •me-rely" Is 8$klrc the tax~r to explaan t.he desereponcy. Rev. Prot. 2()05.32. § 4.03. 2()()5.t C.B. (206). 

88 $eo, Nll'\3 Ol$On, W'Mt'$ &M ~tvdlt. Bttyw&y?. twow. TA»Wt((l ~rt 9tOG (Jan. 25, 2012). httl>$://taXI)alfel'&d'iOeOte 1tt.f!1t// 

news/what's-an-at.Jd,t-an'(WiJY. 

Ta.xpay.r Advociiite Se~nfeo - 2016 Amual Re~port to Cone••• - YolunM an. 27 
63 


Insert 33425A.059

Special Focus 

FIGURE 5.6. Real vs. Unreal Audits: FY 2015 Occurrences Relating to Returns Filed for Tax Year 

2014" 

"' 930.554 708. 164 2.052.646 

00. 1.101.847 479.513 1.717.095 34.032.631 

65.710 00. 557.679 283.301 897.614 19.418.889 

56.460 00. 351,880 178.036 580.175 12.574.091 

120.016 1" 184,776 2.954.504 1,680.343 5,495,918 123.184,512 

98,403 1% 600.769 232.752 921.406 17.349.237 

59.395 1% 210.091 47.287 313.669 5 .020.982 

18.149 2% 34.040 6.339 58.030 808.$47 

14.657 .,. 12.546 2.861 29.769 370.989 

2.174 ~ 658 261 3.060 26.559 

3.529 21" 335 288 4.055 16.797 

0.6 .. 184,176 3.81.2.943 1.970,131 6.825.987 146,777,623 

4% 

5% 

5% 

5% 

... 

5" 

61' 

1% 

61' 

12% 

25" 

4.7% 

89 Oete from lndMduel Returns TrMS3Ctlon Flit, lnc:IMd~ M~s.ter f1lc, &nd NotJOe Oellvery Sys;tem from 1he Com:pl~.&nce Oeto 

Watehou$e. The eud1ts tepresent taxpa)'etS where me. lAS posted a transacUon code 420 to at teast one lndMdulll tal(J)a)'er 

aocount m fY 2015. tn some case-s. the retum was accepted as fdod PtiOf the IRS contact. The statistics for rett.wns secured 

thr04.Ch Autom3tod Substitute for Rctvrn (ASfR) ore fwm the IRS Pf 2015 Coltecuon ActiVity Rooort No. S000.139. Sine:• 

ASFR retul'n$ are nol filed by Che ~I)$)'Cf. no ~usted gross •ncome (AGJ) Is asSOC:Io&t.ed W1U\ the return The number of 

toltP8)'8tS receiVine an Automated tMctenePQftet (A\JR) contact a re those who tcceived a CP 2000 or OP 2501 notiCe from the 

IRS •n FY 2015. The combtned coverac,e rato remcwc$ duplt¢-&tcs. &O Ulat o taxpeyer •s only counted once oven'' &tfe<:t~ by 

two or moce of these compl~nce programs 1n FY 2015. Toxl)a)'ers \\1'10 roeeJv«i FY 2015 ooml)llaoce actions on taX retutns 

28 

in more than one AGI categcxy are ooooted in MCh ACI categol}'. The ~ rate is computed by diWditC by the nt.mber of 

i~ lncon"IC tax retums filed in each AGt u tegory f01 Tax Year 2014. 

Specia l Focus - IA:S Future Stato 
64 


Insert 33425A.060

At every Public Forum, panelists 

and audience members expressed 

serious concerns about the 

Interactions described In the 

vignettes. A threshold concern 

was that the system the IRS Is 

designing seems to be stacked 

in the IRS's favor- i.e., in both 

vignettes, the taxpayer lost; he 

or she was wrong. Nowhere did 

the vignette demonstrate how 

the taxpayer could prevail in the 

system of the future. 

Spcc1al Focus 

1l ~ Nation.1.l Taxpaye-r Advcxate's position is 1hat for ~ of 

JRC ~ 7602. :an audic- includes both pre-rd\•nd a.nd posc·refund 

examin:;nioi'IS of returns thou require c-hc ra.xp:.tytr to provide some I4!Vel 

of documenmtion. -n lis definirion h:as SC\'er.al consequences rd:uing 10 

the tax~yc:r's right to jina/iry and the rigbt to 11ppmlnn IRS d«isitm in an 

indr~~tdmt forum. First, ir more accur.udy Sf3ta the audit rate:, \vhich 

will be highct than wh~t the: IRS cumndy reporrs. ttnd it ch3ngt"S rhe 

j,,cidcnce of the ;~ dit rate. S«or\d. ~nd more import~ tly. ic prot«ts 

rnxpayers from muJtiplc: ews of the same retum- i1 forces 1he 

lRS co idc:mify a// issues rel::tting to the: remrn that require some sort 

of documenmlion and address thO$('_ issues as c.uly as possible in one: 

proceeding.:» Third, and most importantly. it provides the raxpayer 

with an :appeal to tht IRS Office of Appeals. r~nrl . when a t'2Xp3)'er 

disagrC('$ with m .. unreal .. o'ludit's prOposed ~nt. the: t~p:t)'ef 

rccc:i,·es :t Statutory Notice ofOcfic,ic:ncy, with no 01>1xmuniry co set:k 

an admini$tr:ttive "l,pe."l to the IRS Office of Ap(X':tk l1te "'xp:t)'c:r•s 

only option is to go to the U.S. True C'.ourc. the cost of which may be 

prohibith·e for many taxpayt'ts. In "rea.l" audits, on the ocher hand. 

t:.u:paytrS generally r«leh•e JO-<by letters offering d'l(m a chance tO rtquest 

an administrative appc.al be-fore: petitioning the Tax Cowt. 

f;/fur ofErron~OatiiRSAtlttiu Ommumicntttl DigillliiJ 

The reliance on online .. communic:uiOn.$" and "digital noti6cattons .. raiSd the question of wflethcr 

such communic-.acion constitutes enonc:ous written advi« for purpose-s orinrerest alxnemcm. 

IRC S 6404(0( I) requires the IRS co abate pcnahies and additions to tax auributable co deficiencies 

where~ t:t.X~yer relied on erroneous wriucn advice from the IRS. The IRSs vi.s-ion of its future St:ate, 

and irs current Ta:xp::aycr Digital Communic uion pilot. utili7,e the online accouzu and secure e.nlllils co 

cxch:angc in(orm:uion. indudinganswcrs to ra:xp:trer quesrions. ft ~ IRS provides a "1ailorW digital 

communication," as it does in the vignette about Bennett. «he Small Business taxpayer, i.s chat ''wriuen 

:advice: .. unckr IRC § 6404(0? Moving people from the phones (or.t.l advic<") to emails and other digiral 

c:ommunic.:nions inm;UeS the IRS cost of inaccura,,:y. ~lLSC failure co be atturate will ((J$t the public 

6sc throogh interesr abacemenl5. In the pasr, the lRS ha.s mponded to risks like this by minimizing and 

d~ mbi g down rhe specific: advice i1 prO\· ides to taxJXtyen:. as it h:tS in the: case of dcclaring em ire :t.re::as o( 

m law '"our of scope" for pu~ of telephone tax law :t$$iS(;lnce. l lHI$. by moving co~ digital formar. 

the IRS mar be r«<ucing the: assistance it provides to taxparers, .:.nd this will increase cllc.ir COSt$ of tax 

compli.'lncc b)' driving them to tax prq»rcrs who ch.·ll'g.c a fcc. Receiving overly broad or unrdi.1bk 

.. digital notific·.uioll$ .. is noLa desirable FutufC' State. 

Thnc iMud are not new. and they are only che mM obviousa:amplt'$. They were fim r:ai.sed in 2011. 

both at che public hearing held by the IRS on Re:al1ime Tax Adminis1racion,91 and in th~ National 

90 IRC ,§ 7605(b} protects taxpayers from ~sevy examinations 4Md Inspections and CC!neralt,o altows the Seeretary to 

<:onc:loet only one Inspection of a ~r's books of aocount for ca<:h taxable yeat. 

91 Comments ofT Keith Foa. Director. V\llanova Law School Federal Tax ClinK:, Real Time Tax System lnltiattvc (Dec. 8 . 2011). 

http;//WNW.iiS.fPi/ I)U /irs.utV ._kciULfOU...aba_talLsect on_anc:Uow_inoomo_ clinie.l)dl' (last viSited Auc,. 2. 2012). 

Taxpayer AdYOCate Senotce - 2016 Annual Report to Congress - Volume One 29 
65 


Insert 33425A.061

Spectal Focus 

Taxpayer Advoc:.uc's 20 II and 2012 Reports to Congrcu." In numerous nlC'C'tings of the IRS senior 

lc:.tdership :and Fucure St:.ate tean'ls, «h<: Naci<maJ ·r.-axp:l)'tr Advoc.ue ha.s <'lskcd the IRS :and che Office 

ofChidCoun.sd ro ::trtK:ularc iu po.sirion :and cxpl.ain to the public how it will protect r:axp::~)~l'$ from 

repetitive audits in <he Future Suuc. To date. neither thc- IRS nor du~ Office of Chief Coun:scl has 

pm"id« i ::IJly respon$C:. To design a Furure St-'te wirhouc ddress ing. the$C .and reb red concerns means rhat 

the Fururc Stare is n(){ b:ucd on t;aX}lG'ycr rig.hrs, and mxpaytt rights will be laycrc:d on as an aftcnhouglu 

m.cher than ser\•ing as a foondaliOn for the flllun: of nu adminiStr.ttion. 

Recommendation 

Tile N"cional T;axp:ayer Ad,·ocatc recommends th-at the Office of Chief Counsel. in coUabor.uio1l with 

the N:uional Tixp:aycr AdvOClte. imrncdiatdy undertake a comptth.cnsive review· of key tolXp;l}'~t righrs 

provision$ in the- IRC and issue proposed guidance for public con'lmcnt, updating these provisions to 

proc.cet raxpa.ytr Jighcs in the digital envi.ronmtn( envisioned by the IRS Fut\lrt Sratt. llltse provisiOn$ 

induck th(: :applic:lrion or c~ mailbox mle and the erroneous advice rule to digiml oommunic:uions. 

and the definicion or an "ex:amination"' or "audit .. in lighr or the subst:anci:al p~ rcru nd review :acrivicy 

t nvisionec.l by <he F\nure Sn:ue. 

9'2 National Taxpayet AcM>cate 2012 Annual Report to Coneress 1S0.91 (Most Serious Problem: The Preservation of Fundamental 

1bKp/)JO( R{lhl$ 1$ OitJcbl tiS the IR$ C>eYcro,>$ t1 Rcb,.Timc ro..- $yStetn): N.O totl.o.llax~t ~oeatc 2011 AMual Rcpcwl tO 

Congress 284-95 (Most Serious Probl-em: Accelerated Third-Party Information Reporting and Pro·Popvlated Returns Woutd 

Re</1.1(¢ TtJ¥.t>3yt:r ButdM 3nd 8cncfir Tax Admjni$trDlkln &r Ta)(J)lJ)'Cf" Prc>tecfJOnS Mtt$t Be AddtC$$Cd). 

30 Special FocU$ - IR.S Future State 
66 


Insert 33425A.062

Speceal Focus 

GROSSLY OUTDATED TECHNOLOGY AN D INFRASTRUCTURE: To enable the IRS to meet 

the major technology Improvements required for a 21st century tax administration 

even as it fulfills current operational technology demands, the IRS must articulate a 

c lear strategy that will reassure Congress and taxpayers the funding will be well-spent. 

·n,ecurrenc $hate of the IRS's technology limits how much _.._.,dhow quickly the IRS c.~n ac.IV':'ln« to its 

.. Future State." But the imp:JC:l of technology on t~:fi cax ;~dm ninro 1ion ann()( be ovel'$t<&tod. A$ we 

discuss later in a Most rious J>roblem on En1erprise Case M:magemenr.'' 1he IRS has two of the oldt"S~: 

in formation systems in tht- federnl go\'emmem.~ ·n.ink about th:u -the n:ation•s revenue accounu ::trc 

acc:es.sed and scor«< on five-decade old t«hnology. 

TOday, the IRS has :.u le.ut GO m3joreuc man3gemenc syncnu:, 3nd e$(inl•'lt« range<'~nywhere from 60 co 

'200 rc.-po$irories of ase d:ua.. This means chat when a raxpi'yer callsche IRS for information :~bout his or 

her account, the employee o n the phone often dOC'SJ'l't have access to the relevant sy~uem, c;an't answer the 

taxpayer's quescion, a nd has to S<.·nd a referral to another IRS f'u.nccion 10 handle (one that has 3cce~ to 

th(' rdevaru system). 11lis all bul ccttajnly lc.1ds to the r~pc:~yer a!ling or writing :agJin. <~ui lg a "idOO$ 

cycle of ever nlore work for rhe IRS Md the r.axpayer. 

In the Nation:tl T.1.xpayer Ad,·ocate•s Public Fontms. caxpayert and practitioners alike -spoke with 

enthusi.:um :about how an online accoum could pro\'ide them basic informacion without having to wail 

endle$$ly on the telephone. But che IRS'$ abllity ro provide chc full u~d S4~mlts$ e-xpertence r.tXp.-tyct$ and 

(('pn:scnc:uivcs \'l':lnt is F.u from 3 reality. For example, :ax~yer rq>te$Cnt:atiVC'S were l»"tcul:arly ~Jger to 

$C."C! copies of notic.:es that had been sent to their clients. since many clients don'c retain ehem or mispltt« 

thcrn.t) Yet enost Ill~ notices :are "\'apor .. - they don't exist on IRS systcnu excqx as 3 record that such· 

aetd•$UCh noc.iGe number was knt. Moreover, ntost lctCCt$ :utd com.>sponckn« the IRS sends to [~yers 

in audits :and coll«cion :ate not retained on IRS sysrcnu 3$ digital image$. E'·en if they were. the IRS 

WOt1ld ha,•e to progr.un between all of its C'.t.se ma a~ment systems :and the online :accounl in order for 

the infoml:l.tion to be pload«l into the -a«o~ nc. Thjs is years :tWJy, and in the OlC'.1.mime, IDJX'yers :~..n d 

their rcpt<:senc-atiVC$ will c-ontinue(() 01ll ;~nd write. 

In t~ f)ubfic l~orums, 1he Nationwide Tax Forum focus groups, :.md theTAS group meetings. :til 

p:.nicipants ocp~ conce-rn about 1he S«urity o( ;~n online account." The IRS sh:ares those conccrns 

and has b«n connJtielg wilh both govcrntnem and pti\'ate S«tor experts on this nunt-r. The IRS c.:a e~ noc 

93 See Most Serious Problem : Entefptise Case Management (ECM): The IRS's ECM Ptojecr lacks Strategic PJanflirlt and Has 

Ovcflc>OSccdthe t.ttrgoty ComPicuxt Ttxpa.,.., Advoe$1t Strvke rn ~grartd SyS{tm (TASISJ As: ~ Quk.k O.Wtr•bJe • M Suikfittg 

BlOCk tor the larger ECM Pfoiect. "''''· 

94 Govcf'M\el'lt AOC¢Uiltabd"Y OO'icc {GAO). GA0-16-468. JnformttJon Tectmotogy, Federt~l Ageoe~$ Need ro Address~ t.egacy 

S1$tem$ {M.ay 2016) (dt$Cu$$ing - lng iT $Y$1Cmt throughout the goyemment end ll.st.ng the IRS's lnctMctuel M$5tet File (IMF) 

and Busancss Master F"c {BMf) ns the two oldoost lrwostmcnts or systems at 56 years old each). 

95 See 0 fOI Sun~ t of Rotw:n Hemlrton. MI<!Penn t.egal Setviees t..ow 1noome Ta.x~r Clit'!ic, Ne~l Toxpayer Mvoeete Public 

forum 9-10 (Apr. 8 . 2016}: 

Ma,or sooi'Ce'i of delay in htlpiog our cf1ents is cntempting to tocate their I'IOtice$, Settets or tecotds from the IRS, but the 

IRS atrcad)' hos. or Should hove. on me. partioolru'ly dlosc documents .submitted in connection w1th on audit. 

The Form 2648. Pat>.·er of Attorney, whleh out dients fill out at the beginnin,g of representation, allOws me to ha\oe aeeess 

to their online traoscnpts, where I can obt<'lifl a clearer picture of what Ms transpired on then IRS acc(glt and Where the 

WI)Oyet ~ndl ir\ the evcht ptOCet$: t\OY.--evef. thcte tr~t"'$¢rip s Ol'iy pt<Mde: me w1th the dl>tes or a notice or o toner Wit 

"-.' IQUed, a sholt ph~ summariling that notice and the amount of the adjustment made to the client's ec<:ount. 

h v.--ould be mveh more useful if. for ex.omplc, au ofl.hese doeumeots could actually be UJ)Ioadtd. opened and viewed dweet.ly 

through the online seMees function: I'IOY.-ever. t.'ltlile \he$e online vl)gfades and online lnterfeces coUld surely e-nhance my reprosentaiJon of ~Js. I h8'll8 serious doc.bts about taxpayers utilizing and retyinc e.xclusively on online services as a 

rtplaeemtntto direct persotH01)erson eon(bet with the IRS r~resentalt\'Os . 

96 Seo- httpsV / taxPi'!)'efa(tYocate.lrs.e,ov/pubtio-fOOMnS. 

Tax,pa)'(U Ad·voe.ate Service - 20:16 Annual Report lo COO(teu - Volume One 
67 


Insert 33425A.063

Spcc&al Focus 

balanrc the ne¢d for security widt the netd for :l«eu - security must be pmtrmt>uttt. 

The IRS has two of 

13u& chc IRS must dc:uty :~ckn ow edge- co Cong~US. to chc taxpaying public, :and in 

irs Fmurc Sr.ue plans- ch.1c there arc consequence$ co chc high lcvd of scacricy. Such 

high .security n'\C'.;ms ch:u only :a lim it~ K"gntcnt of mxpaytn will be :able or willing co 

usc the onl ine ~ccoum. The •nose rocem d~ra show cMt only 34 1>trcenr of111xpayen 

who ~ucmJXcd co c~ e :an online a«<t.&nc Y."<'rc .-ble co do so." The taxpayers who 

sought to establish online :tccoun1.s were the orly :adoptcr1-the ones nlOSt nger :and 

com(onabk with online ~na al lr.anj;:lctions. Yet e\'t'-n among th:u group, only o nethird goc chroogh. That means t\VOo-thirds of the U.S. tupaycr popoJ:ation wiJJ still n«d 

cdephonc or f:.tet•to--facc assi.sta,u:e. 

the oldest information 

systems in the federal 

government. Think 

about that - the 

nation·s revenue 

accounts are accessed 

and stored on fivedecade old technology. 

As the IRS eondocrs its T:tXpayer Digital Communic:at~n piloc chi$ yeat, it will be 

i1uCr¢Sting to$« if taxp:;aycrs will be willing ro engagt: dig.iraUy with d'IC IRS in audiu: 

:and th~r intcr:«."tions." If 1hcy agree to communictle via (.'ln:til, do they c:ominuc to 

do so through<xu the audit. or do chey rc\'Cft co more personal mc-chod.s such ;U phone 

calls? \'(ljll the IRS le-.·erngc technology to provide deu and individwJ explan:atioM, 

or will taxpayers (cd fni.S'tr.-ccd with~~ IRS tcmplate:s (or responSC$10 quc.stions :.nd 

issues? Will IRS cmploy«-s be able to rc=spond to sp«.ific ques-1ions, or will they $COd 

cannC'd responses? Will the IRS karn fron1thc.se di:tlogues and upd::uc its responses :and 

guid:am.:c? h hasn't done chat in its ;malog procd$t'$, so wi'IZil is it :about the Future Sr.nc 

th:u m:\kes us1hink it will do so in the digic:tl environment? 

TJ,~ Co1tStqumu.s oflnsuffitinu Iuforuwtioll Tttlmology (/1) FmuHng to Fm1tlnm~111111 Tu 

Adwinistrntion Op~rntious 

·n,e multiple ckm:ands on the IT runction of the IRS crnte tile $ame difll<:uhie.s as the budget COII.Str.ainr• 

on 1he IRS ow:mll. In r«cnt years. che JRS untlcm-..mbbly hill decided to focus most of irs IT tt:50Un:es 

and t:alen\ on $CVff.a} nnjor project$-. including the Return Review llrogr.:1.1n (RRJl). the Enrcrprisc C'UC 

M:m:l&emenc (ECM) sy"cm. lnrcm:ation"l O.ua &ch::~ gc Service (IDES. for infornmtion sh~ring 

under I:ATCA :and inler·govcmmenc agrc<"ments), and lnform:uion Sh;aring:and Reporting (fS&R. for 

Affordablt Care Ac• intplcment:uion). Btu this :approoch IC'.-vcs mon or dlC' IT needs of smaller (unctions, 

:md e:ven im r)()r~nt proj«1s for the brger f\utctions, unftmckd ::tnd un.'lddresscd. Thus. chtonic 

underfunding of rhc IR.S IT funaion Cn.".ues •:a.xpayer borden :and w.Astc:d tt;SOt ~cs from n\."lnu:al 11nd 

unn~l)' rrwork. 

Even in ~rcas 1ha1 arc currenlly 1he subject of major IT activity. the: excuse of-.,o flmding• arises. 

Currently, tl1e IRS is moving 10 dc,•dop chc RRJl to replace the aging £lcxtronic Fraud Occ«tion 

Sys.tem (l FDS).tt But • .uwt di.K:tm in :. Most SetiouJ: Problem herein, ;a qscetn i$ onlyou good~ che 

isuelligc-•\« that SOC'S inco it.•• llte JRS~ filters ;and businm rules used for d~ ting frnudulcnc retu.rns 

:md identity theft had many false positive ra1rs (fPRs) ov-er 50 percent, 1"his Jlle31lS th.:u legitimate 

97 The pass r&to w.u 28 percent on Nov. 16.2016.2:9 percent 04' NQ\-,17. 2016. ond ll'lerO.&$td to 34 pottOnt H o1 0«. 18. 

2016. tRS respoMe to lAS Fact Cheek (Dec. 20. 2016). 

98 Fet a Clit<:uSJIOtl of TAS·s s>&~bOn tn the To~or OIQ.I~I Commun~eauon (T0C)I)IJOt. see TAS ~" Ad\o'OeoKf, 'n'"· 

99 W&J'$ Bv&nu Modemitetion Off~ee Return RovioOW Protntm is a new lntearated system tttat 6ddt: to the Servtee's e&pebility to 

dote«. rHOtve tnd l)tovcnt crif'Nnt'l end eMI tot non-c»mi)I'Once end frovd 

100 SCO' Most $ef1out Pl'()bl('m: FriWIJ OeteotiOn: The 1/?.$'$ FMute ro Est~bliSh Golal$ (0 Red~~«: Hflh FtHM PosltJ'It Ratet tor IU 

Ft8ud Oe-rection Programs lncteases Taxpayet Burden and Comptomises TtJJ(ptJ'f'/!1" Rights, lnfrtJ. See also Uteratore- Rt:Mew. 

•ffNH Positive. Determinations in Freud Detection. vot. 3, inftb. 

32 Special Focus - IRS Futute Sta to 
68 


Insert 33425A.064

Spec1al Focus 

taxpayers 3~ burdened unne<-~riJy whiJe th(" IRS goes about il$ imponam work of dcc«:dng and 

Stopping queition:able rccums. 

(n the pth'<ttC sector, fin:anciaJ <'l'ld ocher institutiOn$ h01Ve (ound that f.tlk p«itives CO$t the b~~indS more 

through C\I.UOn,cr base erosion than dOC$ :actual fraud. Thus. they h:we aM rong incenth·e co minim»:(" the 

nuc -and bord<:n of false positives. 

Bce.mse taxpaycl'$ cannot jusc leave the IRS and find thcnuclvcs anolher t'U adminiStrJtor, it i$ incumbent 

on the ) RS to respond in mtl m~ during the filing sc:ason co mid that have high F..Jse posilh·c ro~tes. 

' ''stitutioM throughout the govcrnn\C:nt and the priY<*tC $«tOr accept the imporun« of using incoming 

daca in teal tirnc to minimize f.llsc positives. When TAS rccornmended Cr<':\ting a dedicated sub-te:un of 

an IT Ex«utivc Steering Commitlt'¢ to 3CC<>mpli.sh progrnmmi•'& :approvals quKkly, the IRS tc$pQRded 

it aii'C3dy had an operat on<\~ scwa urc in place th:u addresses fmud moclel modillcouio,,s in oul alm0$t 

real time oumosphcrc. Vee the Sus.iness Rules and RequirementS M~ :agemcnt office t h:at muSt approve 

all bvsinen ntle modifications dcxs nor meet r~.-gubr y. 1 llnLS. the: l RS ~StC$ the funds ir dc>e$ h.-'l.ve 

by ha\•ing 10 work rhc: phone calls :and k ucrs from 1.2 mil.lion lcgiti c: taxpayers whose S9 billion in 

refunds were dd;ayed.'o: 

Recommendation 

Titt N:uional T:u:p:lytr Ad\·ocnc rc<:ommcnds.that Congress r<.-quire the IRS to provide :l demi!ed plan of 

iu ECM SH'J.tegy, including rhe RRP <1 1'Kl the IRS scrJtegy for reducing FPR in o:furld frJud detection. as 

wdl :as :1 detaiJtd rtport ~bouc tht conlpon.ents and pr<>grtss on the: Taxp3ycr Advoc.uc SerYice l1uegnucd 

Sys•<m (rASIS). '" 

101 Sec Na ion<:~l Taxpayer Advocate FY 2017 ()bfect,vcs Report to Congress, vol. 2 , 23. 

102 Most ~t1ovs PrOblem: Frlud O..cecth)t): The IRS's Fdute .co fs ~btish ~Js to Red~.~« High Fb/U Po$Jtive k.o.ros for Its ~lid 

Oetectk>n ProtaJms lncl'eases T(tK{Htyel' Bvl'den ~ Compromf$es T(txptfyel' R(#hu, lnfl'l•· 

103 FOt 0 diseusStOn of fA$1$, sec MOM Senous Pf<>blern: Emcrp#$e CMe Man.&.gernMr (ECM); ThO fl~s s €CM PrQJ«t t.heii'S 

Suatcgk Plllnnil'11f8tld il3$ ().teffOOkeO' the t.argety Compfe.ltld Taxpa)'Of Advocarc Servi« JnfQI'mtttion- System '" a Quick 

~verDbre and 8ufldlng Bloc-k fM lhe lal'ger ECM Pro}ecc. infra. 

Taxpayof AdYOeate Service - 2016 Annual Report to Congteu - Volume One 33 
69 


Insert 33425A.065

Spccral Focus 

OFFICE OF THE TAXPAYER ADVOCATE: To protect taxpayer rights and ensure a fair 

and just tax system, Congress should take steps to strengthen the TaJ<payer Advocate 

Service. 

lc has lx-en 18 ~rs s:inu the csc·ablishmen1 of the Office of th~ li.xpa~r Ad,•ocatc and the positions 

of National T:axfXtycr Advoc:atc and L..oeal Tnxpaytr Advoeua unckr RRA 98. The T:a:<payt.r Advoc:atc 

Servia (fAS) is now wdl~es~b ishcd. Sioc;e 2001. it h:u a.s:sisfed :about four million t::txpayttS in (a$($ 

involving •ignifieant lurddtip. obtaining in whok or in part the rdtef f:tXJXl)'ef'$ r«.:quat«< in 0\'fr 

75 ~rccn r of rhnse c:1scs. In rhc :area of sysrcmic advocacy. rhc IRS accq>ts, on :avcr.agc. more rh:an hollf 

of our :tdmini!tnath·e «eoMmcncbtio.u, and Cl\3cted 32 of our kgisl.uivc r«ommendations., including 

incorporatir1 g the Taxpayer Bill ofRighl$ into the Cock, and the IRS and Trwury h:a\'C' adOJXed 

additional rccornme.nd:arions by rcgul=uion.

1

o. The N:nional Taxp;lyer Advocate has tc.srili«< or suhmined 

written tenimony :u over 60 congre$.5ion:al hearing$, :md rhe Annu:al !U-pon ro Congrcu is r~iud :as 

an important sou.rcc ofinform:uion about tax administr.uion and taxpayer rights. 

Our work in growing and su~ngthc ing TAS has not b«n wirhoor irs challenge-s. Maimaining TAS's 

indepcndt'ncc wilhin an agency th:.u is rcsisrJm ro change and Jus a prcdil«tion for mainraining 

the c~tus <Luo demands conP<~nl vigil:uwe.'~» But 0\W the ynrt., pfOSrns has been made. The IRS 

senior IC'.idcr$hip n=cog1\iw rhc impomm role ·rJ\S plays in totic:wing Ill<> polic.iC$ :and occions • .rnd 

ac:knowledgt'$ our role as an adv<M:ate for the raxpay<r in those discuss-ion-S. 

H:avings:n ar the IRS senior l~dcrship cable for almost 16 years (ro our knowkdgc,longcr than any ocher 

IRS official). che National T:axpg~r Ad,·ocau:: is wdl awtrrc of the dullenges che IRS &ces on a daily b:ui.s. 

But ber job, a.nd t.h:u ofher<:nlpiO)'Ct$, is co speak trp for the wpa~n whose livd :arc imp;...ctcd by the 

dc:c:isions rhe IRS n'lakc:s cbily in n:spon~ to chost challenges. TI1is i.s Y<"f)' diOicuh work - crying 10 :alter 

the COUI'$~.' of an org:mi-ucion that is h~din g (\aU-tilt in a panicobr direction. 

1'hc st:muory fr.mlCWOtk of the Office ofl:txpr.lyer Advocate is wh:ac underli<S the suc:ces.s ofTAS. 

\Vithouc the strong langu;.r;ge and scrucwrc oflRC SS 7803(c) ;and 7811. che National Taxp:a)~f Ad.voc:.nc 

would be a $ubsc':ln«lcu •nourhpiC«. and TAS ot coken gescui'C'. But c'V'en a $trong foundation can 

be improved. To enh;tn«: the dT«ch·eneu of che Office of the T:t'(pa;ycr Advoeue in -advoc::ating for 

t:UCf>lYC:N, 1hc N~tional Taxp:.arer Advocate offers: the following ideas for consi<kr:uion. 

R•infor<tlht N1Uionnl Ttapnyn' At/IJ()rnlls RigiJ1 of Arms 10 TIL'fPIIJ'' nntl IRS lnformmion 

multo ltfeetiug1 &t1weu thr IRS ttttd Tn:.pnytn 

By and l:a;rge. the. Nl.rion.al Truc(XIytt Advocate and her m~,.Joycu h:.avc significant :I.e«$$ to IRS $)'Stenu 

ttnd d:tc::l. Yn 0\'C:r rhc re1rs, borh in che eomcxc of ,specific cases :md sy.srcmic: advocxy, induding during 

the prep~r.uion oft he Annu:al Repon to Congrt.'SS, the IRS has: 

• Refused to :allow the NacH>n=-ll2xpr;tycr Advocate and ocher TAS cmpiO)''('S access to the audit filc:s 

of r.axparcrs with casesopcn in TAS~ 

• Ref\.S('d ro :.llow the N:ujonal Tax~"~oaytr Advcxace ::tnd her tmJ'IO)'«f co ~mend mctting$ bctwccn 

che IRS and. taxpayers with cuc::s open in TAS, even when chc mxpayerhim orhel'$df f'«luotSTAS 

:mcnd:1nce; 

104 Sea NariOI'IItl Taxpayer AdvocDte Lcgi$Jativo Recommcndaboos W1th Congressiot'ID' Ac:r.on, lflfra. 

105 See- $4JPflJ for a discussion of IRS culture; see arso Most Serious Prob!em: IRS SctueCUfe: The IRS's Funct~on.a' Sr.ruetoreo IS Hoc Wcll.suiled /01 (~tifyjn,g and Addressing Whc1 t Different Types of T..t~)'Cf$ N~d lO Comply. inffl). 

34 Speclal Focus - IRS Future State 
70 


Insert 33425A.066

Special Focus 

• RcfusW to provick the Nation:a l't!txpa)-er Advoc:ue with d:.ua she n=quires f'or anaJyting a most 

.scriou..s problem of t:upayc=rs in che concexc of the Annuallkpon to Congrt'SS; and 

• Rdi.a.Kd to consent to publirntion of such cbta on the lxujs it is .. official usc only ... C\-en though no 

exc<.-ption orcxdusion applicz under t11e Freedom oflnfonn.ation Act. 

IRC §6103 sen out chc conlidcnciality prOtections ofcax recurn,s and ce1urn informal ion. lc 

c:uegoric:ally states, '"Returns and rt'tum inform:uion shall. without written requen. be o~-,cn 10 

insp«tion by or disclosure to officers :and employees- of' the Oepanment of' the Treuury whose ol'llcial 

duties r<'quiresuch inspection or disclosure for tax administr.uion purposes.'"* Under IRC § 7803(c"), 

the N;uional T:axpaytt Advocace·s t~x adminisu:acion dutiC$ areextr.aordinarily broad, encompassing 

;all of'c:.x: :tdminim·:nion ... 7 ~rclore,there is no b:.sis f'or the IRS to decline to m:tkc accessible 10 the 

N:nio :~l Taxpa)'cr Advocate or her employees a taxpayer's administr:ui\·~ file (including the audit ~k:) 

rd:uing to a case open or pending in TAS. Similariy, when a taxpayer reC.JUe$15 th:~t TAS particip.1te 

in confercnCC'$ or m<'ctings betwct."tl IRS employt>:n and the taxpaycr, there is no basis for the IRS to 

deny TAS that :.tc;ccu.'• Yet rllCSe: refusal$ kcep ()('<eurring. Therefetc, the N;:ational Taxpayer Advocate 

recommends that Congr<:$$ dari(y the extent ofT AS's access to ta.x returns and tax return inform11rion 

with n:spec;t to cases open and pending in TAS, inc.luding the ability to p:H1ic-ip.1-1e in rn«fings betw~n 

the naxpayer and the IRS, at du: uaxpa)'t'f's request. 

MoR.'()\"tt', where the N:arion~ T:axpaycr Advoc-.ue, in the course of exercising her St.ltutory tax 

adminisu;ulon duties, idenrifit"S n issue :lS :l most serlous problem of taxpayers. or is in\•estig:uing the 

S)'Stcmic causes of raxtx-ycr uoblems in gcncrnl, there is no b.uis for che IRS to d«:·line 10 11\<tke a ...... J:~b e 

to her any data. infomtation, records it has compikd. or ls p«$t:rving relating to dut issue. However, 

bc<:tu.St TAS has enoounteted numerous instances aver tht )'<'At'$ in which IRS officials have declined to 

Having sat at the IRS senior leadership table for almost 16 years, the 

National Taxpayer Advocate Is well aware of the challenges the IRS faces on 

a dally basis. But her job, and that of her employees, Is to speak up for the 

taxpayers whose lives are Impacted by the decisions the IRS makes daily in 

response to those challenges. This is very difficult work -trying to alter the 

course of an organization that is heading full-tilt in a particular direction. 

106 lllC § 6103thX1). 

107 ~ lllC § 7803(e)(2MA)()){~). 

108 See Ckal Statement of Jim Ohver. Jim Oliver & Assocfa\e$, P.C •• National Taxpayer Advocate ~lie: fOrOO"' 37..38 (Aug. 30, 

2016). 

This was a very complex problem. The (ta~tpayer) advocate tt~d ~ the tRS aud•tor WI O(den who was hMdi.OC the 

prOb.lem. The IRS audrtOt 11'1 ~n lf'lfonn«< U'$ with the adV«'.otc oo the phone it ~• ••n.st I)Ot.c:y f.or them ~o ~ge ., 

e oonfemnce cal~ the t~dvoca e and a taxpayer tel)(e$f!1'11atke at the SBmc time. I cton•t know that policy, but that's what 

this person soicl and n:fused, rctvsed to engage in e conference tall where I needtd to talk to how complex lhis prob&em 

w&$ •nd hOW •t e«~ec to be tbc~. 

Ta.lC~tr Advocate Stn·le• - 2016 Annual Repot't to Congron - Volu~ One 35 
71 


Insert 33425A.067

Special Focus 

provide her ~CCes$ ro cenain infom ~rion, chc f\!.:ltion:al T:t.X(Xl)'Cr Advocuc recommends th:u CongrC$$ 

d::uify her Oght to such informarion.1

" 

buhule l..«nl1iupnyrr A.Jvortll' Offiu Pbout Numbnt 1111.J AJtlrr.ssts i11 Stlttutory Notius (JJ 

D,ficiency 

IRCS62J2(a) provides th:;u any nocicc proposing a ckfloCfcnq o(c:.;a.x "shall include .:a notice to the 

t~X))O'yer of che mxpayds right to contact a IOC'.al office of the t:MlC'pQyer ~dvocue and che locacion and 

phone number of chc appropriace office." IRC § 7803(c)(2)(D)(i)(l) requires che N01ional Taxp;ay<r 

Advooue 10 ":tppoim local raxpa~r :~~dvocates:~~nd make availab e~~ le:1$r l such advoc:uc for e.eh Scace."' 

Since the year 2000, when TAS lim lxgan ilS formal opera1ions. the Nacion.'ll T.up:tyer Ad~r·ocuc h:as crt«~ 

to get the IRS co include M rh~$JmuJ()ry N()tiu t~/Dtftrlmty (SNOD) the <1Ctu:li '"IOC2tion :tl'ld phone 

number of the ~ppropriate office.'" As we discussed in an e:uiie-r Annual R~port, che IRS Ius consistently 

de<::lined 10 do so.110 

In the p.1.S1, the IRS and OaiefCounsd m:timained it s:uisficd rhiu nmuory mandue by including in 1he 

SNOD "~turftr n<Hi« liscing ::a.ll ofd'I<TAS loc:.l tax~y..-r advoe:ate om~_, (NOtice 121-1). r..tlu:r th:tn 

the inform:uion pertaining to the nppropriatt' offic~ With the I RSS declining budget. the IRS in recent 

)'t:U"s: lus presented the N:uiot'Otl T:ax~y« Ad,·OC'~Ie with a Hobson's Choice- either 'tgm: to puuing 

:tn internet :addn:ss on the SNOD (or tup.lycr's to look up the "'appropri:uc'" ·li\S locnion and phone 

number, or:~gn:t to TAS paylng for the 11n nu l cost of printing at leu thrt'e million Noticd 1214 for 

inclusion in the SN00s.111 

As we discu.ss:ed earlkr in this report. about onc-chird of che U.S. individu:.1Js do not ha\'e home 

broodOOnd access, conamr.ucd in 10\ver income, elderly. and minoricy popuJ:uions.••: For these millions 

of1axpaycrs to :wx.ns the Lntcrnec tocomplecea SC'.aoch foru TAS IOC".al officc-,1hey mu.st s«k out wi·fi.. 

And C'Vc-n so, che:y oft('n have pay«~you--go cell phone contr.tet-1. Thus, 1hc.! use of a gen('ral internet 

:J.ddrC'$$ on che SNOD does not pr<Wide tile nund;ued 1"AS conl:3Ct inform:uion o~ Jar~ swath o( the 

«1xpayc-r popt•l:uion. The alternatiw proposal ofT AS endla:sly p;~-ying (or stufT('r noti«'S ~uccs funds 

:tY:tibble for its direct ClSC :adv<~¢~cy on behalf of taxpc.lyctt. lns1~d. for"' modes1 upf"ront in vC'S'n~t. the 

IRS could dt'\·dop a technology-lwed5olution. 

109 n-. issue _,osc tee~ In U'le context 01 tNl ~~ ~epo t to conaress. tn en unpteeedented m<:~~e. the lAS oeehf\0<1 

to ~npond to the Enttrprise Case Managemeot (ECM)-related Information reqlle'Sted br lAS as po~t of our develoomenl of 

a M<>t.t $tt'IOI.t$ PrOblem. The IRS tOOk lhe POSittOO lh&t £CM is sntemol tO U11! IRS and ~C11M01 be «ttetott.Md os o tnOos-\ 

serious problem "fnCOWitered by taxpoyers." IRS respoMO to lAS reseateh request (No¥. 3. 2016}. Ttws st dedfned to 

I)I'OVI(Ie "' vMh dou. oncl fH)81lClaJ sntom"\8UOn ~ No'IJonoJ Texpeyor Adwx:ote held ~ necene;y to hO-t ti\6Jrf,is ot lhe 

problem. As 51JCh, l AS w<l:S un&blc to obtain tho bulk of the informabOn it 50U:Cht to proparc thts Most Sonous PI'Obfem. TAS 

Obtesned tl'le IIRfOtmotiOn U$ed In this Mot.t Setlous Problem from extetr\&1 $00r«S and from IRS infOtfnation out$1de of the 

fOffl'\CWI Most Serious Problem ptooeu. Sec Most SertOU5 Problem: Ent.ctpriM C.a$0 Manageme-nc (ECM): The IRS's ECM Proje« 

l..adts Sll8teC~C PfannsfiiJ &nd lilt$ 0~ the Largely Comptele<f TpPt,.er Mvocat~J ServiCe lllformatkln $)'stem as a QulcJt 

Do6Y(tl&bft and 8ui1<tmg Bfoek f<N Cho t&tger ECM Project, il'lfriJ. 

110 $eoN~ Tali.P&')'Or Mwoo<:6tC 2014 Annual Rcpott to Corc,tO$$ 237-44 (Mot.t Strlout Ptobaem: St'&Mory Not~ of 

Dcftclency. St.arutory Notlces of De-fic:lency Oo Nol. Income locaJ Ta~ Offke Cot!(sc{ lnformatiorl on the F.ace of rhe 

Norsocs). 

1U The estimate of the cost fOf one ye-ar't worth of Not!U 1214 f01 SH00$1$sued tJrt tht Smt~l BusiMl&/~1~ 

()pef8bnC Oi<v~slon was $47,000. This does not snctude any SNOOs issued b)- W&l v.tth rupeet to Eamed tneome Tax Credtt 

6Udita.. 

112 Ste <ltcualon Ol tax~Ytf needs" pref~. 'Wpr•; u. ollO Most Setioul Pfol*m: QnP()O Accouncs.: RoU•tdt il'lto 

Ta)(pa)ef ofld Pmetltiooct Needs and Preferences Is Crkkal as the IRS ~lops an Ontinc TaKP8)'ef .4ocol.inf Sys«tm and 

l'fesurth Study: TttXM)~r$· Varylr'tl Abdl(ic$ ljl"'(( Awrvdct Tow~d IRS Ttt~ S01v~«<: The f.lf«t oiiR$ ~· o.tll\'4fy 

Choices on Diffete.flt Demogtaphic Gf'OIIPS, ittfra. 

•• Speelal Focus - IRS Futu.re State 
72 


Insert 33425A.068

Special Focus 

Sincc2013, TAS h.u pro~">0$00 rh"'t the IRS program irs nOfice-gtner:uion sysrern roallow for nurching 

bctw«n the ta.xpaycls l:ut known address (us<.'d on the notice) and the "location and phone number 

or doe •ppropr;atc [locru TAS) office.• TAS ha• •ubm;uoo Un;fied \'(lork Requ<scs (U\'(IIt,) to ti><IRS 

r«)UC$1ing such progr2mming. To d.1te, rhe IRS has denied all .such request$. Therefo~. in order 10 

ensure that :all taxpay<'rs h."L\·c: the rigbttq a foir mul jmtttu: spum, th<' Nation....! Taxpayc:r Ad\·oaarc: 

recommends that eo.,grt$$ esrabJish a <bu: ctrtain by whic:h the IRS $hall be requi red to compl«c 

programming for including rhc: specific phone numbe-r and nddres:s of the appropri:ue IOC31 TAS office, 

based on the na.xtx-ycrS last known addres:s.•u 

P1·ovid~ rl!t Nntiomrl Tttxpa~r AtiVMnt~ th< Authority to Iliff ludeptud~ur Couns~l, Commnu 

on Regulntions1 nml Fi/~ Amitus Briefs;, Lilig11tiou Rnisiug TIIXJinyer RlglJu Issues 

1l\C' National Taxpayer Advocate is required by law to assist t:axpaytrs in resolving problems with the 

IRS. TO idcnrify !lfC.'lS in which t:l.Xp!!.yeu h:wc frcqucm problems or chat ... rc rhe subject orfrequcm 

litigation. and to identify adn1iniscr:nivc and legislaTive solmions to reduce controversy and mitig:ne 

Sl•<:h problenu!" The mission of the Office of the Taxp:J.ytr Advoe ue would be :.d\·3n«'d by .-ddilion:tl 

st:uutory authority in due<: are.~ ttmirtu turitt~ brief$ pert:ajnin,g to mxpayer righ s~ the :'ldminisu:ui'l(' 

rulemaking procc:·ss; and 1he ability to hire indqx:ndcm counsel. 

The mission of the Office 

of the Taxpayer Advocate 

would be advanced by 

additional statutory 

authority in three areas: 

amicus curiae briefs 

pertaining to taxpayer 

rights; the administrative 

rulemaking process; 

and the ability to hire 

independent counsel. 

11\e N:ltio,,al Truc.p.-..yer Ad,·ooue is IH>t ~uthoriz.cd to p:.a.nkip:.l(C in litig~ on. m While 

rhe conduct or rdev:tnt trials rhcnudves may be bes.r lelt 10 tri::tl hlwyers cquipp«l to 

advoc:,ue zealously on behalf ofindh·idu;al dients. pr«cdemiaJ is.sues ofinu.•resc to 

numerous t3.Xpaytu m;1y come before the judicbry with no one rcpte$Citting the rlghts 

or mxpaycrs in gene-ral. In the c.::asc of rhe Sll\,1.ll Business Adminislr.ltion (SUA). the 

Chief Counsel for Advoctq has sr:nurory amhority to represenT the interests of small 

busine.$$($ by appc:JI'ing "s nmiM t urittr.11• 

Ahhough the uion;all~xp:tyer Advocate is ch:trgcd with rcprcsencing rhe intcresrs 

ofindi\·iduab., induding low incon'K' taxpayers, the~ is no s12mtory requirement That 

lhe IRS addi'C$S: the t\~-:ui~n;tl T;tXp.'l.yer Advocate•$ comnlcnts before publishing final 

regul·l{ion_!l. In chc cue of 1he SBA, chc Chief Counsel for Ad' ~ has $Col\otory 

amhority to rcpres.ent the intetem: of small businesses by providing comn'K'nts chat 

the IRS must consickr before publishing ~ny 6nal rq;ubuion.111 In the cast" of sm.;~ll 

businesses, Congress r«:ogni?Jed rhi.s n«<l by kgisbrivdy m:tntbring regul:.uory review 

on their bel~ (by a counsel dedic:ucd tO this function. The righcs of individual 

uu:paycrt, induding lo·w income caxp:lftrs, may FJIJ in a gap in rtguluory review. 

While the N::utooal Taxpayer Adv~tc Js often included in pre--publieation citcul:uion 

113 The right to a fair ood just tax system means ·u&o.x <~Y'Cf5 have the fl4ht to roccivc assistance from the 4X~r o 

Setvlee tf they a~ e)(perienek\g flnanclal dltflc:ulty or If the tRS he$ not reS<>~vt<t their ta)( issues prope<ly Mel titnely UVOugh its 

nonnal channels.· IRS Pub. 1. Your Rights as a Taxpayer (Dec. 2014). 

11• IRC § 7803(eX2)(A)(l){iY). 

115 See 28 U.S. C. § 516 (•Exeep( as che~Wis.e: auehotlzed by law-, the conduct of litigation in \\f'heh the United es. en agency, 

or offlcct l.hcreor i5 a Pi)rty. or ts mtercs:ted, and scouring CVldMoc thCfefor, is reserved to orrioers o( the Department 

of Jusljc;e"); 5 u.s.c. § 3106 ("E)(oe~ as oeherwfs.e t~U'U\O i.t:e<t by l&w. the heM or an Ellecu'i\te <Se!>'rttnent or m•lltary 

department may not empiO)' an attomey or counsel (Of the con6.K:1. of litiga;tlon In which lhe Un ~ States, an agency. or 

emf)k>)~ tMreot is a p&rty"): IRC § 7452 (i l•r'lllhat \he Secretary olthe Tfeasury "lh&ll be repres.ented by the Chief Counsel·). See also Ptocram Manage< Tech. Assistance 00566. Authorily for the National Taxpayet Advocate to FJie .Atnicvs 

Briefs wi(h rho Courts of the United SUites (Oct. 2. 2002). 

116 5 u.s.c. § 612(b). 

117 IRC § 7805(1). 

Taxpayer Advocate Service - 2016 Annual Report to Cootre» - Volume OM 37 
73 


Insert 33425A.069

Spoe•al Focus 

of proposed or tempor-Jry regulations. the IRS is nor required to address her romnlCnu in th< publisht:d 

preambles to linotl regulations.. The N:uion:al Taxpayer Advoau: bclic\'CS th:n tax :adminisrr.uion would 

be improved i( tM public knew what her concc:rns \ .. ·ere with ""I>«' to rcgul.uions and how the IRS 

:add.l'($$(d (or did not address) those conc('Oll. 

\'<lhcn Congtc:$$ teOtg,:~niud the IRS in 1998, the: Se:n ue: J-U$St<l le:gUhlion providing for counttl roche 

N:ationll Taxp;J;ycr Advoc uc co be 3ppointcd by and repo" dir«cly to the N=.rio•l::aJ ·r."lXpa~r Ad\'oare: 

:and co opc:r.ue within dt< Office of the 'l:ax,>.l)'Cr Advoc:ue. u• In .sponsoring this pi"O\'i~ion. Stn:uor 

Ch:.rles Crauley (R-Iowa} offered. the fotlowing r.uionn.le: 

11u:- purpose of doing chis is to give the Taxpa~r Advocate fC'3dy access to legal opinions and 

ltg:.tl judgl'ntnts. Cutr(ntly. the T;~xp:lycr Advoc:~te •nust put m'tUC:S.U into the Office or Olicf 

Counsel In order to m:tke the "l:lXp<l)'Cr Advoea_t(' more in<k:pcndenr. whiclt is wheat rhiJ 

bill docs, it logica.lly follows that the 13.x(XIycr Ad\•ocuc should ha\'C its own leg:.] coull$CI. 

This will gwr:ant« ir faSt, conlidenti.llleFfll advic~ to help cho~ wcparcrs in gre.uc:st need. 

B«ause it is the cup.1yc:" in g~.atcst need who go to the 1iaxpa:yer AdvOC'.atc.11' 

11li$ provision w:u dimin:ued in the ccmfcrence agr«'rnem. Sell!, chc confe,rcnce feporc noc:cd ch:at 

the ·confcrw incend ch:.u the: N.uionral Taxp<1yer Advoc::uc be 3blc co hitt rand consult counsd :u 

:appropriarc. "Ill 

Accordingly. co assiSI che National T:axp:ayer Advoc:ue in fulfilling her $tanuory duties, TAS emp1o,-s 

SC\'Crnl auorney-ad\•isors and has done so for mort' chan a dccack. Thi: lirsc round or hiring hqan in 

2003 after che National T:axtx-)'C'' Advocate briercd the Commi.ssKmer, and it lw continued since th:u 

cin\c. TAS n:quires indq>c_ndc:nc ;tttomcy .. :•dviJOrS b«.mse cl\t' office: often t.akes positions. boch in 

working wparcr cas('$ "nd i11 systemic advoc: .. c:y, cl~c are dircclly concrary co the posicion of the IRS 

:and the Oll'tce ofChiefCounsd. TAS :tnonu.oy-advisors do n<M purpon co offer formal legal advi.cc or 

rcprt'scnc the agency, but they ll«' indispcn.sal>le in cmabling che National Taxpi!ycr Advocate to dcvclop an 

independent )X"r5-pc<tivc ~nd <JdV()(".;;te as the tw .. incc:nds.ut 

In 2015. YlC were inforrnC"d thaf TAS~ longSt:anding ability co hi«' :tttomc:y-11.dvisors within TAS is 

inconsinent with T~ury Otparcmenc Gen(ral Counsel Directive No.2. which st:uc:s: .. F.xcqx for 

positions in c_he Inspectors Gencnl offices or within the Office o( rhc ComJXroller o( rhe Currency, 

morncy po<i1ions slull no• be <Siobli<htd ou1<i& of •he L<gnl Oiv~ion unl& 1he Genml Counsel or 

Oq>ury Gener.al Cot•nsd (s} provides a waiver. On November 29. 20 l6. the N:uional Taxpayer Ad\"OC"att 

submilfro a rnentomndum to thC' Acting Gcner.J Coun$CI. lkpartment of the Trc-.asury, requesting that 

Tte:1$Uty Genml Courud Direcci\'e No. 2 be modified to indu~ the OfT..:e of the T"Xp:!l)'<"r Advocate: 

us 11. ""· No. tos.s99. • • 21s C1998l ceonr. Rep.). 

119 144 t:orc. Rec. § 4460 (May 7. 1998) (st!ltement of Sen. Gras:sley). 

120 H. RIP. No. 105-599, 8 1 216 C1998) CConl. Rep.). 

121 The Ot'f;oe of ~ief Counsel has e~ed the pos.•t.on of "Speci.ot CovnMJ to 1M N(tti'QI'Ial T~f Actvoc6te- to m.enagt: 

38 

and cootdtnato Off~ee of C~f Counsel suppott for the National Taxpette~ Ml.oocate and her headQua•t ers employees. The 

Special Counsel end hef &tall ore rcs.pon:sjblo tor prCMding legal advito for progtllm$ atM:I &eMtes related to tho m4~ oC 

TAS. The $peel_. COWisers wOfk Is '~"' hell)tul 10 the tunet•Qnl,_ or TAS In WOf'k.ltiC MetYY te~oyer cotes, te'VIew•nt prooos.ed 

te(\Aations, cootdin&tinC with other dM$1ons: within the Office of Chief 1. t~ lnlirlinC materials. and lhe like. 

Howe*· the Spectal Counsel to the NetionM TP.Pfi)'Cr Advocote teports to the IRS Chtef CcM.n$el and fe«ive' Mr 1)11formance 

reoAews ltom the Ch.ef C~el. WhOn ll'le Nattonol Te~r ACI'IOCete wlsl\0$ to orbCUiote o posioon 1n het •nctepe«<err\ n>1t 

tt\at is contrary to the Off.ce of O.ief Counsel's pos1uon. lho Spocial Counsel is obtieated to follow the posi llOn of the Otief 

C<x.nsel. 

Special Focus - IRS Futur. State 
74 


Insert 33425A.070

Spec;1al Foc;us 

along with the lnspc:ct.OI'$ Gc.neral office-s and lhe OffiCC"of the Comptroller of the Currency :uTrcasury 

offices excepted from the policy agotinst hiring and employing attorney--advisors, ltl 

&t TASi Anuunl Appropriation/ Ur•tll'hr()ugh 11 &p11ratt Arcoum Rntl!rr Tbnu as Part ofth~ 

IRS's 1iupnytr &,.,;ftl Attotmr 

·the J RS is ur~ ndy fUnded through four approprioltions accou.nts - T axp~~yer Services, E.nfortt:nxnt, 

Operations Suppon. and Businos Systems Modtrniu tion. Funding for TAS is provided through the 

Taxpayer SerVices :.ccount, and tX«pt tO the ext(IU $p«i6ed in :tn <'~ppropriadons ll(t,the IRS m;:~y<kcic:k 

how much funding to provide 10 TAS. TMs "power of the purse:• nuy cotnpromjse TAS'$ inckpcndencc 

broaust: che IRS can-ocplicidy or implicidy- penalitt TAS if the National Taxpayer Ad\•oc:ne or other 

TAS employ«!> criticize IRS policic$ and progranu chat they belie.,.e f:til to respect I<'~XJXl)'er rights. 

The •power of the purse• may 

compromise TAS's Independence 

because the IRS can - explicitly 

In most yt:tt$ sinct FY 2006.tht Appropri:uiOii$ Commiuce$ h.-.vt 

ad ~ thi$ oonc~rn by indt•ding l:mguage in ;appropri:uions actJ 

dtu provides a minimum funding Je,·d for TAS. But the <kc:ision to 

provide a minimunl TAS fim<ling levd is nm in.stinnionalittd. h is 

made on :tn tttf IJ« basis from ~r 10 ytu. In most )'ears, in bet, the 

Administration's budget n:quesc :uk.s that Congrns tun prO\• ide TAS 

with a minimum funding levd.'u.-.nd in some ynn, onehouSC"of 

Con&ress h:as spc=ci6ed :t minimum funding Jevd for TAS while the 

othtr ha.s •'Of!ZA 

or Implicitly- penalize TAS if the 

National Taxpayer Advocate or other 

TAS employees criticize IRS policies 

and programs that they believe fall 

to respect taxpayer rights. 

By Cl'(;tting a $tpame appropriation for TAS within d1e lRS budg<1 -

much like chc ln.spcaors General h;,a\'e a separ.ut appropriottion with 

the Trc-~sury nmem's bud~t -this independenGc issue can be 

re$0 \'~ on :a ~r t b;u:i$. 

CodifY t/1~ Aut!Jority to /ssw~ n Taxpnpt· Atlt•txat~ Dirutil·~ (TAD) ,,J Qnrifl the App~al 

PH>r.-n Applirnbl~ to Ta~paytr Assistana OrJ~n (TAOJ) 1111d TADs 

IRC S 781 l authori1,es the Nation;aJ T:.xp.1ya Advoc:ue to issue a TAO if she .. determines the t<'IXJXl)'Ct 

is sufferi•lg or about to $t.11Tet :1 signifia•H hards.h ip as :1 result of cbe ou.nner in which the internal 

n ~X laws a~ being administered by the Sec~tary. ~ Only the National Tax:p.ay« Ad\'ocate. the 

Commissioner oflntc-m:al Rco.·enue. or rhc Dq>uty Commissioner of I merna] ev~nue may modify or 

122 It iS WOtlh notlnt th&t OS o4 O¢t. 20. 2016, there WCfC 218 attOme)'<$<M.sott in the I~ 'l'lt'JOH positl()n$ wtte 0Yts10e 

tho Off10t of Chief Counsel. In eddi1Jon to the attOmci')'S 1n TAS, there WOfe 238 attomey-ttdvtsors in thct Small ~n/ 

Setf·Employed OMsioo's estate and~ tax area (put';Wi)llt to an exl)(ess waiVer from Genet&! Counsel DirOO'INe No.2), 14 

attorneys in the otftee of Profe~al Aespons.t>ill~. six attorneys ln tht' Larte Business & lntemauonal Otvt:Sion, four attomreys 

in the 1iuMOn C.Plt81 OM"-ce, IWO 8tt()m0)'$ in tho Retum Proporor 011'110e:. and OOC ouomcy e.och ir\ l.hO CO!m'olhiOner''$ Office. 

the Ch1ef FiMneiaJ Offiocf's OffiCO, end the Tax Exemrx & GoYtimlef\t Enlitlocs OMSKin. IRS HumM RcsoUtOOs Rcpof'tlne 

C«lter (Oct. 10. 2016). 

123 See, ft.f, .. IRS. Congrcuional Justir~tion lot FY 2015 BW~t at IRS 95 (*Tho IRS supports ildoqu&to fl.lndirl& fOf the T~ 

Advocate Service. Si>ec~ the lAS fund•nc leve-l in law preYents the IRS from Pfopo&.lf'lg an operat.nc plan that allOcates 

resources .n the best mtere$t of taxpayers·•· https:f/WWW.tcta$UIY-IJO'Y/ObouVbueflet-per'lonnaneo.tCJ1S/10.~~1$."-20 

IR~20CJ .pc:tf 

124 For FY 2016. tor ex.m.,ac. the seno:te bill proYi<IOd a R'WiirnV!Yl fundlf'li 1ew1 fOf TAS. but the HOVle t>all did not. COmRotte s. 

1910. 114th Cone. {2015) wirh HR. 2995,114th Cone. (2015). For FV 2017,both houses provt<Sood • minlfl'IYm fundinc IO'MJ 

fot TAS. SH S. 3067,1141hCq. (2018); H.R. S485,114thC""'. (2016). 

1:25 IRC § 7811(oX1)(A). IRC § 78U(b) ntaobhshtn tho lerms of l.hc t.x~cr ~ Ofder HAO), 

Taxpayer Advocate Service - 2016 Annual Rei)Oft to Congress - Volume One 39 
75 


Insert 33425A.071

Spccinl Focus 

rescind th~ ·rAO. and "only i( a ri u~n explanation or th~ r~aso s (or rh~ modification or rescission is 

provided co the National T::~~xpayer Ad\·oa ue."•" 

Sienil:arly, in chc C0\11"$¢ or :l$$lsting ..XP"~rs in resolving ptob!erns or identifying ;t,(C'a$ in whkh caxp.1}"C'I'$ 

h.:l\'e proble.nt in dC"<tling with rhc IR.S, the N:uional T.-xtx:aytr Ad'"·ocate rrom linle co rinle ,o.,rronc$ 

proc~duml obstacles. In such casc.s, che Commission<.'T oflm~rnal Rcvcnu~ has delegated to rhc National 

T.-.xpG~~r Advocate the authority to issue: TAOs ch.-u diroct IRS units to change procc:d.ures "'to imprO\'C: 

the opcmcion of a ft•nccional procdS or to gn\tH rdkf to group$ of caxpaytN (ot nil t:tXp:J)'C:tS) when 

implemenc;arion will protect d-.e riglm of t3Xpayers. pi\!Vent und.u< burden. enst•re equitable trt'.atmc:•H. 

or provide :'ln essential service to t:lXp<lyers."ll1 However. the IRS may not comply with or even respond 

to a TAD bc..-ou.sc." it comu not under a tut~ but merely a ddegatcd power that the Commissioner 

c:oold revoke. In practice, the Commissioner or Deputy Cort\mWioner, along with the ~tio Iaxp.a)'('r 

Ad\•oc.ate. may rescilld or nlodifY a TAD!~ 

Recommendations 

To enhance the i•Hkpcndence of cht Office of the T:Uf>'&ytr AdvOC:lce and ensure that the rlghcs of 

taxpayers., incloding rhe n1«1 V\llncrnble :lnd unrcprC$Cmcd. are considered :~nd prO<ec:red in t:l,X 

:.dministr:nion. regulations, and litigation, tbc Nationnl T.'lxpaycr Advocnc recommends 1h:u Congn:ss.~ 

I. Anlend IRC§ 7803(c) 1odar ~·. pursuant 10 IRC § 61030l)(l), lh .. 'lt 1he Nation:al "l:txp:lycr 

Advoc;ate sh3111u.ve ac:ce.ss to tax recums and return information with respect to cases open :and 

p<-nding in TAS, and shall havt the righf to panidp;ue in meetings bctw«n r.ucpa~r'$and the IRS 

wftcn :l.$ked ro do so by the (a.Kp:ly<:r. 

2. Amend IRC§ 7803(c) 1od:uify th:.u, in furthcr.mce of her true admiJli.nr.uion dutie-s, the National 

T.up;.tyoe:r Ad\•oe:ne shall h:we o1CC:e$$ to :til dna, natistic:al in(orm11tion, <tnd <.ioc:unlents n¢«5.$:.\ry to 

perform a .. ftlll and subsr:tnth·e :m<ll)'fis" oft he is:st•es.ln 

3. Amend IRC § 62l2(a) to rcquin:: the IRS co include on and wi1hin theSNOO iud(the.speci6c 

p1l OI\C number and .-d.dtc$$ of the .-..ppropriatc loc-.al TAS officc, b.~ on d1t rupa)·er's lan known 

•ddr<$$. 

4. Authorlte the N;ational T:vc}XI)'ef AdYO<.,'Utc to submi• 1tmit'US ruritt~ br-ief$ in fl"<k'"') appc:llate 

litig:uion on maucrs rcbting co the protection ofraxp..'lycr rig.ht.s. 

5. Rtquir<.· the IRS co St•bmit proposed or t~mpor.uy rc..'gulacions to the National T:u:payer Advocate 

on~ prc-publie'ation b:u:is forcommtnc within a rc:J.sonablc time. and :~.ddret.slh0$e cornmcms in 

the preamble co :~.l rcgul:uions. 

G. Authorfr.c che Nouion:ll"l~xJXlyer Advocate ro appoint independcnr 'ounsel who reporT dir«tly 

to the t\lational Taxpayer Advocate, provide independent leg.t] advice. hdp prepare mnioiS roria~ 

briefs and comments on proposc.-d or temporary regulations, and assist the National T:axJXly<r 

Adv001re in ptq»rillg dte AJtnual Rq_'loOrt co Congreu Md in <td\'OC<'I!ing for caxpa)·en indivtduaUy 

:lJt d syscemie3.Uy. 

7. c~ce a separate appropri:uion for TAS within chc IRS budget U') CIUUte th:\1 TAS funding is 

c:oncroll<:d by Congress and not by IRS. 

126 IRC § 78U(c). 

127 Oelegatlon Order 13-3l {formerty 00.2!50. Rev. 1). te/Ninte<l as IRM 1.2.50.4 (Jan. 17, 2001}: Jee also IRM 13.2.1.$ t)Uiy 16, 

2009). 

128 ld. 

129 IRC § 7803<cX2X8J<i). 

40 Special Focut - IRS Futuro Stato 
76 


Insert 33425A.072

Spectal Focus 

8. Grant 10 the N~t on11 Taxp:l)'Ct Advoc.11c no -<ldtg;~ble uchori y co iss e~ TAD with mp«e 10 

:my IRS progrnm1 proposed program, ace ion, or failure to act that m:ty cre:ne a significant h.oudship 

fora segment ofrhe t:1.xp:aycr popul:uio n or for caxpaye:rs at large. and require that,toobjcct toa 

dircc.tivc,thc lRS would h.we to ~UpC d timely in writing. 

9. Amend IRC § 781 1 to d:uify 1he process by which the IRS shall ~ppeal a TAO, and rt"quirt t~ 

CommissionC'r of ln~crnal Revenue or 1hc Oq>ucy Commi.uioner oflntemaJ enU<" to r.tise his 

or her obj«tioM to a TAO (i.t., app<>l the Order) U.Oed by the N.tion>J Taxpoyer Ad,•ocate by 

responding in writing within a ~MOMble time, :.u es:t~b1 ished by the Nation.)) T;axp:a)-er Advoeatc: 

in the TAO. If 1he order is modified or n.~cinded, :a derailed n:plan:uion of ~ muons for .such 

modilic-nion or rt':SC:ission should be ptO\'idcd. u• 

130 Soe Tax..,..r Rijl>ts A<t of 2015. S. 2333. 114th Coog. §§ 401 & 40212015); Te><payer Ril!hts Act of 2015, H.R. 4128. 114th 

Cong. §§ 401 & 402 (2015) (ackkessif'C aspects of laxpayer Assistance Orders and Taxpayer .Mvocete Oitectives}. 

Taxpayer AdYOCate Setvlc:e - 2016 Annua.l Aepot't to Congress - Volume One 41 
77 


Insert 33425A.073

legislative 

Recommendations 

LR TAX REFORM: Restructure the Earned Income Tax Credit and 

#2 Related Family Status Provisions to Improve Compliance and 

Minimize Taxpayer Burden 

TAXPAYER RIGHTS IMPACTED' 

• Tht Ri'gbtt() Dr lnfommJ 

• TIN Right ltJ Qunli'IJ Srrviu 

• 1'1" Righ1 to Pay No Mou Than tlu Corrrct Amomu ofTax 

• The RigiJt t() Cbalknge thr /RSi PMi'ti'on11ntl lh H(tlrtf 

• TIN Right ttJ f>ri'wuy 

• TIN Right to a Fair a.nd just 7it.x Spum 

PROBLEM 

A taxpayer"s '"F.amily stams" is ccntraJ 10 the calculation or h is o r her t21xable income and comporation or 

rax. Despite scvemllegislati\•e impro\·ementsl and recommen dations by Ute Nation.al T:axpayer Ad,·ocare 

and others,.\ this fundan..encal component of l'ar.ltion remains one of the most complex facing ea~h aJld 

every tax~)"('t. The Family Slatus provisions include: 

• il ing.sr.:~nLS (i.r .. singk, married ingjoimly, married filing separ.udy. and head of household):" 

• Personal and dependency exemptions:' 

• Child 1ax Cr«<ir (CTC) 2nd Addirion•l Ch;ld 1ax Credi• (ACrC):' 

• Earned lnoome T2X Cr<d;r (EITC);7 

see Tax.p~, Bill ot Right$1l80R), www.TMp,&yefA<.tvoc~tt.lfs gov/ttxl)3Yer.rJ&hl$. The natrts eont.aiMCI in tr.e T90R art now 

ltSted in the Internal Reo.-enoe Co6e (lAC). Seo Coosotielat«< Appropiiations Ae1, '2016, Pub. L.. No. 114-113. Ofvi~n Q, 

Title rv, § 401(a) (2015) (codified at IRC § 7803(a)(3)). 

Conct.re-ss adopted a Uniform Definition of a Child (UOOC) In me 'Norkin&f Families Tax Relief Act of 2004. effectfve for tax )'ears. 

beeJnnlng after December 31.2004. PUb. L No. 108-311. §§ 201,208.118 Stat. 1166. 1169.1178 (2004). Congress 

made further revtsions to UOOC in Pvb L No. 109-135, § 404(8), 119 SUit. 2577,2632 (2005) and Pub. L No. 110.351. 

§ 501.122 Stot. 3949. 3979 (2008}. The NalJOnal Taxpayer ACI'.«-ate first recommended adoPtion of a UOOC Jn Nat~nal 

Taxpayer Advocate 2001 Annual Report to Congress 82·100. 

3 See. e.g., Nationel Taxpayer AdvOC<'ltO 2005 AMual Report to Conares.s. 397406; N:.tion&l T&.x~r Mvoeato 2008 Arv'lu:.t 

Report to Con«re». 363-369: Natlo"'-1 Tax~ Advocate 2012 Annual Report to Congress. 50&512: St~ Holt, The Role 

of the IRS as a Socfat Benefits Adminlslratrx. Amencan Enterprise Jnstlwte (July 2016), https.:J jwww.ael.org/publicatlon/the--

role.of-the.t.rs.o.s+soc:ial-bencfrt.a<tmini&trator/: EJ&inc MMC. A Redcsilflled Earned Income Tax Crcdff Coutl Encourage Work 

By CMdiiJS.S Adult$. T&x Policy tente-r {TPC), ht~://www.taxpoiiCyeonttr Of'&/tt.JcVOX/fe4eSCMd-e&rno<J.ineome-ULX-eredlt.COuldencourage..work<hlldless-&dults: The Presldenrs Advisory Panel on Federal Tax Reform, SlmJ>Je. F~;~;r. and Pro-Growth: Pt<JpOSlffs 

to fiJ( America's Tu System (November 2005); Adam Carasso. Jeffrey Rohaly. and C. Eugene Steuerie. A Unified Children's Tax 

Credit. N3T.tOnal Tot~x Auoe:itloon Pro<:ecdin&s (M~ 15. 2005), http://www.urban.orCfupf~dPDf/1000790 pdf; Lawreoc~ 

Zeten.ok. Re<fesr&nlfl.l the Eari)O(tlne~ Tax CrtJaJt as a FamJJy.S•'zed AIJ}v$Utt~m to {he Min.lmutn Wttte. 57 TAX Vw Rtv. 301 

(Spring 2004); Max 8 . Sawicky. Robert Cherry and Robert Denk. The Nexr Tax Reform: Mvanci~ Benefits for Chjh:ken, 

Economic Policy lnstitut~ (2002). 

4 <RC§§ 1-2. 

5 IR¢ §§ 1SHS2. 

6 IR¢ § 24. 

IR¢ § 32. 

laJCp.ayer Advocate Service - 2016 Annual Report to Congren - Volume One 325 
78 


Insert 33425A.074

Log•slatlvo 

Recommendations 

• Child and Dcp<ndcnt Car< Cr<di1 (CDCC);' and 

• ar.ned spo~ rules.' 

While litcrnlly C\'Cry 1ax return involves at lt'ast rwo of lhest" family St:uus pro,•isions, the IRS is hard· 

pR'sscd to indt'JXndcntly Vt'rify 1ht' accur.acy of ~ scuus claimed. t'r the yean. it has u~ different 

gcwernment d:ar:abases and ckvdoped .. rula .. rh-:at assist il in identil)'ing quescion.-ble claimsof61ingsratus 

or creditt. Bm chese rules f.lil to a<X:ount for the Ruid n:uure of household COnlpo$ition. A recent study 

by the l~x Policy Center found d~,t berwc:cn 19% and 2003 the number of households ~dc up of 11trndicional• families (manicd parC'nts with only biological children} h~s ckdined while altcm;uive family 

rypcs. such as families led by a single parent and cohabicnring JXlrents-, has iocrca.scd.10 Thl.lS, a narrow 

conception of a ''famiJy" can deny Family Status l.>enc6t$ to many houst"holds wid1 children. On the ()(hcr 

hand. an ovtrly expan$ive definition ma)' be impossible for the: IRS to administer without unacc:ept:a.bly 

inrrusi,·e inquiriC$. 

Nowhere is thisoonfiK:t more apparc:nc chan in EITC :~dminiscr.tci on. Enaeted as a work incc.ndvc in 

che T:ax Reduction Ace or 1975.11 che EITC h.u become one ofth~ governmcnc$ l3tgc$f Olt"a0$-1estcd 

;anci-poveny programs.'} Unlike tr=~dici :tl otnli-poveny and wd&rc prog.nams, che EJTC w.u designed 

co have an easy "application" process by aJiowingan individual to claim che benc6t on his or her Cl.X 

return. This approad1 dOC'$ not R'<(uirt: an fr:utructu~t: of cue workers and local agcndn co make 

digibilicy dcccrminations. For tax year (TY) 2015, over 27 million taxpayers daimcd ne1.dy $67 billion in 

EI TC. u TIHI$, ell<: E ITC enjoy$ a panicip:uion r4tc ofbecwet"n 75 a_nd 79 f)(rcenru-one of rhe highest 

p:anieipcuion r.nes of :my fedenl go,•ern1nenc b<n<:6( program- -:~nd 87 perccnr Qf c.hild~n d;a m~d for 

che Ef'fC were cor-r«dy cl;aimt:<J.

1S Ho~,cr, the caS)' :application proc6S of the EITC is also a.ssoci:ut'd 

wich :a high improp<"r paymC"nt rate. which must be :addressed in :any dTons to improve thC' EJTC.1

' 

8 IRC §§ 21. 129. 

9 IRC § 7703. 

10 Elellne Ma~. H. Ehz:ebeth P<lton. end s.r& Edel.tte•n. Tex Poflcy COtlter (lPC).Inc.-ush'lg F8mUy Com.olexi(f af)(t ~(;J1ry. Ute 

Difficulty In Oetetmlnlnt Chffd Ta~r Benefits 19 (MSI. 3, 2016). The TPC Study analyzed the December J)anel from the 1.996 

and 2008 C~sus Bureau Susvey of lotolll8 end Pro&ram Participation (SIPP) data. 

U See' Pub. l. No. 94·12. § 204.89 Stat. 26.30 (1975) (codifted at IRC § 32 •. 

12 I SUdgcc Otrtee. ~t:ral MUns•Tt$ffet Procroms .-nd To~~: Ctedlts • lnfop~(.)hie (Fob. 11. 2013}. 

hups;J /www.cbo &cw/pubtlcetiOI'l/43935. 

13 IRS, About EITC, l'lttp$://WWW:erte.lrs,&O¥/EITCCentraVot>outt"~ c. For w year (T't) 2015, 27.3 mlll~n Wt~rs had elalmed 

$66.9 bilhon 1n EITC (aftcl math orftlf processtng. but prior to any audrl of the tax retwn). IRS, Compliance Data Warehouse 

(CDW'),IndivKIWI llelwns Transb«ien fllo (.nc:ludoes 1Y 2015 r6tvrN pOS-ted u Of c:yele 47), 

14 Dean Ptue(er. Earned Income Tax Credit Parr.icitNdion Rate lor Tax Year 2005 178-179, IRS Research Bulletin (2009}. See alSo MaU,ic R. Jones, Cha~s in EITC £1igiblbly and Participation.. 2005·2009, U.S. Census Bureau. 

15 IRS. CompNance Esrimate.s for the E-arned Income Tax Ctedjt ctaJmed on 2006·2008 Returns 5 (Pub. 5162. Aueust 2014). 

https:f/WWN lrs.gov/pub/•rrSOVEJTCCom~eStudyTY2006·2008.pdf (here~naftef referenced as IRS EITC Compliance 

~ucfy), Tho 87 percent c5limalc WitS computed u-SinQ 1hC l<>wef-bound ot;trmate rnetho<klloCY. v.-hiet'l assumes Mit non- partiC•PJnlS heve $iml'-r eoml)lieoct bei\8'Yior to aucbt partiiC•I)ants W'lth $imllar d\eteetorlsUCs (l.e .. In tho s.mo tampi-ng 

strata). Upoer-bound estimates assume audit non-participants ate noncompl161'11 (1.e., the default exam exdusron l.s correct). 

The upper bound cstlmtlte for cocroctlyodaimed d'!ildron is 73 percent. 

16 An Improper payment Is defined os •any peymeol thel should not have been made Of that was mede in an incorrect 

326 

•~ (incruc:llo& Otte1Pt~ymen1S encl undorpeymentt} un<tet ttbtutOc'y. contra.etuol. admcnislrtlltNO, Ot Othct IOCD!l>' oppitcabl• 

requjrements• and •Includes any payment to an lneli&Jble reclp.ient ... Improper Payments Elimination and Recovery Act of 2010, 

Pub. L No. lli-204, § 2(e}, 124 Stat. 2224. 2227 (2010• {ametldlnf; Improper Payments Information Acto( 2002, Pub. L 

No. 107-300, 116 $(bt, 235o ('2002} b'J S.tnfdnt § 2(1) ond ad<fu"C (t)(2)), The IRS currendy ot;tJmotd lhtlt 1M EITC irnp;ol)4n' 

payment nne •S about 24 pettent ('>'tlieh ~t.t fOe' an es.timated $16.8 billiOn in Improper 1)8)'n'lents). Depanmoe:nt ()(the 

Treasury. Fiscal Year 2016 Agency Rnandal Repon 224 (no.t. 15, 2016). 

U ablattvo R:ocomme.nctatlons - r._x Reform: Ro•tlucture the EITC 
79 


Insert 33425A.075

Legislative Recommendations 

The IRS National Researeh Program (NRP) is hdpful in idenlifying the sources of EITC errors. The 

most commo•~ type of EITC c:rror is i•tconlt misrtpotting;. 65 }'J<'I"CCnt ofEJTC O\'(rdaim return.s show 

some income .nisrc:porcing and it ls the o"fJerror on 50 pet<:tnt of ovt:rcl<'i•n r(turns..17 M<'ny of these 

improper paymcnl5 shoold be t!imina~cd by chc rcccnc cnaomcnc of accdcmtcd due dace> for Fom\S W-2 

and 1 099~M ISC (rq>Orting noncmployec compt:ns:uion) and the ddayN Errc rdUnd issuance date. in 

dTec:t for che 2017 Filing Season. ~ Wh~t remains :uc some of the mort' f.actu.'Llly complt"x sources of error, 

~n_icul:.uly tl1e tC'<lui~ment th:u the child l'tSide with the taxpayer for lllO~ th:.tn hoalf the y~r. Other 

euof$ induck ®ntp<ting claimt for che .same child, pantcutarly by .stpar.ned p;an:1HS or by penons no• 

having a rcquir«< rd:nionship wifh fhe child, and wl~fher sep:~rarcd potren•s arc considered "'unn\.'lrricd'" 

under rhe rax ode:~nd chus :able to file :l$ single or head ofh()US('hold.19 Th~ is.1ues :d$0 arise under 

other Family Sr.uw provisions. 

The EtTC also provid('l; :~n exrremdy small bcnc~t 10 low income childless workers bcmu.n 1he ages of 

25 and 64. The p-.anicipacion r.ace for this benefit is extremely low. tven though ic ls \'Cry easy to calculate. 

b«'::.usc: ic based on the earnings of a single t:.UC~)l.ycr.10 lbc: IRS dOC'$ noc. :.adjw:t a caxpa.yer's rerurn to 

claian Lhis credit where dte taxpayer h:lS noc. done so 2.nd appeats digible..Z1 

FiJt.::t.ll)'· there :tre :.re:as ofEITC :admini.s11"Jtion rh:u c.1n be v:mly improved. For c:xamJ>Ie, the IRS h3.i 

n(l( yet embrn«d irs du:l.l mission as :a c::~~x w llextion and benefit$ disbursement ::~~gency. This &ilure 

to acknowledge its role as an :adminiscrncor of one of the largest ami·po-.·eny programs in the fcder2l 

government leads 10 cnforcemem-orienred compli:lnce appro."Khes 1ha1 :~rc panicularly u.uuirnble and 

councer~product ve, given thc characteristics of the ElTC population.U 

EXAMPLE 

l11e Tax Coun case of CouiQn v. Commissirmrr illustr.ues the coumerinruit.i\'e operation of the<urrent 

Eunily St<~tUS rules.u In this oue, che state of Ohio appointed Ms. Cowan •o be the gu.lrdi;an of :11 chi.Jd. 

Marquis, from 1991 uruil 2004. Under n.ue l;aw, rf~ e gwrdi:ant hip :amonu.ric:ally rcrmin:at(d when 

Marquis turnt-d 18. which occurred in 2004. Howevu. Ms. Cowan continued to pro\•idc Marquis a 

home and provided his suppon after he turned 18, and 1hcy continued to reg:ard chenudves as ;a family 

unit. (fhe court noted · Ms. Cowan regards Marquis- as hC'r $On, and Marquis rq;;uds Ms. Cow-.an as his 

moLI~cr.'") Ms. Cowan n(Ver adopted Marquis, tht" Jega.J significance of which she did not understand. 

Ms. Cowa1l scipul:ued for Lrial that haJ $he known of d\e lmportanoe of adoption, she would have 

~dopted Marquis. 

Later, Marquis had ~ <b.ugh•er. and the:y boc-h lived with Ms. Cowan. llle coun foulld Ms. Cow.:tn 

provided mosr ofrhe houK"hold'ssuppon- during 2011. In 201 1, Ms. Cow-;m d:~imed Marquis's c.bughrer 

as her granddaugh1er for the EITC. The court disallowed rhis daim since M:lrquis's d:.1ughrer was noc 

a qualifying chjld of Ms. Cowan for purposes of the En·c. i.~ .• she did not m«t the rdationship te$t, 

17 II?S EITC Compliance Swdy (known e.-trotS} N. 

18 Pub. L No. 114-113. Division Q. Title tl, § 201. 129 Stat. 3040, 3076 (2015). 

19 IRC § 32(d) requires taXpayers who are married to me jOGlU)' In orde-r to receive the EfTC; IRC §§ 7703(a} eod (b) prcMde-

~ocal end special rules fOf' det•rmin;na mariUII $t&tus. 

20 <>n. stu<ty ett.Wn&tes Ule <:hd<less ~ l)tU'tielpat~on reto at 55.6 POreent. Oe3n Plueger, £amed Income Tox Credit 

PattlclperJon Rate fM Tax Year 2005179. fA'S Research Bulletin (2009). 

21 The IRS w.ll send the taxpayer a notk:e. advtsirc; of the potll"ntlal e-ligibll«y fOf the ered1t.. 

22 ~Ot a dsscvssion or the imphet~~ lont of IRS Future St&te Pk!M f<>f ~ EJTC powlaUon. see Most 5er1ous PfOblem: E"tmed 

lt'ICOI'M Tall Credle (EffC): The Future Slate~ Reliance on OniJne Tool$ w.u Hatm £1TC Taxpayers. supra. 

23 TC. Memo. 2015-85. See af$0 Ne!JQnal TtiiXp.o)'Or' AdvQcate 2015 Annvt~l Report to Congress 242. 

Taxpayer Advocate Setvlce - 2.016 Amual Report to COOCress - Volume One 327 
80 


Insert 33425A.076

leg&slat&ve 

Recommendations 

despite 1hc ~cr lh:u Ms. Cow:m cared for Marquis's d:mghrer as her own. Moreover, because Marquis's 

daughru only lived. with Ms. Cowan for 11 months of 1hc taxable yc-.u, she did not m«t the test for 

Qualifying Rd:tti\'e. whic.h rcquin=s rhe child 10 have 1he S;inlC principal place of abode as 1he 1axpa)•er 

and livt as a member of the raxpayt'1''s household for the t·axable y1:2.r.:• 

RECOMMENDATION 

To pro\•ide rhe Code's nmily Stacus provi$ions wich che n«essary Rexjbltity co adapc co the evolving U.S. 

t":amil)• composition, :and co improve 1he adminimmion of 1he EITC and ocher Family St:nus pi'O\'isions, 

including reducing tl'tt: EITC improper payment mrc, the N<uionall3.xp.-yer Advocoue reicer2rcs below her 

2005 and 2008legisJarivc recommt'nd.·u ions for simplifying the f.amily status pro\'isjons in 1he Internal 

Re\'t'nut' Code. and further m:ommends chat Congrt"Ss: 

I. Rcqulre the IRS to revise ju: mission sutemcn( to re-emph:lsize a scrvkc--orien{ed, non-coercive 

<l~')prooclt cow administrarion. r«ognizc: the dual role$ of revenue collector and benefiu 

o'ldminisrr:uor, and explicitly affirm the role or the Taxpayer Sill of R.ighrs as the guiding ptinciple 

ror mx adnlinis!f':uion.

2) 

2. Consolid.1te the mt-rous F.vnily status provisioi'IS into cwo: the tefundable Family Credit, which 

would reAcct the COSf of m.:.im:.ining a household and raising a F.unily; and rhc rcfi.mdable E:trncd 

Income 1~.x Credit, wflidt would be a~rdc.xl ~r individu:.l worker Md provide a work inccmivc 

and subsidy for low incontt' workers-. 

3. RC'peal the perSona) and d~ndency ex-emptiOn$, Child Tax Credit/Additional Olild Tax Credit, 

Head or Hou$C:hold filing sums, :md chc family~s te ditTerential of rhe EITC, :aU of which would 

be rcpla«d by 1hc Family Crcdi1. 

4. Mnke rhe Family Cred.ir available co aU raxp.1yers r~a dless o(income .:.nd refundot.ble to low 

income mxpayers~ the f.tmily Credit would consist of 2 Personal Credit (for taxpayer and .spouse) 

and a Otild Credit a\·ailable to digiblc individuals claiming a "'qualifying c.hild" or "'qualifYing 

relative .. (subject co tie--brt::tker rule.s). 

5. Amend the Qualifying Relative tt'St ofJRC § l52(d)(2)(H) to provide a d 1ild must sh.1re t.ht"".same 

principal piau of abode as tht' raxp3yer and be a member of the t.upayer's household for mor~ 

than six months or rhe taxable )'t:ar. 

6. Provide for cerrain ~dd~on .;rcdicsunder the F:lmily Credit for dlild and dependenr arc. dis:;:. bled 

taxpayers or filmily members. and consider providing for noncustodial parents of qualifying 

children who pay $UbstanciaJiy :til child suppon leg:dly due (or that r:ax year. 

7. Amend IRC § 152(d)( 1)(0) 10 provide !he <em> "q<Oalifying "'lative• includ .. an individual"who 

is not d:timt"d tu a qualifying child of such t:axpnyer or any ocher l:txpa)•er for ~ny tar.tb!e yen in 

the calencbr year in which such ta.xnble year begins ... 

8. Amend IRC§ J52(0 tO prc:wide a definition or .. supporl" thou exclladC$ :;uly ffi(<\1\S~tes-ted federal. 

$l<'te, Ot local benefiu fX'jd on beh<tJf of Or for the benefic of the qualifyit'g d1i.Jd Ot qualifying 

rdativc. 

9. Expand the e-ligibility :.tgc for the modified refundable EITC to include- workers 18 yearS of "ge and 

olde-r. with no age C'.ap. 

24 Tre(l.t. Reg.. § 1.152·1(b) ell!plalns that the l)hras.e •for the taXabJe year• means the entire taxable year. 

25 For 8 ~~ e-d dcS<:ussion Of the 1RS M•SSi<>n Statement • .see Spec:i~ f«us: IRS Fu t.lr~ SUHe: The Nation~ TbJip&}'er AO'W:>Cate·s 

Vision lor a TaJipayer·Cen.rric 21.Sl Cenrvty TaX' Ar;tminisr.rarion, supra. 

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10. Amend IRC ~ 7703(b) to pcnnit taxpayers who have a legally binding st"paration agrt"emeot and 

who Jjve<1ipart on the last day of the c,.x year to be considered •not m.arried" for ()\li'))O$t$ offiti.,g 

Sl:it\1$. 

ll. Amend IRC § 6402 ro limir ofT"'" of rdunds auribu~ab e <o rhe Family Cn:di< and EITC ro 25 

percent of the ~yer'$ refi1nd3ble ponion of these c:rediu .. 

12. Amend IRC S 6402 to authori1.c the IRS to calcul:ue o\·erp:aymc.nts and Rl:lkc refunds with respect 

ro the new per-workC"r EJTC ~fundabl e credit. where the u.xpaye:ls reporrro income <krnonu r.ues 

eligibility and the taxpayer has nQ( claimed the crtdit on his or her return. 

13. Mandate the J RS assign one c.mployre to each audit im·olving a questionable f01mily Credit claim 

where the cup-.tycr has .upond«< (by phone or in wriring) to an IRS audit notice. 

14. Mandare the IRS csr.ablish a dedica1~. )'Car-round toU-fttt heJp line stafred by IRS personnel to 

respond to Family Credit questions. 

PRESENT LAW 

The following discussion describes the uniform dcfini1ion of a child"$ wtll :u 1.hc eligibility tequirement$ 

for rhe f..amily Sc::trus provisions of 1he Code. 

Uniform Definition o f a Child 

In the \Vorking F-amllics Tax Rdid Act of2004, Congress created a uniform dc·finition of child in 

I RC § 152(c) of the Code. Beginning in tax ye:.r 2005, 1he Code defines chc ccrm '"dependcnr .. as 

a qu:.tlitying child or .. qualifying rd:uivc. ~ ·n,e $Ingle definirio•l of qlQiifying chlld, with cr:rcain 

modifiations., applia: for purposes of dain1ing the EITC. ere. CDCC dependency exemption , and 

head of houS<hold 61 ing sra!U$. 

26 IRC § 152(&). If M indiVIdual does not meet the deftntt•on ore qut'l1•fylrc ~ld under § 152(c:}, h6 or the fMY meet the 

definibOtl of e cp,t&lcf)'lna reletlve ~r lRC § 152(d). 

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An i ndividual muse meet four t"C·.st.s in order to be a qualifying child under IRC S ) )2(c): reJationship.

11 

age.:. ruidenc:y,:<t ~ndsuppon.• If an individual can be claimed as a qualitying child by mort: than or1e 

taxpayer. IRS; 1)2(c)(4) establish<"$ a tie-bre:aker rule to decennine 'vhich t~payer can claim the ehild.' 1 

In ord<:r to be a qu:alifying tv:brh•c of <1 IUp:l.ytr, an individual must: (A) belr a cen<~in rcbrionship 

to the r-~xpayer. (6) h:t\'e g.ross income for the calendar year rh-:n is less than the <-xempcion <1mounc 

(a..o; ddin«l in lRC§ 15t(d)). and (C) deri,•c O\'er one-half of his or her suppon for rhe ctlendar year 

from the caxpayer.u In addition. dle' individual an not l>e a qualifying child of the taxpaytr or of"'any 

o<hcr taxpayer" for th< <axable year." A q"'difying n-Jativ< may include an individual who has th< Slm< 

princip;~..l pl<~ c of bode as the taxpraytr ;tnd who is <' member of the tup.,ytt's household . .,. 

Earned Income Tax Credit - IRC § 32 

The Earned Income Tax Credjt (EJTC) entitles cenain working low income taxp:l)'<'f'S to Glotim a 

rd\mdable credit of up to $6,269 for 20 IG.n The EJTC is availabk to taxp.1yers either with or withouc 

~ qu:alifyingchild. To q\J:alifY fot 1he EITCg<-nerally, :a cax~~r •nus' meet cerr:Un gener.tl eligibility 

requiren1en's td d to ruidency,-" filing St:'lltl$:.'

1 «n:.tin foreign benefits,"' :.\1'd st;UtiS as:.\ qu<lJifying child 

27 A qu&htyln& ct.ld muM be e tt.IXJ)O')'er"$ son. 66u,._ter. ltel)$on. $lCIXS6VChtOf. btothtl', Sl$ter. half bt'Otl'14tt, half ll&ter. ste-pbrother. 

s.teP5($ter, or a doe$eendant ol any of tMm. IRC § 152(cX2). (f)(l)(A). and (1)(4). In the ease of an adopted child, the Child 

is treated as the child of the ta:q)a)'er. IRC § 152(f)(1)(B). In the ease of an eJieible foster child. the chik:lls tfe'aled as the 

dlild of the ta.~!;peycr prOVIded the child was plac:ed wrth the l&Kpey¢r by &n evlhoN:ed placement aceney Of by the c:ou~ts. 

lAC§ 152(1X1KAX11Iand {f)UXC). 

28 A QUahfy!nf. eNid must be uoder the a(e of 19 at the end of the year. under a(e 24 at the end oflhe year and a full.ume 

$\UOt:l'll. 0t any 8&0 tf .,.rmaneolly and lO~Iy disabled. I:AC § 1$2(eK3). 

29 A quallfy•rC ehld mutt NYc lhc same PnnciP&I plate of abOde os the tax~r for more than hOff of the woblo re.ar. 

IRC § t52(c)((1l<8J. The Code m.ai<es s.pec:ial exceptions for 1emoorary absonct"s. Chll<lren who were born or d«! durine the taxable year. kidnapped Children. and dli\dren of drvoteed Of .separated parents. IRC § 152(e) and (f)(6); 

TIO&S ROC:. §.§ 1.152•1(b), and 1.152·2(a.M2Xi1), 

30 A quahfyite child must no1 h&Ye prOYSded more than one-half of hlS or her own support for the ealendat >·ear tn which the 

taxable year ~s. IRC § 152{c)(1)(0}. 

31 In cas.es ~ere more than one taxpayer can daim en tndi'v!dtal as a qual1~ child. the taxpayefs can decide who Will treat the 

child as a quaMY'If'C d'litd. The toxptrytr who dalm$ the qua•1tyine ct'llld is entitled to the dependency exemptiOn for the d'llkl. 

heed ot househOld fihn& status. tho Ch•ld Tax Cre&t (CTC). tho EITC l'lnct the Ct\ltd and Orependent Core Crecltt (unless the rule 

for ci\loreed or separated paret~ts epphes and assuming all other eUgib!lity rerquitements are met). tf, however the taxpayetS 

connot decide who will treat the chik:S M a qualrfyjnt chtkf. the tie-breaker rule lfl rRC § 152{c)(4) determines which taxp~ryer 

ten cla.n U'le dllld. tf onty one ollhO: ~poyers CI$Jming a Chi\d i:$ the child'S parent. U'len \he c~ d wl:ll be ~te<S es the 

quabf)-Jog child of the parent. IRC § 1S2(cX4)(A)(I). It both t.eXpayefS claltl'llf'C a d'lltd ate the child's. parents. then the child \WI 

be tre~ed as the QOalityi~ child of the parent wi1h ~m the chikl re&ldod for the blie-&t period of time durinQ. the taxab6e 

yeor. lAC§ 152(Cl)(4)(81(•). tf the etwld ltvod w•th bOth ~ents for U. tt"~me emoW"~l of time Clurlf'IC tho lOMble yet~~. Nn tnt Child will be created as the qualtfyll'lg chdd of the l)afent wl\h the hlgt\e5t oct.Jsted gross •ncome. IRC § 1!>2(e)(4)(BX••). If 

oorthcr of the taxpayon daimmg o child is the cMd'a PDrent. lheo the child i:s treated as the qu.alifylne chlk:l of the t:axp.lrfer w•l.h tho hrcNst &djU$ted gtOS$ income rot lhc ~ei>Se ye&r. lAC§ 152{C)(4)(AX••). 

32 IRC § 152(d)(1)(AHC). The relabonshlp betvr.-een the qual.rfying relative and the ~r must meet one of the reiatfonsNps 

set forth •n IRC § 152(d)(2). 

33 IRC § 152(dX1XDI. 

34 lAC§ 152(dX2XH). 

35 IRe § 32 The r"NXImum •~t Of the ered•t •• tiVOlllble to a r w•th three Of n'IOre Quel•f>'irc children.. For teA yc~ 

beginning tn 2016, the maximum «ed•t avadable for a taxpayer with one quaJtfylng child Is $3,373, Wtth two qualifying children 

Is $5,572. end w•th no qualil'ylrc children ts $506. Rev. Proc. 2015-53. 2015-44 I R.B. 615. The aetuet amount of the EITC 

venes depend•nc: on lhe c.arnOd income Ollhe uut.P3)'er. 

36 A w~r Is not ell~ e for the £JTC rf he or she Is a I"'C(lte'$ident allan for any portion of the taxable year, ldess the tax~ 

f•lu & joint rttuM w•th a tpouse who •S a Umted StatM cll.lton Of resident alten. IRC § 32(c)(1)(0). 

37 A taxpayrer 1.s not eii~D e for the EJTC if he or She Is filtng married filing separateAy. IRC § 32(d). 

38 A taXpe~-er is not eligible for Che EITC tf he or she elai.ms. a foreign eatned income exelu.sion or de-duct$ or elCCkldes a fore~ 

l'lous4ng amount. IRC § 32(c)(1)(C). 

3:30 Uablattvo R:ocomme.nctatlons - r..x Reform: Ro•tlucture the EITC 
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Recommendations 

of another caxpayer." The c:axpaye.r must also ha\<c a taxpayer identification numbe «~ ea.rnc:d income.•• 

and limited <1.1nounrs ofin orne~~ Tup'<lytl'f wis:hirtg to claim the EITCwirhout <'qualifying d'lild muse 

meet additional d ig.ibility requirements, irteludinr; bting bec ~cn the agt of at le-dSC 25 and under 65.<0 

To be con.sidered a qu:.li(ying child for the EITC. an individu.1l m~asr meet rhe ddinirion of a qualifying 

child in IRC § 152(c);h he or she must be unmarried :u the end of the taxable year (unless the taxpayer is 

encitled con deduction under IRC § 151 (or would be: so enticled but ror IRC ~ 152(e)) for the m.uricd 

ndividu:J) ~ and l1is or her prit,dpal pl.-ce of ab«k must bt in the United Statcs. «» 

Child Tax Credlt- IRC § 24 

The CfC entitles a taxpayer todaim a cudir of up toSl,OOO for each qualifYing child. as defined in 

IRC § 152(c), who is underage 17 at the e:nd oftht- tax year. a ~amount of the credit is appli«J to any 

taxes due and in some instances is rdUndable (known as the Additional Child Tax Credit, or ACfQ .

4 

Child and Dependent Care Credit - IRC § 21 

The: Child :.nd Dqxndcnr Care Credit (C OCC) enritles a :t~payer to daim:. a-cdic for c:xpenses incurred 

so the: t.upaycr (and pouse~ if m:m icd) can work o r look for work'" To qualify for tht- c«dit, a taxp;af't"r 

39 A wpayer Is not eligible for the EJTC d he or she is the quatttyln& child of another Ut).payer. lAC § 32(eX1)(B). 

40 A t.P~t connot elo1m 1M EJTC 1! he Ot She does no«. h~ a ~!id soel•l secutttv ~f. lAC § 32(e)(1)(E) (W't(l (m). 

4l A taxpayer cannot claim the me unless he 01' she has earned inoomo. ~Re § 32(a). 

42 A taxpayer's eamed income. adjusted gross •ncome. end inYesttr~ent 1n00me must au be wrthtn ltmts established annually. 

IRC § 32(&X2l lWld Q). 

43 A taxpayer is not eligible to clatm the Effe without a qualifying Child unless the Ul!Xpa)'e($ principal place of abode is in 

the United States for more than hatf the taxable year. the taxpayer ls at least 25 but under age 65 otlho dose or the 

I.MOble )'tOt, end the t:txl)tlyet dOe$ not QUt\tity &S o ~nt or onomt't loOJti)OY'er under IRC § 151 for the to.xoble ~r 

IRC § 32(eX1kAXIo). 

44 lAC § 32(c)(3)(A). For purp.os.es of the ErTC. & QUtt!lt)ine d'llld under tRC § 152(<:1 it ~term•ned WitheM retotd to IRC § 152(c)(1 )(D) (requlrio& a qualrf)'ltC child not have prcwided avet one half of hls ex her O'YI1"' support fot the l,OXab$e )'ear) 

and IRC § 1!>2(e} (dcsenbJI'If, ~al ndes fot diYOtood parents). 

45 lAC § 3~eX3XB). 

46 IRC § 3~(eX3kC), 

47 IRC § 24(a) and (c). Tho amount or the Chlkl Tax Credit is reduced by $50 for each Sl,OOO (Of fraction thereof) by whd1 the 

~($ mOd•tled a<f,Justed g,'O$$ ineon'le exceedS. m.e thres.hofd ~nt ($110.000 In \he ee.se of e tarot retum. $7$,000 in 

the case of a ta:.;payerwho is not m.vned,and $55,000 In the case ot a manied taxP8')'er filing separatefy). IRC §§ 24(b)(t) 

and(~). 

46 IRC § 24(d), 

49 lAC § 21. The aMOunt of \he Ct~~ is • ~r«ntocc. b&$ed on adjU$\Od ITO$$ lncoti"Mt, of lhe •mout~t ot t'n'llpiO)'I'nrtn'• 

related expenses pald by the \AlC.payer dunf'IC the taxable yea•. IRC § 21ta)(2) end {c). A taxp.8'/er may e&alm a erecllt of up 

to 35 peroent of dltld and dependent care expenses pajd durin& a taxable year. up to D m!Wmum of $3,000 for a taxpayer 

wllh one quallfyinCII'IdNIMI or $6.000 for a taxpeyer Volith two Ot r'I'IQ(C QUOiifyln( k\dMMis. lAC § 21(0)(2) ond (e). This 

pen::entoge Is reduced one percentage pcMnt for tNe.ry $2,000 (ot fraction th~t) bj Whk:h the taxpayer's ~sted .,-oss 

Income exceeds $1!>.000. IRC § 21(e)(2). A tax.payer may not dalm this etedit based on household or care expenses paid to 

a reJati\'e who 1$ a dependent of the tbXpaii'Yer Of the ~Cf$ ct'IIJd who is not over 19 lAC § 21(eX6). 

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Recommendations 

musr maintain :l home for one or more qualified individoal$.)0 Additionally, a taxpayer musr h .• 1.ve ~rned 

in-come.'' and must mccr ccrrnin fiJingsr:uus requiremcms.» 

Depencleney Exemption- IRC § 151 

TI\e depende:&\Cf exemption en tides a wp:t)-tr to daim an add i~:-i al exemption for each dep<"-ndent 

who is a qu:difying ehlld or qualifying rtbcive oft:he cupayer. as dc:fined in IRC § 152. A qualifYing 

child mul;t be under rhc :1gc of 19~ r the clo:)e ofrhc t:.tx.lble ye.u, under 24 and a full 4 time student, or be 

permanently or tor:.ally disabled.>> 

Head of Household- IRC § 2{b) 

Head of househoJd filing.st<uus e-ntitles a t~X:paycr co a larger Slanda.rd deduction and a mort f.tvorable 

rax r<~te th~J\ a r~payer filings-lngle or marticd filing separatdy.w To qualify a$" hetd of household, :a 

taxpayer mu.st be urun<1.rried or "'considered unmarried" at the end ofche taxable yeu.>> For more than 

h:t.lf o( the t:lX:tblc )'C.1r, a raxpoycr Rl l.st maintain, :lS the ta_xpayer$ home, 0'1 household th:u is the princip01J 

plocc of abode of • quolifying child" or a qu•lilj.ing rdacivc as defined under lRC § 152(d)(2)(A)-(H), 

for whom fhc 1axpay~ r can daim a dqxndency cx~mpt n under IRC § 151.51 Additionally, fh~ raxpaye.r 

can quali~· for head of household Matus if he or 5hc maintains a household which is t.he princ·ipal place of 

abod~ of the caxp:aycr's mother or father for whom th~ taxpaycc can daim a dcpend~ncy exemption under 

IRC§ 151." 

Separated Spouse Rule Under IRC § 7703(b) 

Under IRC § 7?03(a), the derem1in:.ario11 of whether a.n individual is m;arried is gc.·n~rally mad~ :l.$ of the 

);m day of •he individuals mx )'Cal. IRC § 7703(a) prcvcn" <axpoycrs from being con•idcrcd •• ·no• 

50 IRC § 21C3)(1), A (lu&llfi~ individv&lls 3 dependent. dehned tiS t1 4Qu&1Jfyina Ch1ld" under IRC § 1S2(t~)ll• whO is ur'ldott 

the age of 13, e dependent who Is Qhy$1CO!Iy or ment.t~lly lncopabSe of c.orl"- for tumself or her$elf and ~ has the ~ 

pnncipal place of abode as the ta~payer for more than one-half of the tax )'ear, or 8 spouse of the taxpayer who is plrfsicalty 

or mentally lncopablc of conne fOf himself or herself and who has the ~mot prioctP')I place of abode as the trucpayer for m01e lh.en one.ht!l'lf of the t&x year. IRC § 21(b)l1). Speei&l tUit-$ apply tor t.hitdren ot diVOttt<l Ot se~ra~e<S 03rents, 8IIOW!I'lll onry 

the "'~todiof porcnt 1o ~~the CTC: even if the noncusto<hol potcl'lt c;loims the Ghild os o dependent under the n..ti'Cl~ of 

IRC § 152(e). IRC § 21(eX5). 

51 IRC § 21(d)(1). Spee.al rules apply for calculetlng the eamed income With regard to the spouse of e taxpayer who Is 8 student tor who is physically or mentally ooable to care for himself or herself. IRC § 21fd)(2). 

52 IRC § 21(eX2). 

53 IRC §§ 1!$1(e)(1), 152(t'l) &nd (e). For w year 2016. the <Sepe:Meoey ell.tmPtiOn amount is $4,0$0. Rev. Ptoe. 201S.S3. 

2015--d4 I.R.S. 615. 

54 For tox year 2016. the standazd deduction for Mad of household is $9.300. . Pro<:. 2015-53. 2015-44 I.R.S. 615. 

55 IRC § 2{b). A taxpayer whose spouse died during the taxable year IS considered marned for that year. IRC § 2(b)I2XC). A 

ta)C.payer is not considered es momed if ht 0( she is teeoOy separated from has Of her spovse under o dcctee of diVOJec or 

separate ma1ntenaooe or it his or her spouse Is e norvesi<Sent &hen ot any time dur\ng me ta:.cable year: IRC § 2(b)(2)(A) 

ones (9). A taxpayet Is &lso cons1dered untnan1ed If he or She 1$ treat~ as uom&«led vn6er U'le f)(OYisk>nS of lAC§ 7703. 

IRC § 2(c). 

56 lf:tC § 2(b)(1XA)(I), Vlti.ich &~$0 eontelos sooerr.e rules for mt~fried eMdren. A<Sdltlon.ouy, f« putpost's of head of hOusehOld status. a quslifylng child is determined under the rules of IRC § 152(e) but w1thoot regard to the rules for di\'Orced or 

separated parent& under IRC § 152(o). 

57 IRC § 2{b)(l)(A)(h). A taxpayer is oons«teted $S ma1nta101ng a househOld If 1he w~r J>f'OVIde$ OW!r half of the eo$t of 

maintaining the hou~ for the taxable yeat. (ftC § 2(b). 

58 IRC § 2!bX1XBI. 

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roarried" even when d1¢y h:we sep3rnrW from their Sf>OOSe$ P\•rsuanr «o a binding sepa,r:uion agf'«mtm." 

h prO\•idn:: 

(~ Ge:neral rule.- For purpose$ of pan V of subch.aptcr B of ch.apter I <t•'d those provisions of 

this title wf1ieh refer to this S\ ~io•l·· 

{I) the derem\ination of whether an individt•<\l ls marrie<l shall be motde a.s of the dose of his 

l:tx~blc ye.1r; ~cepr that if his spou.scdics during his ~.xab e ye:tr such dctcrmin:uion sh:t.ll be 

nude :)S or rhe rime or such deuh: and 

(2) ::~ n indi\'idu.:~ ll eg:.d y $t'J)Q!'<llcd from his spouse under a decree of divorce or of sep:•r.acc 

nuintenance shall nor be considef'C\i a.s m.ltrriod. 

Neid1er rhe st.-mte nor the regttlations define dle requiremenrs for a .,decree of sep:t.rn.rc nlaintenaJlCC, .. but 

rhe renn may encomJXISS "btd and board" divorces. discusS((( below. 

AJ an exception co the gencr;d rule, IRC § 7703(b) provides rlur cen~in m.arried persons who :a.re living 

apart from rheir spouses may be treucd as unm:uricd. A married r:lXp:t}'Cr (as determined under the 

genernl rule of] RC § 7703(a)) living aparr with a dependent child will qu:~l fy as an u nmarried person if 

each of the: following conditions is met: 

• ·n,c taxp:1yer must file a separ:u~ tax return~ 

• The taxpayer must pay more than half the cost of maintaining his or her household forth~ tax yc.'3r; 

• T11e raxp.1.yer's spouse must not be a member of the household during the last six months of the: tax 

year; and 

• Tite household must, for more than six months of the: year. be che p rincipal home of thC' r.axpayer's 

child (as defined in IRC§ I 52(0(1)) for whom the taxpayer can claim a dependency exemption. 

o r cou ld claim su<.h :an exemption tx<Xpl for the sp«tal rule$ for divo"-'td pa.rtms under 

IRC§ 152(<). 

Accelerated Information Reporting and Delay of Certain Refund Issuance 

In 20 IS. CongrC'.$$ enacted two provisions that will assist the IRS enormously in ensuring chat credits, 

deductions. and exclusions that are income·based are correctly chimed. Specifically, Sc:-ctio n 20 I of rhe 

Proux'ting Amcrico~ns From Tax Hlkts: (PATH) Act of20 15 amendtd IRC § 6071 ro require tltat cc-nain 

information returns (Forms \'(/ .. 2 and 1099·MISC rqxming nonemployeec:-Ompensation) be filed by 

january 3 1. gener011Jy the S<tme <b(e :u the due d.ate for employ« a~\d p:!y<:e su:ttments. and ;~..re 1\0 longer 

59 IRC § 7703(b) &ISO provents U'l~tS fr0«1 bOina ton$idtrod '"oot rnarrlod· In two ways, Rrst. the $UIIluto rclatns an outdated 

"cosl of ma!ntaintrcg a househokt" tes' that disproQOmonatoly affects meml>e:r$ of f8Ci.&l and ethniC minorlws whO work and have children. Second. it requires spouses to have lt\'Eid apatt fot the last six months of the year even If they have a wrttten. 

legally bindinc, seoo.rat•on ogtccmcnt by ycafs end. In her 2012 Annual Repott to Contrcss, the National Taxi)Oycr Advoctlto 

~ed t~t Conaress 61"nend lAC § 1703(b) to ~~ the CO$\ of ~intoinmg a hovse:h<ltd tt$t end p.erm•t t&Xf't'l)'e($ 

living apart: on the: last d<q ot the taX year who have a legally bending separation agreement to be considered •not married.'" 

National Taxpraye.r Advocate 2012 AMual Report to Congress 513 (Legislative Recommendation: Amend IRC § 7703(b) to 

Rcm011e tM Hoowttokl Maintc~nce Requirement tmd to Permit Taxt)ttyc($ Living Apt)rt on Che lAst Ooy of the Tttx Year WhO 

Have IAt&tfy 8Jndmg Sel)lratfon Apeements to be COnsi<WCd ·NOt M.(trtltd'"). 

TaXJHII)'et AdYocate Service - 2016 Annual Report to Congress - Volume One 333 
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Insert 33425A.082

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Recommendations 

eligible for the extended filing d:ne for electronically filed rerurns under S(.•ctlon 6071 (b).(,O Section 20 I 

of dte PATH Act fu"her «qui.., the IRS to hold all r<funds th>t i• clude EITC or the ACTC until 

Ftbn.•ar'y IS for eal(_ndar yto\r filer$ to allow che IRS m.ort: time to verify the ~idity of the rtfunds and 

det«t rraud. 

Overpayments and Refund Offsets 

IRC § 6402 authoriztt the Sccrttal')' to both offset ;a taxp.aycr's refund again3t cert'2in liabilici¢$ and refund 

the babnee of dle overpayment to che wp:ayer. The debu lkgainst which che rt:fimd c::an off.s« indude 

OUUl:tnding f~e~J t2.X li:tbilitfes, JXlSl due child support. debu 0\\.'Cd t O orher federal agencies. SC'li C 

income rax obligations. and Old Age, Survivors and Disability lnsurancc.- (OASDJ) p3yments. There is no 

provisio n for exdwion of the EITC ponion of the overpaym<'-nt from th-e offset provisio ns.•1 

REASONS FOR CHANGE 

The :above Presem L.a.w di$Cu$$ion demonsrr.tte$ the mind·numbing complexiry of che Code's Family 

Status pn:wisions. In o rlicr Reports co Congress, the Nation2.l Taxpayer Advocate l-aid out nl.:lny re:tSons 

for ;~me nding tht'$C provisions.f-2 First :and foremost, she bdievn th:at the tax l.aw should not "emr:tp" 

taxp-.tym, by which .she means the l:a\1.'5 should ncx run <:<>tuner to or disreprd the \\~")'$ taxf'llyers 

gc ll y li"e their I iva and conduct their business. \'<'here the laW$ provide for refundable cn:djts, they 

shOllld be designed in" way th.at the IRS C:lfl eff«ti\•ely d.min ister.'-' Thus, in the OOEH(:Xt or the Family 

S~tu$ provisions. we can minimize both IRS and tUpclytr burden if we understand the st.ruc:rure of 

b.milics :and hou5Cholds in the U.S. o~e. . the d'-1.1lenge (or :tny simplificuion proposal relating 10 the 

F.tmily is how to accommodoue ~OI\' ing &mily stmcrures without imposing undue burden on r:axpayers 

or cre;uing additional compliance risks. By studying boch che demographics of the Amerlrnn F.amily and 

the sources of etTor occurring with the current web ofFamay Status provisions. we c.1.n design a statutory 

Khetne that is flexible: enough to ad:1pt to the c:volutiM of che &mjJy while minimizing taxpayer burdc:n 

an~i risk()( frnud. 

Demographic Changes In the American Family Unit 

A m.::ent paper by the Tax Policy Center (hereinafter TPC Study) found th.:u the number of households 

nude up of"uaditional'" &milies (m:arri«l p::atent$ with on1y biologk~ childl"(n) h:u d«:lined. while 

ahern::ati\'e (amily {ypes. $ueh as bmilies fed by :a single J».rent or colubir.-ting JXlrt:nu. h~$ inctea$<:d.64 

60 Sect ConSOlidated Appropriations Act. 2016. Pub. L No. 114·113. Oivl&iotl Q, TIUe II,§ 201. 129 Stat. 3040, 3076 {20"15). 

Thltleli$10\ive eM~ is. consistent w•th prior NaUOtWtl Tax~r Mvoel)tc ~a~ns. See.~._., , NettoNI T~r 

Advocate 2015 Annual Report to Cof'lates-s 45-55: NattOnal Taxpayer Advoc.ote 20:13 Annual Report to Congres-s vof. 2. 86-88; 

National Taxpayer Advocate 2012 Annual Re-port to Co~s 18().91;: NatiOnal la:q)C.t'jCr Advocate 2011 Amual Report to 

eon,rus 284-95: NatiOMt Taxpeyet Advoe.ote 2009 Annu31 Ret>Qrt to Congreu 338-45. 

61 In Sorenson v. Secterary of the TreasllfY. 475 U.S. 851 (1986), the Supreme Court held that a refund inYoMng EJTC that was 

due to a truq)l)yer who t'IC'Id fait«! to meet his d'Mid support obtifi,Otiotl$. oould be offset. 

62 See. e.g., Nabonal T~r Advocate 2005 Annual Report to Cortifeu, 397 -406; Nat.onal TaxP.a)'er Advocate 2008 Annual 

Aei)OfC to ~ess. 363-369: Nationol Taxl)1l'Jer Mvoctlte 2012 Ani"M..II Repoctto Cona,r<t~t. SOS-512. 

63 The Nationat "Taxpayer Advocate ptevlously articulated these and othet pnnc:ip(es in a ptcsentetton to the President's Advisoty 

P3ncl on Federal Tax Refonn. Sec Publil: Mectma of tho Prcutcnt's Actviscwy Panel on Fedeml Tax Reronn {~r. 3. 2005) 

C.stetOf'l"lent o1 Nln& E. Obon. Nf!tiOnall 18Jlp&fef AdvOCate). htll)://tOVW'Ifo hbrory.unt.edu/te)(re ormpe.nel/mee~dOes/ 

olson 03032005.ppt. FOf more detaJI, see NatJOOaJ TaxPfi)'Or AdVocate 2005 A.nnual Report to Contress 375-380 (Key 

~stative Rooommeodtlbon: A Taxpayer.Cencric Appto.tch to Tax Reform), 

64 Eta1ne Maaf;, tt Elizabeth Peters, and Sara Edel-stein, Increasing Farmty Compko.xiry and VoJGtiliry: the Oifflcolty 1n Oetenninblg 

CNld Tax Bel'ltfJtS. TPC 10 (Mat. 3, 2016), httP;//WWW.urbM.orll/reU&reh/I)Ot>li<:&ttof\/Jncrea-..n&.fomtly.compleXrtY>eM 

\'o&at•ht)"diffiC:u ~et~rmi,.ng.ehiJd..c.o.x-benefit$,1\iiew/fUII_teport. The TPC Swcty analyzed the Oe«mbet ponei fcom the 1996 

and 2008 Census Bureau Survey of Income and P~m Participation {SIPP) data. 

334 Uablattvo R:ocomme.nctatlons - r..x Reform: Ro•tructure the EITC 
87 


Insert 33425A.083

legislative Recommendations 

The TPC Study found that bd-ween l996 and 2008, tiH." proportion of children living with married 

couples dropp-ed. fto1l\ 70.9 pc:reetu co 67.3 pe:f'(ent and the number ·~ g with <.:ohabit<'ting partJUS 

incrt:l.sed from 3.6 peroe:nt co 6.2 pere:~ t.6S FutthennoN:. the TPC Study fou•'d rlul in 2008, nearly 20 

pcrcem of d1ildrcn living in singlc-parcm hotucholds also lived in muhigcncr.uional households'' Only 

5l.6 prrcent of children living in families with income :u or bdow 200 prrce.nt of che federal povcny lcvd 

(FPL) were in &milies hcadt:d by married couples. The- pcrc<"nt'age of children living with cohabiting 

couples ac or lxlow 200 pen::enc of FPL inctt":t.std ftorn just unde.r five ptr«nc in 1996 co 8.2 ptrc<":nt in 

2008." 

FIGURE 2.1.1"' 

FICUJE2 1H11 

Share of Low- and Moderate-Income Children in the Dll!J 

1996 and 2008 SIPP Panels 

by family typo 

_,..._one~dold • AI ...... ~ 

e-.a"'-4o...~cto'M AI~d!Jdrt,n 

1'he percentage of children living in multigcneracional households also increased. from 1996 co 2008, 

:Kross aU household types. By 2008, almosc one·fifth of children living with a single p;trcnt also livfii in 

a muhi..gene.raliona.l ho.use:h()ld, :u w:u che a.sc wid~ hou.sehold.s h~dtd by 1\0 paKr'lt rdarivcs or fosttr 

p;arcnu. 

65 Elaine MaaQ,. H. Elizabeth Peters, and Sera Edefstein, lncff!.tsing Family ~xity and Volllti6ty: lhc Difficulty In Detetmfnin.g 

Child Tax Benctfits. TPC 10 (MM. 3, 2016}. httP:/fwY.w.ulbM.OriZ/rt~rc!Vpubhcat.Jon/inercnu'l&.ft~tnllly-compleXt~ 

volalitlt)"difficult)'(letermlnlng-child>talt-t>enefits/v,ew/fuu_report The TPC Study analyled ~hoc Oercember panel from lhe 1-996 

and 2008 Census Bureau Survey or Income and Pro(ram Participation (SIPP} data. 

66 ld. at 18. 

67 ld. ~ 11. 

68 E1&1nc Maaa. H. Eli.tobclh PelCfS, & Sata Edelstein, lne~ea$;!11 Family Compk.xrry ~ VcMtMi(f: The Oilfi'Culr.y in Deleuninmg 

Ci>l/(1 T8J( Benefil$. TP<! U (M8f. 3,, 2016}. 

Taxpayer Advocate Se.rvlce - 2.016 Amual Report to COOCress - Volume One 335 
88 


Insert 33425A.084

Log•slatlvo 

RecommendatiOns 

FIGURE 2.1.~ 

~· Proportion of Children in the 1996 and 2008 SIPP 

Panels in Multigenerational Families 

by family typo 

Children wilo li,•cd in families wi{h m:;:.rried parenu: and only biologically rdau:d children were unlikely 

•o move 10 dif'Terenr family types from one )'C:tr to the neX1, or within a given year. ref?rd.lt$$ o(inconle 

lc,·el. How~ver, childrt'n in low and moderate income single pal't'nt f:lmiJies, cohabiting couple families. 

and rd:ath'<.'/foster care f.amilies all experienced greater ch.ange in family type from one )'CU to the nC'lCt. 

For cx:;ample. in 2008, a {hird of low and modct'.atc inc::omt childrt.n in single part1n families with some 

biologicol child,.n changed family 'YP"·,. 

69 E~ne Maaa. H. ENZ&t>Oth Peter$, & S:.ra E.6elt.teln, lllCietJ$11'1g F•mlly COmpJexlfY Md VOib(•l.l(y; Thre OiWC<Jit)' in Oetormir'llng 

Child Tax Benefits. TPC 11 (Ma,, 3, 20161. 

10 ld. et 12. 13. 

336 lAChlative Recommendations - Tax Reform; Ruttuctute the EITC 
89 


Insert 33425A.085

FIGURE 2.1.3" 

fl<lu.£4 

Legislative 

Recommendations 

Change in Family Type One Year Later, Children in 

the 1996 and 2008 SIPP Panels in Low· and 

Moderate-Income Families 

by fomily 'YP• 

•1996. .. ~~ 

:zooe..abiolopicJ~ 

• • .,.. .......... ~ .. <l'lld 

•2001.•'""-~"'~ 

Finally. across all in<:om~ IC'\-ds, .. (t]he sam~ types of families who ''IC'I"C more likdy lO ehange :~cross 

difft.t¢111 tax yean ~.re also more likely co c:h~ ge withifl <\ w )'tar (childrc~- in c:oh:.abi(ing couple f.tmilies.. 

single parent f.unilie$ with ~r le<\St one--biological c:hlld, and foster C<\l't' &..nilies)."11 

71 EJ.lMne Mast~:. H. Eli~beth Peters, & Sata Edel$t.eln, lncrea-slnt Family Complex,ry and Vo0tf.Lty: The o,tflcclrty ln Determinlflt 

ChJid Tax Benefits. TPC 11 (Mat. 3, 2016}. 

72 ld. at 16. The TPC Study author& note that these results are llkety a tower bound est!mette. because tamU1es that expeneoce a 

thanCO Within )'tar'S are hMty to drop out ot 1M aurvey and thus the chM&e& won't bo obsef'lled ld. at 15. 

Taxpayer AdYOCa te Servlu - 2016 Annual Report to Contress - Vot.ume One 337 
90 


Insert 33425A.086

legislatiVe 

Recommendations 

FIGURE 2.1.41'> 

tAU4 1111!!1 Numb« ol P.,..t ~,...Yeo<. Children In the 1996 ond 2008 StPP Oia Pentk 

.., . ...,.,.. 

--........... ......,.. ..., __ .............. 

-- ... 

,......._ ... ~ "'' ....... -~..., u..l 

--· ........... _......., ....... -~.., 

--.. _ 

u 

... 

.. 

... 

"' ..., 

u .. .... .. 

.. 

.. ... 

.. -.. __ ..... ... .., .,_ ___ .... .......,......_ ,_.,_..,_.,._,,..,."'L..,.,. __ .......... ....._~ .. ~, IDII.,_......_ .. __ ... v.,,........ 

-W........... 

_ ·"""'""-"_ .....,._ .... .. ,.._,........,..._,.._ __ .... __ ........., .... ______ _,..... _ __, .......... __,._._...._ .N...,.__. • ........., __ .M,.,..._ ____ ............ _ .. ,. ................ -.......... -....... _ ....... _ ..._._.,,.... .......... _ .... 

~_ Mo ________ _... ................................... ~_..., ------ ... __ ... --...,. ...... ..... ...,._ -...._ ....... .. .,.._ , ___ .. _.., • ._. ... _..,_ .. ___ ......., ..... .,_.,. _________ .. .,_... 

...._ ........ ______ ......,.. .... _...,_ ............. o.-_ ... _.......... ...... ~-.. -· .. "u_, .. _..._ .. _,_....__"_'_•_......._ ......... _ .. ,..._ .. _ _._, ___ ... _........ ._.. _,_.__ ____ ........ .., _, . .. _ _ .. ... ____ _ .. ___ ........ ...._ . bfollolllicol ....~ __ ........ .,~--. --...-.. 

........ ____ ........,_ 

The abov~dcscribed changes in Family compooition and mut':uion within and ~cwec-n years is rtAected 

in the EfTC d.:tro.: about onc:.third of the EJTC population changes from year ro yc:ar/ 4 Because the 

Family Status ruld generally comempl:ue mort "trAdiUonal" households and aw:ud tax benefits to only 

one person with respect to e-ac-h child. the di$COnn«t betw« n the Code and che reality of many taxpayer$' 

lives has led co mi.st:d<es on the: ~'Jart of raxp~yers who misundemand the rules~ il also prevents sonle 

prin1ary caregivm for children in ct.n:ain low income households from r«eiving the EITC 

llle IRS is noc: alone in f.\cing dlese c:halltnges. Ta" ad.rninistr'fl.dOI\.S around the world '3.tt moving co 

incorpor:u ~ some aspects of 1.hcir bcndlts sysr~m into 1h~i r tax codes. For exam pi~. Aus1r.'1lia offers :a 

similar c-:ax credit tO the EITC. Cilillcd the Family Tix Benefit (1.-rB). The eligibiliry ndes for che FT6 :are 

mort' ~xpa ve rhan for the ElTC. For instance:, a child qualifies for the FTB if he or she nteets chesc: 

general rules: 

• MU$t be in the -:tduh•s are·; 

• Must n't«'' c:idunship requirements; 

• Muse not meet -:any exccpcions; :and 

73 Elaine Maa&. H. Elizabeth Peters. & Sara Edelstein. lncteasing Family Complexity and Volatifity: The Difflcvlty In Dtttermining 

Child T~~ 8tmefits-, TPC 11 (M&r. 3, 2016). 

74 IRS, EJTC Fast Facts. htt :,/f\\ww.eltc. rs.gov/Partn r· oo kiVbt~.slcmatona s/ff (last vlsrted Dec. 30, 2015). For more 

lnform~uon on the <:hN'iint populatiOn or l8l(J)3Yet$ eligib'e tOt ElfC. ~e N&oonal T~yer ~oe& e 2013 Annual Fte;»lt to 

Congre$$ 109-10. 

338 Legfslatlv• Rec:omrnenda:tlons - Tax Reform: Restruc:tute the EITC 
91 


Insert 33425A.087

legislative 

Recommendations 

• \'(then more lhan one adult i.s in\•oh•c:d, the chiJd must be in the adult's care for at lc.ut 35 perc~~:nt 

of th(' 1i1ne." 

llle acr of ~ring for -a child in Ausmli) counts for more th:an jusc the :unount of risne the .-duh 

resides with chc child. The *prim:ary carer" is con.sidcted the "member of a. couple" h::.ving Ll\C g.reattr 

responsibiliry for rhe child. This is deu~rmi ro by identifying who has m01.jor daily rt:sponsibiliry for rhe 

child, looks afrt"r the child's n~ds (such :as d~ssing and bathing). maL:es appoimmt"ms for rhc child, 

iJ the primary com;r.ct for daycare or school. :and tr.ansportsthc child to and from school.""' When it l$ 

determined that more chan one aduh cares- for a child, the pe-r«mage of FTB allocalcd to each indh•idual 

is ln.s«< on "issues offairneu and appropriateness. Wdng into account equity conside-l':lrion$ and sharing 

and pooling within a f-:m1lly unit that can rUuh in a 50:50 split in FTB.'"" Under this systt.m there i.s an 

acknowtrogement rh;u m:any &milies opernte on a Ruid. day-to-day l:xa$i$ where the arc: of n child docs 

n()( f.tll on just one rd:uive. Thert" is also a provision for splirring 1he ITB between rwo primary ai'Cf$, 

by agrecmen1 berw«n the parcies,., 

nJ~ Atlmiuittmtiu' jullific•ttiou for Rmming Sorid//k,~fits TbYOugh tbr 7itx Systrm 

Any analysis of Family St'Oltus benefits must confront the issue of wh~hcr the cax sys:tcm i.s the 

appropri.ue cntily ror administering~Lal bc:ne6t programs. As Wt' discuss in this and c-;ufia- reports. 

runriing S«ial prOgl':\mS thrOugh the Code rtquircs the tax ad.mini$trator co think difftrendy about in 

mission and de\'dOI> new :approachC$ ro compliance :and t"duc:nion."' The IRS may be 01n :appropri:ut" 

conduit for soci.1l expenditure$ where it f>OS$C$$CS significant dara that are key compont"nt$ of digiblliry 

dt"tt"rminations. 

One art'~ of tax administr:uion that h.uboth warr.tnt«< and r«:ti\'cd :a grc.tt de-.tl of attention (y\'t_r tbc 

yc:an is refundable ercdits,IXlrticulouiy the EITC 80 Mosr credits merely reduce IDe :.~mount <1. wpaycr 

owes, but in the c::ase of rtfundab/,.rax credits, the IRS may end up p>ayinga t:JXpa~r more chan rhc 

taxpay~ paid in tax, ~hi g in a .. neg.uive"' tax. Re(undable crt"dit.s may l1.avt" b«:ome fitmili:ar in 

the context or~ e6rs 10 low income taxpa~n; and rhere.rort" m:ay be viewed as a rorm of'\velf.ue.'" 

Nc:vcrthdess~ these: crMirs are no longer limited to this population buc arc now avatlablc: to middJc--

ine<>l'oe t;u(parers .-nd bu$in($$¢$ as v.-dt•• 

75 Mtr&llobn 0ei)OI'Ut'Joe'l'll Of SO<::i&l ServlcH. Family AU/$(bllce GuJdt', 2.1.1.10. Fl8 Child, httP4!/ /lvtdH.<bt.g(JY.IIAJ/ 

famil)essistonce·tuk:Se/2/111/10. 

76 AU$U'OI~ Oep~rtment of Soc,at SeMc:e1. Fltmify As$1$t~nce Gl!ido. 1.1.P.120. Primary Ceter (FT8. &by 8oi'MJ1). 

http://euldes.dss.gov.au,/famil)a-assts.ta~/1/1/P/120. 

77 Aus-ttol~n oeP61'tmtrt~ of Soci31 $ervlce$. F•mlly AWsrlfnco Guide. 2.1.1.25, Sh:.red Cete ot on FTB Ch•ld. http://CUides.du. 

fpti &U/famlty-e$siS ~nce-gv,~J2/1/1/~. 

78 Aus-trbll'bn Dep&rtment of SoaM SerY1Ces. Famdy As-.siSranc<l' Guide. 2.1.1.10. httpS://,u•des.dss.eov.aU/fam.l)'-&»iSl~ 

~161:/2/1/1/10. Hete is an ex~mple ptovlded: Emily t!Ves primonlyw!th hec patent OoYe and his new partner An~ Emily 

is an FTB ctuld of bolh Dave and Anthoi'Jf. They agree that Anthony should receiYe FTB fM Emlty. as he Is the stay-at-borne 

Pllm\t. 

79 See legislative Reconwntndat1oo: Tu Ref01m: Simplify the tncemat ReWtnue ~Now. supra: National Teur~ayer Advocate 

2010 Annu.ol Rei>Ort to ConCfeSS. vol. 2. et 101·19 (£watwtc rhe AdnMoist,.tion of Tet E.l!J)Mdltutes). ~ Nntlonel Tu~ 

AdY«:ate 2009 Annual Report to Con~. vot 2. ~t 75-104 (Runnm, Soclal Programs Throufh rhe Tax System). 

80 F01 a c;omprohens.lve dlscus.:sJon of the dlalfercea In adminlsterlnf. the EITC. seo rm~ Paymflnl$ in rhe Mm(nlsrrodon 

of ~eft.J~XUtblt: Credits. HeorJnt Be/ore (l)e H. Comm. on WD)'S an<f MeM~s. 112th ¢orl£ (2011) {$Uttemen~ of Nino E. Otton. 

N~bOnal Ta:.:payer AdYocate). 

81 See, ~-~··the OdOpt;On cre<11t (IRC § 36C) and the Amencan ()pportun.ty Tax Credtt (IRC § 25A.) for low end I'I'\Oderate lnc:ome 

taxpayers and the fuel tax credit fot purchasers. of gasoline used on farms or local buses or of fuels for certain otMr purposes (IRC §§ 34. 4081(bM2). 6420. 6421. 6427). 

Taxpayer AdYOCate Serwlu - 2016 Annual Report to Cootress - Vot.ume One 
92 


Insert 33425A.088

Log•slatlvo 

RecommendatiOns 

Enacted as a work incentive in the Tax Reduction Act of 19-75."' the Earntod Income Tax Credit (EITC) 

has b«om~ one of the govtrnmtnt'slargtst 1ncanS•tCSted a.nti•poverty programs. U1~ ikt traditional 

:anti·povtrty and welfare progranu. the EITC \V.U ck$ig.ntd co h-ave an wy .. applicalion,. pr()C($$ 

by;:.llo\vingan ind vido:~J to cbim rhc benefit on hi$ or her rnx rt=rurn. This appt(Klch dt':lm:uicatly 

lowered administrnti\'e costs, since it did noc rcqui~ an infr.utruccurc of caseworkers and loc.a.l agencies. 

According to the IRS. EITC administmtion costs arc less than one percent oflxncfits dclivt'ft:d, as 

comp;trcd to ocher ncm•Co\X bendi{-S programs in which administrative cons rtlattd to determining 

eligibiliry C;1n range:&$ high :as 42 pcrcem of program expenditure$, a$ $l1own in Figure 2. 1.5 (see endnocc 

in Appendix A). Mo((:(tver, :a fronH:nd :IJ>plic:uion prOCC$5 would no1 d imin;uc: improper paymenrs. 

10 :I.SSC$$ how \Vt'l11hc E.ITC $r:acks up against other social benefit$ progr:~ms, the sum of e:ach progr:am$ 

o\·erhcad costs and improper paymems should be considered (rather than just O'l'erhcad costs or improper 

paymenu in isol:nion). 

82 See Pub. L No. 94·12. § 204.89 Stot. 26. 30 (1975) (<odofoed a t IRC § 32). 

340 legltlatlve Recomme.nd-a1tons - Tax Reform: Res:truetUte the EITC 

Insert 33425A.089

= i 

FIGURE 2.1.5, Costs and Benefits of Federal Payment Prog,ams 

!: 

• 47.6mil 9.1 mil 8.3mil 4.6mil 4.7 mil 8.1 mil 55.0 mil 30.7 mil 27.8 mil : 51.9mil 14.6 mil 13.0.14.3 12.2-14.4 9.1 mil 11.8-12.2 76.0.S0. 6 49.2mil 22.7mil i mil mil mil 

I 79.0% 58.0% 32.0011 49.3-Sl.S'K. 66.9 · 68,2% 

:!! 68.8% 

1;: FY 2011 CY2010 i998 2009 2013 FY 2012 20()9 2012 1Y 2009 

.. $76.1 bi $4.6 bil $51.1 bil $15.2 bil $30.9 bi $8.5 bil $248.3 bit $11.3 bil S60.3bil .. $133.Q7 $500.66 $6.156.54 $3 .. 300.84 $6;574.47 $1.047.64 $4,514.50 $368.39 S2.384.32 

I $3.9 bi $1.9 bU S3.8bll $1.5bll $4.3 bll $3.1 "'' $11.7 bll $1.2 bll $0.6bil 5.1'1< 41.8'1< 7.4'1< 9.7'1< 13.$% 36.3'1< 4.7'll. 10.3'1< 1.0% 

. 

n 

$2.6 bi $0,04 bil S4.7 bll $2.3biJ $1.3 bi $0.7 "'' $14,4 bll $1.8bll $14.5 bil 1 3.4'1< 1.0% 9.2'1< 15.0% 4.3'1< 8 .2'1< 5.$'1< 15.7'1< 24.()% 

I 

$6.5bll $1.9 bi $8.5 bil $3.8bil $5.6bll $3.8 bil $26.1 b>l $3.0bll $15.1 bll 

i 8.5 .. 42.8'1< 16.8'1< 24.7'1< 18.1" 44.5" 10.$" 26.0% 25.0% 

0 

i See figure and related end notes l.n Appendbt A following this legislative Recommendation. 
94 


Insert 33425A.090

leg&slat&ve 

Recommendations 

This rab ~ demon.str:&rcs th:.u for a rog~ m of sudl significant . administered ar :1. fcdc:nllle\'d, 

th~ EITC rC'aches an c:xtrnordinar}' numlxr and pcrcc:nt:ag~ of eligible raxp:tyt:rs :u a modest cost , 

when overhead :and O\'erdaims :art" considered rogether."' The Treasury lnsp«t·or G.cncrnl for T.'\x 

Administration has noted that for "'other non-tax bendits progranu , .. administrative costs rdated to 

dt:ttnnihing digibility <:<11\ range .u high a..s 20% of pi'Ogtam expenditurt$.'"$4 The IRS reports chat it paid 

$66.7 billiM in EITC claims forTY 2014. lfthi.samount had bee1\ p41id by Other agency ~t spent 

20 perc.cnc of program cxpenditur~ vtrifying d igihilil)'. the administ r::uive CC»tS to the: g<~ve nm~nt would 

h.we b«n S 13.3 billion - more 1han 90 percem of the o'lmoum of improper f»ymc:nts 1har rhc: IRS 

~ri rn ~ '"'l:~ m."lde.*' 

Howe,·c:r, case of applic;'ltion and the ~l»e:nce of eligibility intcrvi<:ws resuh in greater overcl.a_ims for thtf.ITC than n:adirio nal :tnli pov~ y progrJms. In Olh~ r words, h~ fronl-end :adm slrnriv~ cosrs or tr.ldition!ll :ami-poveny programs h:t\'~ .shifted ro the post-claim compliana cosrs of the: EITC 

A signifi~nt positiv~ difl'crcnc~ is rh:u 1hc: EITC has far hight!r p:micip>uion r.1tc:s rh:m orhc:t :.nti-pov~ny 

programs (i ~ .• the perc-entage of digibl~ individuals and families who rOC<'iv~ the ben~fit is much gr~ter, 

at b~twec:n 75 and 79 pc:rcenr).

16 Assuming we want the intended beneficiaries to rccdvc: the benefits 

e-naaed by Congress. the EITC is a highly dfecci"e• and even ~K-nr) method of d.di\·er)'• 

Understanding the Types of EITC Errors Will Improve the Design of Family Status 

Benefits 

No£withstanding the EffC's dTecth·ent'SS and eflieie.ncy. ir h~ frequeruly been identifie.d as :a significan[ 

5Qtll'(:e of improper ~ymcnts.n wirh ~sury c:stim:ning them M :weraging o'lbo ~u 25 J>trcent of EITC 

claims over chc: lase 6\<C' yea I'$.• Ahhough the: improper paymcnc rare is ofttn prescnttd as a worstning 

prob ~m. it n\ay actually be less severe than in TV 1999." For cone ext. EJTC ovcrclaims aocounl for just 

3.4 percent of the grO.S$ cax gap. 3.8 perOent of the net t.\.X gap. and 5.9 per«nt of gr()$$lndividual income 

83 Unless otherwise noted, the amount of benefits is taken directly from or imputed from the federal government's improper 

payment website (see endnotes in Appendix A). Administrative costs wete often difficult to determine, ond it is not clear thot they are <:ompc.n.e<S untfOtl"r''y by each -eeney. The figures in me OhtHt were c:ompvted by TAS Resear<:h rrom publicly j'Va11~ble 

$0UI'Ce:s. See Endnotes. jnfra. for more (1etatls on the sources of data for each program&$ well as ol.her .nfonna1ion and 

ccweats reg.ardlfC the data. 

84 See TtGTA. Ref. No. 2011-4o.o23. Reduction TarJtets and SrraretJes Have Not Been Estltbltshed to Reduce the Billions of 

Doaars in Improper Earned Income tax Credit Payments Each Year 1 (2011) (IRS response}. 

85 Oopar1ment of the Treasvry. F'i$C.tJf Ye~r 2015 Atf:ricy Fllla{)C~I Repott 196 (Nov, 16, 2015}. Tho *Ower bovn(S estlll'n&tO or 

improper EITC P<l)1'nents in FY 2015 is $14.2 billlOil. 

86 $Co IRS. EJTC Par[jciJ»tion R~!c by Sf<tt<:.s. http;//\\WW,t tc.lrs.CQV/EITC.C4Y~tr&VPartiCIPt'ltton.fla c Set' afso Ocan Ptuetet, 

E~ lnCQ(I"'e Tax c,eq;( Partklf>"tion Rate fOI' rax Year 2005 178-79. IRS Resoat'(h Buuew (2009): Maggio R. Jo~. 

Changes In EJTC Elftibiliry Md Participation, 2005·2009, U.S. Censvs Bureau. 

87 See footnote 14. $upra. See also GAO. GAQ.09.62$T, Jmpro(X'r Payments: Pfotress Made but C1'18ilentes Remain In Estimarmt end Reducing Improper Payments. App. I, at 20 (Apr. 22. 2009) (Identifying EJTC as the TreasVf')' unproper payment •. 

88 oepartMef\t of w TI'Oasvry. Fi$Ut Yeat 20l6 J,tenq Fill4rtci8J Rewrt 19'1 (N<W. 15, 2016• C"The most rocen• prOjocuon is 

ba'Se'd on a tax year 2012 tepotting eomphai'!Ce study that est.im&ted the rate o( improper CNer claims for fiscal yea-r 2016 to 

rarce between 22.2 peteenl (lower bound) and 25.9 percent (upper bound). This amovnts to betv.een $15.5 and $18.1 billion 

of approximately S65.2 billion in to~ program P<f)'n'ltnts ... ltMu C$-\imate.s. crel f;OOStStent in matnitude with the five-ye~n 

evefate 24 per«nt error rllte.·J. 5<"0 •1$0 Govemmont Accountability Otf~<:e tCAO). Govemment·Wfde &ll'mtHC$ t:tnd U$e of 

Oreath Data to HeJp Prevent Payments ro Deceased lndi-wdusts, GA0-1S.482T 4 (Mar. 16, 2015) (suggestio( that for fY 2014 there were S17. 7 brlUon in Improper EITC payments, repre-senting an euor rate of 27.2 percent. 

89 See IRS. Compliance Estimates for Earned Income Tax Credit Cfafmed on 1999 Rewrns 3 (feb. 28, 2002), https:f /WNW.Irs. 

govjpub/us-utV1999..,compliancc_slYcty_022802.pdj ("Of the estimated $31.3 billion in Earned Income f.t'lx Credit (EITC) 

ttalms made by 1bX~ S Who ftled returns tl'\ 2000 for cax ye41r 1999. it is e.stim~ned tMt botweon $8.5 &nd $9.9 billion 

(27 .0 percent to 31.7 percent) shoUld not h$\<e been paid.-}. 

342 Legfslatlv• Rec:omrnendatlons - Tax Reform: Restruc:tvte the EITC 
95 


Insert 33425A.091

legislative 

Recommendations 

tax noncomplian«. while bu.sinns incom~ underreponcd by individuals accounts for 47.3 pcrc.t'nt." 

Improper EITC P"rmenrs nonechele$$ <:ontinue co presem a problem ch<lt C:ln.noc be ignored. 

While chc improper payrnenr r:ue provide$ us with a consistenr net n'leUure of improper EITC pa)•mcncs 

(i.,. .• improper paymenrs acu.•.,lly mo11de). ir is impon:anc to understand che sources of error (or cOt.:al gr~ ) 

EITC overdaims in order to dcvdop targeted $Crau.-g5c.s to reduce che Improper l>ayment r.lte. The most 

f'C'O."nt JRS National Research Progr:am (NRJ>) EITC results are usdUJ in chis rt'g:ard, bccaust'.lhcy provide 

a nari.nic.ally ~ttkntative s:ample fr0n1 which 10 draw ob$«Vations of taxpayer behavior and better 

und.rsmnd the sourc.s of EITC nonoon>pliance OJl d, by ext<nsion, id<ntify opponunilies for legishtivt 

reform of the F;:.mily Status provision$. ' 1 

As a thtC$hold mauer, che NRP Compli:~nce S10dy fCM.nd th:u aiNJm $7 pnuntl4r~r·lxuuul mimau, t~r 

LBE. oft!~ q~ta.Gfyi,Ig cbiklwn laim~d for EITC aw daiml'd l"t>rrt'Ctiy.'

2 Mor~·c . many E.ITC overdaims 

are less than $500 (44 pe~nt lBE). and rc:l:uh·dy few ovcrd:aims are above S3.000 ( l l perccn1 LBE). 

NRP dar:a show cha1 income misrcponing is by f.u che most common type of EITC error." Sixty4 >SC"\'en 

percent ofEITC O\-trcl.aim rteumsshow $0nle inoome misrq><>ning, and it is tile M/yerror on 50 perce-nt 

of ovt-rcl:~im ft'turns. The avcr.J.gc: O\'Crelaim on incon-.e crtor--o ly rt'turns is $673." Although the 

3\'er .. gt amount of this type of overclaim i.$ rebtiYdy modest. ifchc IRS i$ able identify the income 

mi.srcponing upfronr, it will dimin:ne a signifia nt number of <WCrd3ims. l11e recent legislative changes 

accdcr.lting third-pany informouion reponing and dtlaying E.l'rC refUnd issu.1nct unrll Febrwry 15 go a 

long way to addressing rhis source of error. 

90 IRS. IR·20t2..4, IRS Releases New Ta.Jt Gap £smnales; CompiJanc& Rates Rema.ln Statistically Unchanged from Pnrvious Study 

(Jan. 8. 2012). The IRS cst.matcs $264 bdhon in 1ndividual income t<:ax underrcporllnt f01 tox year HY) 2006 ~th $125 billion 

of U'llis emoQolll'lt ~mrlbutable to bus1neu Income u~n't'ported by lnd•Yictuols os soM Clf'OJ)ff.etot$ on SeMcUe c (Profit or LO$S 

from BvsJness) or as farmers on ScheWie F (Profn. or loss from Fanmng). Department of the Treasury, Fiscaf Year 2016 

A.g.tncy Financial Report 197 (New. 15. 2016). The IRS provided a 1owet bo\.nd estimate of $15.5 billion in EITC a«~ clalmS tor 

FY 201& ($15.5 bllbon 1 $264 b•llion Is abOUt 5.9 portent) 

91 The IRS created the National Resc•rch Pro&ram (H.RP) in 2000 to ·~op Md moMOf $lt;)\• mot~SUJCS of ~r 

comot;.onoe:: N.otiOf'\8.1 f'l:es.eereh ~ • .er hup:/ /www.i s.aov/U&e/NetiOnoi·R~rch Ptogt8m-(NRP) (le~ v1sited oo Fob. 

19, 2014}. NRP Is a oomprehens.Ne effort by the ms to measure peyment. fihnJl. and reportJnJl compliance for dtfferenl 

~ of taxes and various sets ol taxPII'jers and to deliver lhe data to the Business Operation DNisions to meet a wide rarce of needs tncludinC supi)Oft for the d~ opme t of sttatclliC plans and tmpW~o-ement$ In wOfldO&d •dentlf.eaooo. 

lntem&l Revenue Mt'IRUt'IIIRM )4.22.1.3. The Natiotlal Rt:stDICh PrfJCtJm (NRP) (Apr 25, 200$), The NAP C~ltw'ICO Study 

dtwngui.shes bet~Neen •known ettOfs" end ·unknown errors." 11 estimates that 30 pereent of total pos$1b4e ov-erolam\ returns 

and 41 percent of cotal possible 011e.claim dollars stem from unknown errors (i,c .. case)$ ~he e comPiaocc and errors arc unknOwn MOStlY beeaUU of 6UCM non·WtJ<:ipe:liOt'l), NOVOttMJOU, b&s.ed on Mit partlelpents. thO lAS beiJ~ It <:M retl8bly 

project a4 million overeta1m retums and $11.4 billion O'lefdaim doUars to the EITC popUlation. IRS. CompNance Est.lmares for 

the Earned Income Tax Credit Claimed on 2()06.2008 Returns 15 (Pub. 5162. Aug. 2014), htlf'S:/ fwww.ir& fp4p.l:>/lrs-~/ 

EITCCOmpl .. o"oCeStudi(Y2()()6.2008.pdl, 

92 The 87 percent estimate wb$ compu'ted us:inc the lower-bound estimote methodoloCY. which ossumes ~u tlt n~rlieipents 

have $1mtllr com.pl1&nee ~r to •udrt P*ruetl*\t$ w..th similar Ch8rKterlsbt"l (I.e .. in the ume taml)hnl wata). UPpet· 

bound estimates as.sume audit non-participants ,ye noncompliant {I.e., exam exclusion ts COI"rect). IRS. Comp'iance E.Wmates 

for the Eamttd fncomo Tax Credit ctafmod on 2006·2008 Returns 5 (Pub 5 162. AUf,. 2014), l'rtlJ)s://WWW,irs..c<H/PIJb/irwoV EO"CCornl)ls&neeStudy1Y200&2008.Pdf 

93 The tRS uses the NRP to mocl1lS need for current compiiMte lnformabon. The IRS established the NRP offtee tn 2000 as 

pett oflts efforts to <Sevetop Mel ff'l(l(lltor sttot* I'Mbl\J ~ or coml)llanee. ThO pro~~ to increase pyblle c:onfldetlee 

In the l•lmess ot the tax system by helpj"i the lRS lde:nt1fy voJunt.e.ry eomplranee problem•. lnformt-tlon from NRP Intranet ~o~ e. 

http:j/nrp.web.lrs.gOY/defoolt.aspx. 

94 IRS, Compllance Esr.unates for the Earned Income Tax Credtt Claimed on 2006·2008 Rervms 17 {Pub. 5162, AUg. 2014), 

https:/ /WNW.IIS.gcN/r-Jb/lr&-Soi/EfTCComplianccSt udyTY2Q06.2008.pdf. 

Taxpayer Advocate Setvl.ee - 2016 Annual Report to Congress - Volume One 
96 


Insert 33425A.092

Log•slatlvo 

Recommendations 

Qualifying child (QC) errors occur less chan half as ofic:n and they arC' less likdy co be the only crror: 

• About 30 pt"t«m or o,.ercbim returns show :t qualifying child e-rror. and i1 is the on/yc:rror on 

15 pcrt:ent of overclaim rt curns. 

• The ave-rage ovcrdaim on QCerror--only rc-rurns ii $2.327.,.. 

Fin:. H)'. nine ~rcent of O\'C.rtl':lim returns h:wc borh QC er(()rs and income misrcponing.and twelve 

~rcent of 0\'e-n::laim rt'IUrns have miiiNr QC nor income errors.• Figurc 2.1.6 shows the fi\"(• most rosrly 

error types and their percentages of total ovc.-rclaim dollars. 

AGURE 2.1.6, Most Costly EITC Errors" 

Error T)pe Lower Bound bhmate 

ua old ro• __________________________ __ 

SelfEmpl~mentln~eMisrc~ •ll g ________________ _ 

Flllngs:~sErr~s __________________________ ___ 

lncomo Reporting o11nve!>lment Income and AGI (excluding 

earned ineomo) 

----------------------------------------- Wage Income Misreporttng 

Figure 2. 1.7 .shows the' four kast costlycrror typt"sand thdr pc-rccnrages of ro[al O\"crdaim dollars. Norc 

chat ''debrc ... kc? crro11- where more than om eligible pcr$0n claims a qualifying <;hi.ld - an: now 

crivial, co•npared with {he.- l999Contpli.ancc Study, when cicbreaker errorS accounted for 17 percent 

or more or overclaim dolbrs." n,c ticbre:lkcr nllts Yo'ete signi~eamly modified :and clarified in the 

Economic Gro,vch and T,.x Rdic:f Rcconc:ilia1 ion A<:t of2001 (EGTRRA):"' the NRJ> Compl&ancc S1udy 

d.u·.t show the positi,·c impact lq;islaclvc darific:uion can have on compliance. 

95 IRS. CornpMnce Estimates for rhe E.amed Income Tax Credit ctalmed on 2006-2008 Returns 17 {Pub. 5162. ALC· 2014), 

httc>;$://._w,l.fS..I.OV/rNb/•f$-W/EfTCCOmpltanoecStvctyTY2006·2008.pdf. 

96 Jd. at l6. 

97 Jd. at 19. T$ble 5 . 

98 Sec IRS, Comp.ll3n« EstNMrcs tOT Earned ln<;om(J Tax Crcdtt CJ8fmod on 1999 R-etwns 21 (t~b. 28. 2002), https:/ /WWW Irs. 

gq.,fi)UbNWU/1999_oomphon<e_ttudy_022S02.pdf 

99 Eooi'IOI'nic Gtowm end T.ex A'eJref Reeone•liet.on Act of 2001. Pub. L. No. 107·16. § 303. 115 Stat. 38. 55 (2001). Tte~ 

rule-s l.nder ECTAAA stlputale that ff a ehtld -s ele.med b)' mo~ than one eQgible person, the credrt would first go to the 

b•~ parenL If there aro two clatms between no~rcntal fam~ly members, the credit w~l go to the family membe-r With 

~ h•gt\est ediu&lfd gross •neome. If two parenl$ dO noc. fde a joint retum. the ¢rtd•t will to tO tt'W: l)o1rMt With whOM UWI Child 

res!Oed f()t tho longest time during the tax yoer. If ~Jdency wa$ $Pilt equelty between ~wo parents. the eredtt Wtll go to the 

parent with the hlgt1est a~sted gross 1n00me. 

344 Uablattvo R:ocomme.nctatlons - r..x Reform: Ro•tlueture the EITC 
97 


Insert 33425A.093

legislative 

Recommendations 

FIGURE 2.1. 7, Least Costly EITC Errors'"' 

Error Type 

Rules fot AU Taxpayer Claiming the ElTC Having a Valid SSN, Being 

a US. Citizen or Resident Alien All Year, Not filing fOfm 2555 Of 

form 2555-EZ, Not Seinjf a Qualifyin£i! Child of Another Person 

Errors. Corr&c:ted In Prooessina Includes Math Efrors and Othe( 

Adjustments Made PriOf' to NRP Exam 

Tiebreaker Etrors 

Rules for Taxpayers Claiming EJTC With{)ut Children (Being Age 

2>64. Not a Dependent of Another Taxpayer, and Ha\'ing a Home 

in the U.S. for More Than Half the Year} 

5.0% 

3.0% 

1.0% 

0.0% 

As., praa~J rnancr. 10\Y incon'e r~p;~yers :weoonsidcf'~ble difficulty documenting l'f:l.:uiond1.ip and 

residence- p rincipal components of the qualifying child tesr- bcc.US(" o( :a lack o( clariry from the 

IRS as well as their person:d cin:umsrnnccs.•<u In rhe past, TAS h:as rt:pon«< th:u the .. twO m.1in problems 

are inconsistency as to 'vhtc-h do<:unltttts the IRS will ae«pt (a document is acGepted in one offi«, b ut 

nOt in another) and lnAexibiliry in accepting proof (F.ailure to accept other types of documents where 

chc caxpaycr e<aMOt provide st~d~rd doc:vmcnr:nion)."1o.t On the low income taxpayer/ p:JJC, one of 

the biggest issues i.s "their cendency robe tr.l.L'sieoc or even cempor:a.rily hotnde$$ .. upl ed wi1h licemy 

challeng~ •OJ The 'ri'C Study findings rd aring ro changes in house:hold composirion add to rhese 

challenges in proving d igibiliry. The combin:uion o(byt.:tntine requirenltnts wirh rhc lack of :a ho~ in 

which to StofC' documents. no1 to mention the skills need«! to rod o r m :ain them, frequently rt:Sults in a 

lack o( dOC\1menr.uion. 

Of the 13 percent of "knowabk" QCttrorS.104 

• 75 percenl were attributable to the residency test; 

• 20 perccm \\.~rt'attriburable ro chc rd :u ionship te:o;r; 

• Se\·cn co ttn percent were e".ach attributable co tht"' a~ t('$(, an in"alid Social Security numlxr. and 

chc ci ebr~cr rulet: 

• One percent co a married child; 

• O ne percent 10 errors corrtctcd in p rocC$$ing: and 

• I I percem co unknown enon (i.e .• the l:kX)XIyer :..ck <No~edged rhe error bur g~ve no der:..ll, or it 

was: an "oper:uiona.l exam). 

100 IRS, eom~nc~t Eslfmate-s tOt cho Eou·•«fff')COIJ'Ht rex O'ed1c a~mea on 2006-2008 Rerum 19. Tablo s. (Pub. 5162. Auc,. 

2014), https;J ;www •rs..f;(N/rdl/it~sovEJTCCompUanc:eStudyTY2006-2008 pdf. 

101 See Lesf.e Book. £fTC Nonoomp/Rmce: Whir We Don't f(I'I(W( ca, Hurt Them. 2003 TM Holts Too-.v 121-27 (June 23. 2003}: 

Losho Book. Ttte Ptx>t and Tao( ComJ)Ualnee~ One Size Oot>.$ Nor Fit AJt. 51 t<.AHt. l. Rtv. 1145 (2003). httf)'J/woM.bepr-eu. 

com,/leslie_book/8; National Taxpayer AdYocate 2002 Annual Report to Congress 50 (Most Senous Problem: Errc E~tmity 

OetMmtn.atlons CDn Be M&dc tess Burdensome). 

102 NationaJ Taxpayef AdYocate 2005 Annual Report to Congress 106-07 (Mos:t SMous Problem: Earned Income Tax Cr~t Exam 

lswes). 

103 Leslte Book, ThelRS's EJTCCompJ1ance Reg;me.: Taxpayers Caught Jn the Net.81 o.t. L Rtv. 351, 393{2002). Seeafso 

National Toll.paytr Ad¥oeate 2015 Annual RG"port to Co0Cfe$S, lnttoducllon: The IRS C#n Do Mor• to lmprow ll$ Adminiwarlon 

of rhe £erned lncc>tJloO Tox Crtd1t and lncrNSO Nltut'O COmJ)If.anctt \Vtthovr Unduty 8ur~f14 T~yers and Undem'IJI'Hfll 

Taxpayet Rights 235.39. 

104 IR$, Compliance £${,mates $M ~$of ErrOfs fot the EtJtn~ Income Tax Ctedit C~&med on 2006·2008 Retwns 23 

(Pub. 5162, """· 2014). 

Taxpayer AdvocO"tte Sorvlu - 2016 Annual Repott to Co"'rou - Volume One 345 
98 


Insert 33425A.094

log•slatlvc Recommendations 

Thus. not surprisingly in light of the demographic data presented above, the rc.-sidcncy test appean: to 

present the grtate$t chaUenge co EITC d3ill'lants. Refom~ efforts should focus Ol'l improving otherwise 

eligible foll'1lilies' :a.bility to S3tisfy chis requirtmtnc whik minintiting opportunities for error or fl'".lud. By 

combining the •family" componctlt of the EITC with the 01htr F•mily Status provisions, the "qualil)'ing 

rc•Lui\·e.., definition will apply. HouSC"holds that W<'rt' prt'Viously indigible bca.use the prima.rycaregi\·er 

did not ha\'e the: fe'<lUisite relationship under IRC S 32 wlll now be digible for fumily bc:nc:6ts. Morrover. 

by requiring tht IRS to ucili1.c a HoUSt:hold/Rc.s:idcney Affidavil(s) .u an au~cltme1H to the tax te'turn 

whtrt a non· biological pl'im:uy a.rc:gi\·tr is cl:lin\ing d1~ EITC. Congl'e$S c::an •ninimi7.c th~ rlsk of error or 

fraud in such claims . .OS 

Age Eligibility for Childless Worker EITC or Reformed Worker Credit 

In TY2017~ the m:u:imwn -amount ofEITC bcne6u av.-jl<'blc: to caxpayas without d1iJdren will be 

$510. whereu: the maxi•num amount ofbcr'lefiu for taxpayers with just one c.:hild will~ $3.400.1«» This 

is a troubling d isparity, considering that a linle over 20 percent or Milfennials with only a high .school 

education arc living in povt'fly.101 Additionally, 4.2 million people ag«f65 and older we~ living io 

po\'c:rty in 20l5 (representing a poverty r.uc of8.8 pe-rcent among people age 65 and O\'er).1

• Vee. the 

('_hi Idle$$ worker ponion of the EffC is limited to workers bt-tw«n the ages of25 and 64 ~ M the da.ra 

djS<:\t$$td bdow show, th.is age limir:.tio,, harm$ significant .segments of the population that could benefit 

from this income supplement. 

For example, che alloa:tion ofbtt,tfits provided co childJ«S workers does nor addr<:$$ dlt reetlH rrc:nd in 

ddaying the decision to stan a bmily. The binh r:ate for women ages 20-24 has fallen to approximatdy 

77 percent. a measu~ment which h:u.steadily dcclin«< since 2007.110 One repon ries this trend to the 

increAsed C0$1 of chlldrearinga.nd che bkak financlaJ .siru:uion for many c:~.Xp.tyell in this age br.-ckc:r 

(refcned to as Milknnials).111 

When CongrC$S initially implemented the EITC. one expbn:uion for not making ErrC universally 

:av:aiJable to e\'eryone wa.s th:u scudems and retired individwtls •often h:we low amoums of e.m«< incam~ 

bc:ctusc they work part·time or for short periods of time: and m:ay rccc:i\'c: most or thC'ir suppon from 

f3mily rdativc:s or through social seeurily or pri,·ate pension plans. •m However, only 33 percent of 

Atn~ric:ans ha\'e a Bachelor's dq;ree: or higher, me<~ning it is a mi.scakt to a-ssume taxp-.-yers under- age 25 

105 Fore ciSC:USSion on the U$e of affidt1Yits ond EITC C8$CS. see Nt~tlonal T&xptlyer Adl.<oelte 2015 Annual Rei)Of\ to Cor'ICrO&S 

253-54. 

106 See Rev. Proc. 201&55. 2016-45 I.R.S. 707. See atso IRS. 2017 EITC 'ncome Umits. Maximum Credit Amounts and Tax 

Utw UPdlrO$. hUJJS!//www . .rs.~/eted•t$<1edue:'tions/IOOMd1.18lS/e8med-i~<;ted•V'ttl¢-i~imtl~imum.ctedct• 

amounts-next-year (las:t visited Dee. 31, 2016}. 

107 Pew Re ... tdl Center, Thel?l$1"11 C:0.. of Nor Going 10 ~/elf (Feb. U , 2014), hi!P:/ /.-. ...... O<Iollf..,...o'li{2014/0q'11/ 

\hOof'islng<ott-<~f no •golog.tc><:OIItgtV . 

108 u.s census eu.teeu, rneomo tind Povet"Cy ln rhe VnJto4 S«tres: 20JS 14 (Stpt. 2016}. 

109 IRC § 32(cX1XAX"XIIJ. 

110 Center fOf Disease Cont~. NarJoMI Vital Sralisdcs Report 2 (June 6, 2016). 

11.1 Josslea G~. FOr Min,. MiNMrtMI$. Ch•fdtMAre Ocirot Rebth, N.'t T~MCS. Dee. 25.2014. 

112 Tdix Rcduwon Act o/1975: Rcpo~t ol the Sen. Comm. on FkiCJnoe T~r Mth SuPI)IIcmcntat Views on H.R. 2166, 

$. RCl'. No. 94-3e o< 33 (197SJ. 

346 lAChlative Recommendations - Tax Reform; Ruttuctute the EITC 
99 


Insert 33425A.095

Legislative Recommendations 

a~e prim:lrlly $tudrnl$..11, Furthermore, ignoring che needs of rhis population may go against th<' incrnt 

of rh~ EJTC sinc:e e:amin&$ ca_n be ritd ro level of cduc:uion. mc-:~ning rhose with less educ:uion will f::<'rn 

less."• 

h U: also no longer ruli.s1;ic ro ass..une older ;axp;~.)·ers c.n safdy rdy on pensions :~.nd Social Sccuriry. On~ 

$Urvcy by 1he Soard of Governors of the Federall~rv<'System found 1h:u 31 percent of on·~cimJ 

respondenrs had no ~tire.mem savings or pen-sion.m CongrtSs's original r.uion.aJe for age limits rc:su.lt·s in 

th<' EITC bdng una,·ail:able for younger t~pa)'erS who do noc: obt.1in a collc:g.e edueuion and who YlOrk 

lower·~yi g job$, a.s well a$ elderly c:txpg)'C'C'$ who have litde or no $3\•i ~ or pension. 

Figure 2.1.8 shows che nunllxr of workers d igible for the cltildle.u worker EITC under cumnt inrome 

eligibility rules, if rhe age limits were cxp:~ dcd as recommended 

FIGURE 2.1.8, Woll<ers Eligible lor the Childless Worker EITC Under Current Income 

Eligibility Rules, II Age Limits Were Expanded As Recommended'" 

3,131,980 

319,354 

3.451,334 

$291.52 $913,043.008.00 

$308.~ $98.475.444.00 

$293.08 $1,011.518,452.00 

Expansion of the childless worker EJTC credit appon to have bipartisan support. 

117 In addition to 

e:<J>Qnding the age eligibility for d\e EITC. Congress shovld aho e<>~uider conv¢rting (he work incenrive 

component of {he EITC to" per pet$0n credit. One policy~~ of this reform is whether lhe amount 

of a he .. worker'' ~di1 !ihould be incTel.SC'd. with a requisite :adjus.tment to 1he :unounr ofr..he bifurc.ued 

113 U.S. Census Svteau, EducaOOnalA.uammenlln the United States: 20151 (Mar. 2016),http://wwwcensus,gov/contenV 

dam/CenSUt/hbmry/publileatlOfiS/2016/demo/p20-5 78.pdt, Edueetlon levels v-6ry emonc roec end olht.r eheroctcriwc:a. 

Foe Instance. 36.2 pef'Qent or n¢t~·H•spatWc WMos ote<t 25 yeors and Oider had a 88ehel0t's <Segreo or moro. whereas 

only 22.5 percent of Blacks ond 15.5 ~rcent of Htspanics aged 25 )'l'ats and older a:tlained a Bachelor's degree or more. U.S. Cen54JS &Kotlu, £duauion:tl Att411AI'I'Htnt In lhiJ United SUJtes: 2015 2 (M8l. 2016), http:/ fwww.oensut..eov/c:onteol/dOOV 

Con$U$/hb'11.Y/I)<Ob/~ouont/2016/demo/p20-57$.pclf. 

114 'Mli"' many footors atroct a WOfkcf's l•fctlme Mtllln.,. workers with an edUCilbon to o*CJ'rth ~can expoct to earn $936,000 

in life-time oomlngs. e<>mpeted 10 $4.159,000 In l•f«ime e&lnin&J fOf & WOI'M'r wiU'I 0 profeUIOf'I.OI deareo. U.S. ceMvs 

Bureeu, WortHJfe Earnlnt:s by FJeld of Degree and Occuparlon for Peot>HI Wi'th a S«helor's Oe/lfee: .2011 4 (Oct. 2012), 

http://www.~nsus.gr;N/prod/2012pub$/acsbr11-04.pdf. 

115 Board of Governors ol the Fedefal RMel'\'e System. Report on the fconomic Wd·Bekl.t of U.S. Househotds ;, 201A 38-39 (May 

2015). Acco«:tin( to ~he SUl'V(I)', the nrto ot retirement 5IW\Iir'C-s. Is tied d1rocUy to an 1ndMduol's income. Elahty.two portent 

of thO ~entt 1"1'\&.Ung C1o>er $100.000 per year h$dat least $()t'ht retirement scwsnes or pension. Metltt'WhliO. ~ 

respondent$ maluog urwier $40.000 per :,-ear, only 42 percent 1\ed eny retJrement 58Yfrlgs. Boelrd of GoYemors of the- Federal 

Reserve System, Rcrport on rho Economfc Wetl-&ing of U.S. Hou~hokJs N'J 2014 38-39 (Miry 2015}. 

U6 Flgure 2.1.8 ts b&~ on TalC Y~r 2015 data from tNttndMdual Returns Trans.act•on FUe (rtwrrl$ po:Med through week 47 of 

2016) for slflCle filers without children mdef •" 25 or over age 64 and returns for marOOd filers ~lhout cMdren whe>re both 

~,. .&re undet' age 25 Of O¥er ece 64. 

117 Office of Mana&emcnt and Budtet. Budget of the U.S. Govcmmcnr. Fiscal Year 2017 48 (2016) (lnelud.ne; e proposal to double 

0'10 ¢tl.ld'e$$ wofQt ¢tOCIIt.). $ee el$0 f0¢hotd Rubin end Eric ~th. ONm.t, RyM $eO Potent~f lor • TM-PoliCY COtnpromi$&, 

WNJ. St J., feb. 2, 2016; lind Center on Budget end Potley PtiOfitles, Reports Bol$[er Call's co Expand fiTC FOt Childless 

Worlten (Sept. 6, 2016). tp://WWW.cbQI).O g/bk>g/roporf.S..bolstcr-calts-t~xp;wld.eltc-for<hildJ.ess-workers. 

Ta.xpayer Advoco~~ te Servlc:e - 2016 Annual Repot'l to Congrus - Volume One 347 
100 


Insert 33425A.096

Logis latlve 

Rceommcndat1ons 

F:lmily Credic.11 ' Now rh:u the lRS has access to the majoriry or ~rned income informmion turn s 

during the early pan or the filing season, the IRS can easily verir)' digibility for an income·ba.sed., pe-r· 

person c~it in rtal time, thereby minimi''l.ing impropr.r payments. Because the n=o.·isc:d EITC would be 

gr.1nted on a per t.r basis (and no longer 2 runetion of r:amily composition)~ the lRS shm•ld adjust 

returns (post·incom<.: verific:uions) ch:at appc:lr d igible forthe crt'dit bor (iid noc cl:.jm it. and i$$ue 

rd\and$ in the: .._ppropri:ne cases. 

The DeflnlUon oi"Not Married" Under IRC § 7703(a) Should Be Amended to Reflect 

21st Century Family Law 

As nQt¢d :above, IRC § n 03(a) pr<."Ven{$ mpaycrs from lxing considel'l!d :u "noc nurried" even when chey 

ha\'e separated from their spouses pursuant co a binding separation agrecm<'nt. Specifically, it provides an 

indjvidualltgally separ.te«l from his spouse on che last day or the taxable ye;n under a .. decree of divorte 

v • of :,cpa1.dc •n;.o.i!Hefl.tuo.c" ~.....I I uV4. be '-'VU)iJc-,<:J .t) lflauicJ. Nc-id·•c;a d u.: $lalutc t1v1 d1<: u:gulacivu:, 

defi ne the requirement$ for :ol .. de<:ree or separate O);ainttnance. • 

judicially·sanc-tioncd. separations generaJiy may have arisen due co chc historical unavailability in AngloAmcri<an law of dect«S or absolut<' divorce. 11' Some Southern oolonies-Virginia, Maryland. North 

Carolina, South Carolina, and Georgia-that did not j)(rmit :absolute divorc~ did allow divor« 11 mm111 

n 1i~r"tt, or bed and bo.1rd divorce.':o Bed ~nd board divorce. srjJI :available in $0•ne jurisdjetiollS. refers 

co spotl$i'l.l ~rui n in w·hich che 1><\rti<:$ do not li'-e together, b\1t rhe. marri:\ge ir$d(, with :mendaru 

suppon oblig:-ttions, i:; left undisrurbcd.w 

Judicial sep.uarion is now available in at le:.m 40 Sratcs. Ill However, judicia.! se:par:nion is nOl nccc:-.sarily 

a pracqui.sirc- to divonx. Some form of no-f.lulr divorce is now available in all States, and is thew/( 

gtour\d for di,•orce in ar least 17 States. 11\e need for dectcu ofleg<\lsefX'r:.&tion (or. to the exte•H they 

differ, decrees of sqnr.)te n'W ncen::~ r\ce) is pren unably lt.S$cned.. At the s:.une time, separ.uion ;agteemenu 

e:x-ccurc:d by spouses. who may serve the same: purpose :.as :a .. dc:cn..'e o( sep.uarc mainren:;lncc:." arc 

encouraged as-:a n\.1.ncr of public poiH:y.1!J Thus, ;amending IRC § 7703(::a)(2) to clarify th.'tr the rem\ 

·<~«r« of separnrc mainrcnancc" includes :a scp:muion agreement cnrcrcd into by spouses and in existence 

as or the b.sr d.1.y of the a Jendar yen (or adding a .sep.1rnrion ag.~emenr dau.se ro the st:mue). would align 

the Code's Family Sr.uus determinations to present-day f.tmlly law prac:tice and red:usify sonte EITC 

claimants as eligible. thercby reducing rhe improper ~yruent r.ue. 

118 See EI<Une Ma&a. A Redesigned Earned lneomo Tax Credit Could Enoou1ag6 WOfk By Child/us Aduits. TPC. hltp;/ ;www. tal(J)OhC>'Centet.Ort/f.al<\•ol(/tode-s.i&ne<J.eameO.ineon'le-te;x..cre-c:llt-cc>vlc:MncOVt<e.WOrtt<hlldless>4<Sula (es"m&tJnll & 15.3 p.e.rcent 

pee worker benefit up to $1,500 would reach elmor.t 42 miJIIon workers currently not eligible fOt' today's chtld!ess wotkef 

EJTC). See also Steve Holt, The Rore ol r.he iRS as a Social Benefits Admlmstrator, American Enterpnse Institute (Juty 2016), 

htts>t.://WWW.OCI.Ort/public&tton,lthc-rolc-of.lho-irws-&sociaJ.bcnefit-administra.tor/. 

119 See Mary frances L)'le and Jeffrey t... levy, From Rtches to Rags: Does RehabiJitatJYe Alimony Need to l)e Rehabl#tated? 38 

F .... LQ. 3, 4-5 (Sorlne 2004). 

120 See MIChelle l. £vai\S. Wr()l'l,f$ Com.mitte<f Our;!( A fl«<Jmtt~~J : The Child TNtt No Are:, of file Uw WMC$ to AdOPf. 66 ~s.h , 

& lee L Rev. 465 n 47 (Winter 2009) (eating Nelson Manfred Slake, THt ROAb ta RtNo: A tbfCliiV « ~ .. nc thttO Stt.ttS 

34-47 (Greenwood Press 1977) (1962)). 

121 See Mary frances lyle and Jeffrey L Levy. From Riches to Rags: Does Rehabi.litatiwt ANmony Need to be Rehabilitated? 38 

F.w. LQ. 3. 4.5 (Sprlni& 2004). ScEt aJso. e.g .. Va. Code§ 20-95, prOYtdlllC, thot "A cftvOt"Ce from bed and boord may be decreed ror crueltY. reasOC'I&ble apprehen$tOR of bod•~ hurt. Vhllfvl <JflertiOC'I Ot obaocloc\rnent: 

122 Some statutes refer to decrees foe maintenance. See. e.g., An<. Code § 9-12-313. Others refer to legal separation. See. 

c,g .. Conn. Gen. Stat.§ 461>40; 750 ru. Comp. Stat. 5/402; Mont. Code§ 404104; VL Stat. bt. 15 § 555. Yet others 

rei..- to bed oM bOO<d. See. e.t .. OC COde§ 16-904: K)' Rev. St>t. § 403.050; NJ Stot, § 2A:34-6: NC Gen. St&t. § 5().7; 

Va. Code Ann.§ 20-95. Foe details aboutjodlei.al sepatetion in the 50 states, see http://YNM.americanbar.otg/contenVdam/ aba/publications/famlly_law_quarterty/vol45/4win12_chart4_divorce.authcheckdam.pdf. 

123 See, e,g .. Uniform Marriage end Divorce Act.§ 306, http:; /www.uniformdcvorce.com/UMOA.pdf. 

348 LetJslatlv• Ro"ornmondatlom - Tax R•form: R•a-tructure tho EJTC 
101 


Insert 33425A.097

legislative 

Recommendations 

IRC § n03(b) also prcvcnrs separ.ncd {a.xpayers (rom beingoonsidcn:d "not m.:Lrried,. in two ways. First, 

the sratut<: r<:c-a.ins a~ outcbted •c0$1 of maintaining a hoosthold" test tlu.t disproponionacely affecu 

Mt(llbers or racial and ((.hnic rni oriti ~ who work and have children.•H Seoo1ld, it rt'quires spouses co 

have Jived :lp:m for the l2$t six months of rhe year even if they have a wti"en,le~ lly binding sepotr.:~tion 

agrttrnenc by yt:ar's end. The N:uion:al Taxp:a)·er Advocate previously m:omme,ndcd that CongrC'Ss amend 

IRC § n03(b) to remove the cost of maintaining a household test and txrmit caxpayt'fS livlng ap:tn 

on the last day of the c~x year who h.we"' legally binding se~r.ation ~grctrn nc to be oo sidc:rcd "noc 

nu.rried."1H 

IRS Mission Statement and Administration of Family Status Provisions 

The IRS has nor fUlly embrace-d irs rok as a public bc ~ts administr:U'or. Presently, the roles of tax 

collect<> I' and bentfiu :ad.ministn.tor Cf(art rension l>«:ttas.e or the differences prUent in ~ency culture, 

mind.set. skills seu, and I raining. By explicitly st.-ring the: IRS's benefits admini.s-tr.uion role iU a separate 

agency miS$ion in rhe conrext o( ~rvice :and no ~coerciv-e compliance. the IRS will be required to align iu 

procedures, goals. d me1su~ with rhosc of other ;agencies serving si_mil;ar popul:ations.uf 

Toward rhls end. (or years the N:ttional "f.upayer Advoe ue has rccom ~ndN roche IRS that it reform irs 

audits ofEJTC ux~ye.rs (and other Family Starus prm is:ions) so th.at one employee i$ assigned to work 

the audit irthc taxpayt:r calls or writes the IRS in response co the JRS audjt o«i~ 127 The importance of 

chis approacl~ canno1 be understl;led - fa.mjly momers are $Om<: of the most p<:rso ~al m<mers a rup."'')'tr 

can di.scU$S. Tiw.s. a single trnpiO)'C<: working rhc w-p:ayer~ c:au: would gain f,uniliaticy with the raxp:.tyer's 

issues, be able to suggest :ahem:ne sources of doc:umem:uion giYen th:u &miliariry. and reusurc rhe 

mxP"ycr who m:ay 1x undersund~bly apprehensive and an~ious , incorpor:u ing SQme o( the skills :and u.-its 

assoc&:tte<l with social workc:rs. Such an arrnnge.ment may reduce the numbe.r of def.ault :assessments in 

EITC exams (where the EITC was denied bccluse the t4lXpayer did not respond or $tOp~d responding). 

Dd"-auh asscssmc:lits eurre:ndy con.sti1ucc O\'er hair of all assessments and :uc the primary cype of audit 

elosure.u• 

A singJe :a$signed employee is t\'tn more lmpoi't'.lnt whe~ ;a taxp:!yer i.s tt()l enritled co a F3miJy St:t{U$ 

btne6t. An ~udic should ruult in 3 tup3)'Cr bting tducaced and knowledgeable a.bouc d\t rules ~·eming 

the audit ssu~- ;~nd since EITC eligibility and r.'lmily composition change so frt.-qucmly (wirh 

124 See The Ohoo Sune UniVersity Re$e&l'th and lnnc:wat'on Commun,catJOns. Marital Sepatar.lons an Allemat/ve ro Ofvotce l<x Poor 

Couples {AUC,. 13. 2013), describirc rcseardt by Drnltry lumen and Zheochao Qt.an, http:/ /researchncws.os-u.edi.A/an:twe/ 

merlt&lsep.htm Thi$ $tvdy found couple$ "' I)(Oionted $Cp.&r&oons ttnd"ed to bo recsal end eth~ no t~es Nwe ye.una 

etwldr~n. and have low f611'11ly income and ech.JeatJOn. 

125 National Ti!llC;p<J)'ef Advocate 2012 Annual Re-port to Con&Je-&S 513 (lecislative RooommendotiOn: Amend IRC § n03(b) lO 

Rel'l10\'e' 1M HwsehOid Majncenai'!Ce RoqoVJrement aM to Permit Ta~)'et# L.lvfng Ap{ta on the L.tsr Oay ot U'Je T&K Yur Who 

Ha...e tega/Jy Binding Separatlon Agr~ments robe Consideted 'NOf Married'). 

126 fOt a detalfed d 1SCUS$fOO of the need to amend the IRS Mlssion SU.tement. see Special Focus: JRS Fvwre Stafe: T))e Hauonal 

Taxpa)'fU Advocate's Vision f« a Tax.pa~-Centrlc 21st Century Tax Administrabon. supra. 

127 See tener,/ly, Nat.ooclell Te;xpeyer Actvo<:ate 2014 AMI.Iat Report to Cootren 13444: Nat ~l Tax~t Advocate '201.2 Arltlu31 

Repoc11.0 Congress. vol. 2 78; Natlon&l Taxpayer Advocate 2011 Annual Report lO Co ~s. 'o'OI. 2 63-90 (Research Study: 

An An.tf)sts of tho IRS Examin&tion Sllategy: Suggeslions to Ma•fmil'e Compliance, lmtNove Credjbil.ity. and Rospec( TaxpayerR!g"hfJ): Ha\»0.-TaxP3)'er Ac:I\IOeate 2008 Anrn ..~at Repor1 to Congress 23.2. 

128 Notlo1'141l~r AcM>eoto 2015 AMu&l Report to COngr.u 252·53 (MiMt ~rlou$ PrOblem: Eamtxll~ T;tt. Cr't01t (EJTC): 

The IRS IS Not AdequareJy tfs1n1 rhe EtTC Eamlnatbn ProceS$ A$ an Educational TooltV~d Js NOf Aud.!tlrtl Returns With Cfle 

Greatest Indirect Potential f<x Improving E"C Compliance). 

Taxpayer AdvocO"tte Sorvlu - 2016 Annual Repotl to Co"'rou - Volume One 349 
102 


Insert 33425A.098

leg&slat&ve 

Recommendations 

one-d1ird of 1hc EITC PQpul:uion shifti ng e.1dl )'Car), an ineligible taxpayer 1od:ty m~y be an eligible 

taxpayer tomorrow. 1!1 

lnsrc.1d of c:uching incorr«l claims after the F.act) in cen ain cas<:s the IRS could rdy on de:~erminat s by 

fedcrnl or scare :agencies that arc :alre:ady m:aking digibiliry dc:cisions for similar public benefit$. Ahhough 

none of the federal or stare administerc:d. benefit programs. includjng Tempor.uy Assistance for N~y 

Families (fANF),

130 Supplcmcmal Nutrition Assistance Program (SNAP), Ul and Section VJJI housing 

assistaJ,ct,u2 fi,lly overlap wid1 the EITC. st:ue workers argu;ably ha,·c the knowledge Md experience to 

underst'.tnd rl1e needs of low income applf<a.nts. Addidonally, d1e srate worker$ deu:-rmining elig.ibilicy 

for TANF a~ invesrig:.niJlg m..1.ny of the same dements a.s EITC audit$: U.S. citizenship, F..miJy structure, 

<'nd hoti$Chold 6&lanr;:es. In ~l.1fti<:\l a.r. b«au$t children muse nof be.:tb.sent frorn chc hous.chold for more 

than 45 days for ANF benefits. the stare <";mployces art' also f:amiliar with determining the residency 

of childrcn.I.B 1''his is important ro co&uider bce;tuse I fl<; data show thar of the known errors involving 

qualifying childrcn on E.lTC claims, 75 pcrc<-nt of the er-rors resulted from the residency tcst.

1

J4 

The IRS Dependent Database (DDb) data show chat almost 3l p<"rcem of the EITC daiman1s who 

broke a DOh rule were Tide IV pients.m It is unclear &om this dar.a whether these taxp3yers r«eived 

'£ide JV benefit$ with respect 10 the panicular child claimed on the rewrn, or for themselves or anorher 

chi.ld. But the law creates :l complexity trap when: the EITC definition of qualifying child differs from 

l».sic household requiremenu in otl,er fedtt3.1 or nate benefit programs. For a tup:tyer. ir seenu irr.nio1l:l.l 

and incorrea for a f>C'C'$00 to receive federJ~II)' funded bent.fitt for a child fr<nn one li povcrty prog.t<lm 

:tnd not be eligible with respect tO that s:amc child for anochcr anri-poveny prog.r:.un. 

By combining the •f:amily .. component of the EITC wi(h other Fa mil)• Sr.tnl$ provisions. tC$uhing in a 

single Family Credit. rcfundable at lov.-er income lcvds, taxp:l)'C.rs will be able to prove eligibility under 

either the Qu;alifying Child or the Qu:.Hfying Rcl:,uivt pt<Wision. Moreover, exP<'nding the QualifYing 

Rclat(\·e ddinition to indude nOEl .. biologiCJI prim.-ry ca~v<rs who ~re required to submit with their 

rtturn a third·rnny .-ffi<bvit(s) vtrifying rhcir caregiver role and the te$idency requirements, wiJI simplify 

rhe doo men(<~:rion J)fOC('$$ lhat sMgs so many low income f:\X~ycC$ and prorcct agai•ur improper 

payments. "']he IRS has previously tested the usc of an official IRS form whereby third pgrtics with either 

personal or offici::tl knowledge or a child's residence a n so attest, under penahics of perjury. l l1c 2005 

l29 In response to tho NoOOnal TolQ)llycr Acl\loe&te 's recommortdations. the IRS maintains Its current correspondence- exam system 

Is .S4.l,r1Cient. It quesoons wh3t wovld happen lt e t~r caned and t~ empfO>Jee t'IUi&fled me case is uoav&lleble. the 

National Taxpayer Advocate tlnds thi$ objection unoonvi.ndng. Tax~r$ can be prcwlde<J the optlon of receiving a eall~k 

from the ass ~ed et'TJC)Ioyee. or speaking WJth the next -..ailable repc-esentatNe. Moreover. th8 National Taxpayer Advocate's 

proposal promo\C$ indMdual employee oceountabdity in the eonespondenec exam protr<'lfn, which is sorely lllckifli. NotioN! 

Tt'l~f A~te F'1se.l Yea( 2'016 Re:PQ(t tO COf'l€rC$S VOl. 2, 48-51. 

130 42 u.s.c. §§ 601-679c. 

131 42 u.s.c. § 1786. 

132 42 u.s.c. § 1437t. 

133 42 U.S.C. § 608(aX10X!Il 

134 lA$, Compli'tt~ £$t/mares for the £4Jmed ln<:.ome TaK CtedJl C1a1med 011 2006·.2008 Returns 22 (Pub. 5162. Aug. 2014). 

135 IRS OeJ)endent 03\bb&s.e: (OOb) fOt proee$$1ng ~-t'lr (PV) 2015. In J)t'lrtiovlaf. 1. 753.2$$ a~ers br<>fie OOb rvles assoei8ted w.th Title IV whereas 5,701.546 tax ~yers bfOI<e some OOb rule. 

350 Legfslatlv• Rec:omrnenda:tlom - Tax Reform: Restructute the EITC 
103 


Insert 33425A.099

legislative 

Recommendations 

ccst found the affidavic was mo~ reliable chan 01her forms of documt'.ntation tradicionally accepccd by the 

IRS.'" 

EXPLANATION OF RECOMMENDATION 

Our p~:tls attempt co reddine che eligibility rules forth~ Code's Family Sums provisions in :a way 

th:u niJows the lax $)'$CC'.m co gee to •yes .. in most innanCd wit.hout impOISing intolerable compliance 

burdens on CllXP'.t)'CfS. They buikl on imprO\'emcnu a«omplidu:d wilh tl1e enact.mcnr of the Uniform 

Dtfinirion of a O>ild. The propo~1l1 also incorpor.re and improw: upon rhc IRS's aarrcnr technology 

and revenue: prQ{«tion $U'ategies, :and establish d igibiliry requirements bas«( on che IRS's <1bilicy co ''erify 

chose requirements eithe-r sys:cemia.Jiy or with minimal burden to the taxpaye:r. They a~ designW to 

acoommodat<' the real icy of U.S. &.mily structures while minimi:z.ing compli:mc<' risk They also recognize 

that f.unily structures a~ inhercntly complex, and some dement of•good enough .. is required for a 

program likt this to be pc-~lved :u f.a.ir and ju. . 

In making our proposals., we do not t'ks.h our all rdevanc rules, nor "~ take a po$ition Ol\ 1he 

discribu1ion of F.tmily or work bcndits. \'(/e expect 1h:u Congr¢$s will he<~r from many $Our«S on chese 

\'cry poinu, O'nd indctd, h~ :are m:.n)' studies 10 guide one in m~ing these d«is.ions.•J' Howew:r, :as 

Congress works through reform of rhesc family rax provisions, it should kttp in mind thai in the f:amily 

Sl<'ltuS on<-a, a tr:ade ofT exists berw«n rigidity. complexity, :and r:axpayer burdm on the one h:and, :md 

Htxibilily. simplicity, and axp:a~r compliance on the ocher. 

A mullitude of rules th:u focus on the perct'-ivM abusC'-of-thC'·day ends up creating trn.ps and burdens 

for nil caxp:ayc:rs. By combining k\'C'ral provisioJU into one Family CR.'dil, we c:limimne complex :and 

often contra.dk tory eligibility requirement& s.till extant in che Code today. The F.tmil>• Credlt includes a 

basic; credit for the Wpa)•er. anochC'r credit for rhe t:t.Xp;llyt't's S(>Q')S(: (ahho,tgh under our etrlier proposal 

for rqxo:alingJoint :and ~rat Li.:lbiliry.1)& <'3ch spouse would claim his or her own credit), and :1 cr~it 

for each qualified child or qualified rdative. By rt'taining the UDOC provisions of Qualifying Qild 

and Qualifying Rdad,·e. we bring consistency to tax reform. However. w~ C"Xpand the definjrion of 

Qualifying Relative by cb.rifying that nOn•rda(ives: meet the "princ.i.pal pla-ce of abode• tm if the dti.ld 

artd the t~.x~~yer slu.re t:he same home ;tS <' mC'rnber of rbe hooghold for mote h<'J~ six Lnonthf of dle 

year. Moreover. we upda(e the archaic '"decree of S.Cp.l.rate nuintemnee" _ provision in J RC § no3(ot) 

136 IRS, IRS ~mcd Income T&x CrtK11r t£11C) 1/lltlo)IJV'$ Finbl Report ro Congtcu (Ocl.. 2005}. Thrs a.tudy found \Nit affiGtwrt$ 

had thO hi~lt rete ot eeeeDUtnce t'lt 82'K. com'*e<l to en ove!'llll eteeeptanee ~tt or 64'% tor all svb'Stttntl#tlon ~· 

iletters, documents. notan~ed statements}. ld. at 33. The IRS recently published a report abouf a later study of res.dency 

rOQUirctnent offldlMts. TAS llltsod &V~ifJCMt eoneems &boot tho desien of this test and the firs-t drt11t ot the stucty .. Yttl•lc we ccnt~t~Ue to h~ eoneems. the fJMI repoft hat tevtsed toMO of rts COtlCiuJIMJ end erured more <:aYeets. Neo.<erthelel.s. 

we bel.eve the study is fliM'ed because, OO:Iike the 2005 study, it only tested the ·accuracy" of affidaYits and dkl not test 

the accUfK)' ol other forms of documentatiOn. Therc!oro, unhke the 2005 study, it cannot conclude lhalllffld<Mts ate moro 

or *s &eeut&te m&n othet forms of doeumental.on cutrenUy 8COel*<t b'! \he lAS. see tRS. EITC Thltd•P6rry AffKtavU Stvdy (Aug. 2016). 

137 $00, 0.1 .. Steve Hott. The Role O( the IRS OSIJ Sod.JI Btnttfil$ Admiffl$(1"Df0r. Arnenc4!n Enterpnse ln$tltVtO (July 2016), hnl>'$;/ twww.eei.OIQ/ovbl.e&tion/the-rolo-of~rs-es•socleJ-benetlt-odmlnlstttttor/: ElaitiO M&ag. A Rede$111W14 E•mea 

lncot'ftt!! Tax Credit Could Encollfage Work 8y Chikllfns Muffs. TPC, hnp://WWN.taxpolicycente-r.org/tax\lol(/redesiCJ'I~amedlnc:oome-tax.crodtt-coc.dd-encou~k<hlldl~ul:ts; The Prurdonrs Advl.sory Pane! on Foderol lox Rolonn. Srmplo, f•lr. 

aM Pro..CtOWlh: Propo~f$ tO Flx Amt11~'$ Tax $)$t~M (NO\'CM~r 2005}: Aelam C&tt'IUO. Jeffrey Ron&ly, end C. Eugene 

Steuerle, A UnifiN Chftdten·s Tn Credir. Nattonal Tax Association Pnx:eedin&s (May 15. 2005), hup:/ fwww.urban.Ofg/ up&oad«SPPF/1000700.pdf; L~ Zelenak. Redcsignirtg the E/Jr~ lncom• rex- Credit os • Family..Si.zed Adjustment ro 

the Mlflimt~tn Wat<t, 57 T.u L. R('V, 301 CSpnna 2004): Max 8. $8wieky. RObert Cherry tnd RObett Denk. The Ne)ff Ttx RefOt-m: 

Advanc;nt Benefit$ lOt Chlldten. Economic Policy lnsutvte (2002). 

138 See Nauonal Taxpaye.t Advocate 2005 AJw.al Repott 10 Cona,tess 407..32 (Key Leg,s&et•'o'e Re<:QO'l«<oe'ndallon: Anolhef Mamago 

Penally. Taxjng the Wrong Spouse}. 

Taxpayer AdvocO"tte SorvJ.u - 2016 Annual Report to Co"'rou - Volume One 351 
104 


Insert 33425A.100

log•slatlvc 

Recommendations 

by including a wrincn scpg;ration agrcemenl b)' }"('.l.r end as proof of be-ing "not married.'" We modi()' 

the "·principal plaet: of ::abode'" rule under IRC§ 7703(b) co requjre only .. .nore than six montlu .. of 

coh;,abir:uion with the qualifying child or I'C'Iach·e. so that fa.milies: like d~t he3ded by Ms. Cow<'n can 

rettivc rhc b<:ncfir of Family SmniS provisions. 

We reduce burdens :.usoci:tt~ wirh the residency requirement by requiring the IRS to pltblish and accq>t 

an affid;avit fomt on which third parties can ccnil}t periods of rt:Sidencc. Similarly, the JRS would be 

auchorittd co devdop d:u:a·matching applications for 1ide IV and Tide VIII bendlu, and accq:>t a proxy 

for the mid('ncy and rdati<mship te-sts and public agency ce-niliouion.s thal a utxpaye-r n:ce-i"cd public 

bei\Cfittwith I'C$J'«• co a chad for moi'C ch<tn half the yetr. 

B«:.use chere is no cap on the number of children who an be: dajm¢<1 by a ~p:;arer :and rhe F:unily 

Credit is refun<bble :u lo~r income levds but -abo :available ro c~p:ayers wich h.igher inc:omes. taxp:.rers 

will not ilnd 1henud"es h:aving 10 '"1-(nd"' or "borrow' .. Ghildn:n. \'(/here there :arc no "dueling• d:aims (or 

childre-n, the IRS will pay out che Quali().-ing Child or Qu:ali(ying Rehuive component of the crcdi1 so 

long as the IRS verifie-schal che child exists and is of the rc:quisit·<' a~ (vla the Social SC"~Curity d.uab:asc). 

Where the-re arc <:Ompding dainu, Congr<'$S can refine the cu.rrent EITC ck·hrtakcr mles 10 addccu the-.sc 

conccms. 

The nc....,., credit for noncusrodial p:tf'COt$ who pay 1hcir cn1ire child support oblig:ttiQns (or rhc alenWr 

year :addrC$Se$ the fund:amt!nt:~ l concept of 1axing pc~ons ba.st=d on their :&biliry co pay. The credit will 

also reduce many of the current competing cbinu for dependency o:emprions. child credit, head of 

household filing st.arus. and EITC. ,,. 'f.uP'.tycrs c.n de.monstnne child .wpport p:tym<'nt compli.otnce 

through affidavits from chc pay<.-t or from the appropriate child support enfoKemcnr agency. 

Repe:tl ofhe-.1d ofhouS~Chold filing $fli.(U$ dimi ~res $0nle: tax benefiu for pcl'$(ln$ nuintaining a home for 

pat"CniS or other persons who :.re nOl 1hc ntxJ)Qycr's child. Thus.~ propose to alloc:nc some of the rax 

benefits associated with head ofhouse:l1old filing statw to 1he- proposc:d add .. on credit for depe:ndcnt care. 

which \o,.·ould be: av.1ila.blt to taxpaym who provide pri.lllary ca.rt for members of c.hdr extended f.-.mi.ly 

ei1her illside or ou~side of cheir homes. 

Taxpayc:n will be: eligible for the- modified EITC on a per•wori.:c.r lxuis. Exp.-.nding the age dig.ibility 

will extend important work incenri\'es :md income n tpplemtnts ro cum-ndy underserved popul;nions. 

Clarifying the IRS's -:authority to adjust a rt.rt•rn :and iss.tae a refund where the income dat-:a demonnrntes 

th(' &tXp:IYt'f is eligible will ensure: an almost I 00 pe-.rcem panicipa1ion rnte for this import.ant prog:r.am. 

Moreovt'r, bocau.se the presen« orabscnc(' of a c.hild is nor an digibility f.laor, the IRS can chook 

digibilicy on the basis ofinCOillC' reponing in re.al 1ime during the 61ing s~n, glven 1hc a«eler.ued 

rtporting of Form~ W~2 and 1 099~MISC (NEC). ll'c: l)ropo$2lrtuins the rdi.and issuance dace of 

Febn.aary 15 as 2 compliance nl«.lunism.

1

* 

139 For proces.slng year 2016,69.7 pen::ent of the returns which had a OOb cNpl.cate dependent ruk! break had the relatloo$tu.p for afl chddren esu.bfished. Anolhor 8.9 petcent or the taxpayets had the relationship fot some chlldron t-stablished. Data 

Is from o 9vsJnclSS Objeet lnt~rfece 'Mth the OOb. ll<howil'lfl teturns CI~I-Min& EITC tc<M"td by the OOb for l)rocttSiiOI ye&r 

2015. which generally oorres.l)®d$ to rehJM$ ft.led for t$1( yeat (TY) 2014. By recogniMg the child support oontnbuUon or noncustodial patents thtol.lf,h tho proposed edd-on ctedit, we reduce the lncenliYe to file duplicate claims. 

140 For a reconvnendatlon that the Department of T•easury uttli:e the Oitect Express debrt card and payroll debit can:ls as low-cost 

electroniC refund dehvery options. see Most Senou$ Pfobl~: Pb)'menf Ccttds; Paymcm C.ds Are Vi~ble Opc;ons f« Rftfund 

Oeb¥e'IY .ro rhe Unb:)l\k~ $nd t/hde(b(Jnked, 8vt Secuu(}l C~ns Need to 8e A4dresS«J. s~. 

352 lAChlative Recommendations - Tax Reform; Ruttuctute tiM EITC 
105 


Insert 33425A.101

legislative 

Recommendations 

·nle propo5cd pcr-pc~o n EITC rcmins it.s; purpose ofinccntiviz:ing work for low :and middle income 

taxpayers and minimizing the regrc.ssivity of rht' Social Securiry fXlyroll mx. Similarly. the Family Cr<dit 

rd lects :an acknowledgment of the minimum cost oflxu:ic living CXJXIlS<'S by houst:hold sitt. 'rhus, the 

National Taxpayer Advocate r«:ommends that C..ongros consider limiring t1u.• ofTSt't provisions under IRC 

§ 6102 to 25 pe-n:ent of dl-e overpa.ymeLH .a.tttibutable 10 the rdi.lildable EITC as well as che refi•ndabfe 

Family Credit," ' 

Tite net efTea of these proposals is: co rake the IRS out oflhe businm oflooking intrusivdy in{O 

taxpayers' f.lmily situations. The ~x provis-ioM rtlating to f.unily status will be subject co co1nmon sense 

n•IC$ rhat l't(Ognize rhe V:lriety ofF.lmil)• cirv;unut<lnces in the Unired Scat«!$. \'(lhiJe 1hw: ::lre winners and 

IOS<l'$ (.-s wi1h aU reform proposa..ls). rht$C proposals d imin:uc C011Ric::ring, counl'er~ i.uuirive eligibility 

rules (rherebyconvening currt'lltly noncompliant uxpayers into compliant o nes), remov~ 1he IRS from 

etlstody and divorce contens, and focus much of its complianct' work in 1his:uea on dara that c:tn W 

verified chrough thi.rd-pany r~porting. other governmcnr and pri~te databases, and in a rd:uivdy few 

instances. from the taxpayer him or hc-rsdr: with a minimum of rnxpayer burden. 

141 F¢r proce$$lna year 2015. 1.308.146 (4.$%) refund& essoe,ete<t .... ith return& eteiming EITC wete Offset eg&.nst other IRS tall 

bablllhes. 

laJCp.ayer Advocate Service - 2016 Annual Report to Congren - Volume One 353 

Insert 33425A.102

f 

I 

= "' 

f 

0 

AGURE 2.1.5, Costs and Benefits of Federal Payment Programs 

Program 

Year 

Number of Recipients 

Overhead Costs as %of Total Benefits. 

Improper Payme-nts Improper as n %of Total 

Benefits Paid 

i•mpm•a·Wf""'!@@Ml,ZS,ifj 

0\'crhead Costs + Improper Payments as 

of Total 

SNAP 

51.9mil 

79.0% 

FY 2011 

$7$,1 t>ll 

$133.07 

$3.9bll 

5.1% 

$2.6 bll 

3.4% 

$6.5 bll 

8 .5% 

WIC SSI 

9.1mil 8.3rrll 

14.6 mil 13.0.14.3 

62.6% 58.0% 

CY 2010 1998 

$4,6 bit $51.1 .. 

$500.85 $6,156.54 

$1.9 bll $3.8 bil 

41.8% 7.4% 

$0.04 bll $4.7 bl 

1.0% 9.2% 

S1.9bll $8.5bl 

42.8% 16.6% 

TANF HUD 

4.6mif 4.7mi 

12.2-14.4 9.1f'AII 

32.0% 49.3-$1.5% 

2009 2013 

$15.2 bll $30.9 bl 

$3,300.84 $6.574.47 

$1.5bl $4.3 toll 

9.7% 

$2.3 bll $1.3bl 

15.0% 4.3% 

$3.8 bll SS.6b4 

24.7'% 18.1" 

CHIP Medicaid 

School 

l unc h 

8.1mil SS.Omil 30.7rrll 

ll.S-12.2 76.0.S0..6 49.2 md 

mil mil 

66.9 · 68.2% 54.3-64.3% 

68.8% 

FY 2012 2009 2012 

$8.5bll $248.3 bil $U,3bl 

$1.047.84 $4,514.55 $366.39 

$3,.1 bil $11.7 bll $1.2 bil 

36.3% 4.71!. 

$0.7bil $14,4 bit Sl.Sbll 

8.2% 5.8% 15.71!. 

$3.8 bll $26.1 bil S3.0b4 

44.5% 10.5% 26.0% 

)> 

me 

, 

, 

0 

27.8 mil x 

22.7 mil )> 

18.6% 

TY 2009 

$60.3tHI 

$2.384.32 

$0.6bll 

1.0% 

$14.5 bll 

24.0'K 

$15.1 bll 

25.0% 
107 


Insert 33425A.103

legislative 

Recommendations 

End Notes for Cost and Benefits of Federal Payment Programs 

SuPtt£MF.NTAL Nl1T'Rmo.-.: AsstSTANcr P R.OCRAM (SNAP) 

The number or ~ipienu, benefits paid, a\'tr.Age benefit, and 0\'trhead (!()SC$ are from Suppkmmtltl 

Nutrition Au.iJttme< P1YJgmm Ptuti(ipalion and Com (March 6. 20 IS). The number o(improl>er paym-ent$ 

and {heir percenr of benefits paid are from hups:IIJXtymenraccur-.:ecy.gov/about-improper·paymcnu: 

(last visited April 3. 20 15). The participation rate is from Suppl~mmMI Nutrition AstistAnu Program 

Parti('iplllion Rnrn: FiKill Ytnn20JO,md 2011 (Feb. 2014). 

W OMEN, INFANTS, AND CHtiJ)R.tN (WI C) 

WJC recipients, digiblc. and participation r.uc are fi-om S!J<cial Suppkmmtnl Nurriti<m Progmm for 

\t'1Hnm, lnfont~, 11nd Chi/Jrrn (\'VIC) Eligiblrs and Cowrttg( - 2010: Nmional and Stnt( Uwl Estinutta of 

tlk Populnthm o[Womm. lnfonts. tmd CIJi/Jrcn Eligible for W/C &ntji11 Exrtutiw Smnmn'l (fan. 2013). 

lknefirs ore from: WIC l'rogt:lm Food C.O.t (M•rch 6. 201 ~) . Overl=d ""'" •re from: WIC Program: 

Nutrition S,ruin tmd Adminislmtiw Com (M:.rch G, 20 IS). Improper paymcnr$: Nturitionnl A.ssisrn.n« 

Progmm R(port ~rin, Sp(cial S#pplmmtflll Nutrition Progmm for Mlmm, lnfimts, nnd Childr<n (WIC). 

Erroneous Payments ro Vendors: Anm111l f':slimnus for FY 2010 Offi'u ofR~J<IIrch aJUI Analysis R~port No. 

\'(!IC· I2·EP2QJQ\Y!IC 

TtMI'ORARY AsSJsrANCE roa Na:ov FMuur.s (l'ANF) 

The t¢Cipient$. OV«h~d C:O$C.$ (includes :~:dm iniscr.uion and $)'Stenu CO.SC:$), and p:ucicip:uion r.ue are 

mkcn from U.S. Department ofHealtll and Human Servi«s. Adminisu·.nion for 01ildren and F.tmilie$ 

Oflicc o( Family As.sista c~t, Tnnporary AJ:JiJf(wu for N~MJ Fmnilit1 Progmm (TANF) Ttntlt R(pon to 

Congms. l11e bcncfi,s11re (ronl rhe report to Congte$$, Appc=ndix T.1.blc 1:1 . IIHS has not esti mated 

TANF improper payments bccawc the progr.am is administC'red by the v:arious .stafes that distribute 

f~cr.~l funds and th~ StatC"S have not performed improper payment rt\'icws. The improper paymem mte 

shown lw boen C$timared b)' th.e Ftd"'" SafitJ N(t, ttvaila.b/(11/: hnp://fedc:mls:afetynec.conVtaJ'f.:hrml. 

HHS claims there is a sun• tory prohibitiOI\ 3gainst rtquiring scates to report improper payments. In 

2007. HHS did a su.•dy in rhrec.st::uc:s wirh rhc improJ>er pay~nr rmc rnnging from I J.S J>erccnr 10 40 

percent. ·me 1 S percent estimate i.s from a private source (Fedcrnl S:afcry Net). The parricip:nion r:ne is 

based on F.amili($. not individuals. Overbe;ad costs do not include other expenditures on non-assi.stancc, 

which :.re ddi n(() :as, •bc:ndits are those th:u do nor fall within rhe ddinicion of assi.stanee, and in dude 

exptnditures suc.h as child care. trJnsponadon, and other work supports provided to employed families. 

nOIH'CC\Irl'ent .dlOfHCrnl bcndiu, work subsidi-es 10 employers, :t.nd strvic('S such a~ c<hte:trion and 

rrnining. case m11nagcmcnt, job s~rch. and counseling." The :admi ni srrati~ CXJX'fise$ ponion of nonassistanc-e was mbul:ucd. as the 0\•erfle:ad expense o( the program. 

SUPPI£ M£NTAL StCVI\l'lY I NCOME (SSI) 

R« iplcms are from Tnblt' !V..B9.-SSI &ripimrs wi1h Ft'tkrally-Mminist(ml Bmrfits in Cu"mt·Pnymmt 

Srarm ns o{D«t'm!Nr. 1974-2036. 'The benefits at'C' impulcd from the FY 2012 improper payments and 

in1propcr p:ayment r:aces at hups.://payme nl;accur.~cy.gov/abouc~improper~paymen s (lase. vi.sited April3, 

2015).11u: participation r.Jte is from KathJce,, MeG.-rry. Univcl'lity ofCaJifomi:.a, Los Angdes and 

N8ER. and Robcrr F. Schocni Uni\'ersiry of Michig:an. Undrnrantling Pnrtitipmiqn in SSI. Prc:pu-cd 

for the 16c-h Annu-.1 joint Meeting or the tir~mcnt Re.searc:h Conso"ium (Aug. 7-8. 2014). Tlt.e 

range of eligibles ls computtd. at the lower bound by dividing the improper payments by the avenage 

bc.'nefit to obtain the aver.agc number of ineligible p3-rticipants and subtr:ac:ting this number from the 

actual participants a.nd fhcn dividing this resulc by the participation race. Convt:r$dy, a.IJ partlcipants 

Taxpayer AdvocO"tte Sorvlu - 2016 Annual Repotl to Co"'rou - Volume One 355 
108 


Insert 33425A.104

356 

Legislative 

Recommcndat1ons 

a~e .wum«< digible :and an-thus divided by tbe p;uticipation r.~tc to fomlthe upper OOund. O"C'rhead 

C:O$t$ :~.re from the Soci:al Scl;:urity Adminisuacion's 20 l2 Annu.:ll Rtport of che S$1 Prottl'ilm T:;ablc IV.EI., 

'""il•ble •• hl<pd/www.m.gov/OACf/$$ir/SSI1 2/IV _E..J\dminCosr~hrml. 

DErARTMEN"r oF H ousiNG ~..~o URBAN D EVELOPMENT (H UO) 

The number of recipients (households) is takt:n !Tom HUD. Rmt11l Anis.t.1lnt't' Rtfonn Frtqu~mfJ A.Jiutl 

Qttmiom (Mar. 20 13). ~ toral benefits all: from imprope-r p;ayments and improper p:tymC'nt rate 

for FY 2013 from the fedcr:al govttnmcm's impropc-r p:aynlC'nt website, https://p..-tyment'ac:cur:ac.y.gov/ 

about-improper...,ayn~nts. The overttc-.td cosu are from che National Health Ca~ for chc Homcleu 

Council compil::uion of items in the Gutcud Funding Uw-4 FY2011-FY20J3 (M:lr. 2013). The number 

of household$ in po\·¢rty is used as a bcnc::hma_rtc to complU~ the p2niciJX11ion r.ue; however. the :.crual 

formula 10 compme d igible F.tmilics invoh•es the deccrmin.arion of ::we rage iocome 3 )ld housing prices 

on :a coumy-by-county basis. ·me number of2013 households in poveny is from :a U.S. Census Burou 

Current l)opulation SuJVty report. C:am1en DtN:aV',l$-Wah and Bernadette D. Proctor, lnromr and 

Powrry in tlx United Sram: 2013 (Nov. 2014). The loW« bound of 1hC' p;arddp.1tion r.ue is <k1ermined 

by reducing the number of p.tnkip:rnts hy che escim:ued irnpropcr reci • .,tcnu (decermineO by dividing 

the inlprorx:r p:aynlenU by the :avenge benefic amount) ::._nd dividing by the eligible children (see :a\)c),·e). 

The upper bound assumes all panicip;ancs :are eligible and divides this amount by the number of digible. 

Therefore, chis is only :an <$1imated panicipation r.ne rnn~. 

CHIU)IU'N's H EALrH IJ<s•rw<ct PllOCRA>< (CHfP) 

1lse toml lx-ne61s are imputed from improper p.1.yments and improptr y.aymem rate for FY 2012 from 

che federal government's improper payment web $ite, hups;//pa>•rmnt:t«uracy.gov/about-imprope:r• 

p:aymcnu (last visited .Aprll 3. 20 15). The recipicm$ :and paukipation rJcc arc taken fro01 .. CHIPRA 

M:.tncL·u«i Ev-.tlu:.alio11 ofche Q,ildrcn'$ Heahh Insurance Program: Final Finding$ Harringcon :and 

Kenn~y. ~tal. 2014 ..... M:.thcm.·uict Policy Rest:arch, report submit ceO to che Office of che Aai:s-tanr 

St:crctary for Planning and Evalu;uion. Ann Arbor, Ml (Aug. 20J 4). This rq>Ort shov.-'s benefits paid 

as $9.2 biJiion instetd oft he S9.l biJiion imputed from the fedu.al improptt payment wt'bsite. All 

p:articipanrs arc assumed digible :and are thus divided by the sum 48 of the participants and the number 

of childrtn digible, but niU uninsured (3.7 million: .s« CHIPRA MdnMuJ EvaluAtion report cited above) 

to form the upper bound escinute of the ~lartic p;uioo rate. The lower bouJld p-.~;nicipouion r:~te est m~ce 

reduce$ the number of participanu by the quotient ob(:ained from dividing improper p<tymenu by the 

:t\•eroge benefi t to obmin rhe :avernge number of ineligible panicipanu and the result is divided by rhe 

estim:ued eligible partic-ipants and the number of di~ible, but uninsured d 1lldren. l11e range of digibld 

is COnlpuc((( at the lower bound by di\•iding the number o( J»nicipa.nl"S by the $Uitl or the number of 

~niciJ»i llC$otnd the number or eligible. btn unin.sured children($« above). Al the upper bound. Lhe 

number of p:mic:ip:anu i$ redtl«d by the quanricy of the dividing improper paymenlS by the avmgt' 

bcndit to obtain the average numlxr of ineligible pa.nicip.'lntS and subtr-Jcting this number From the 

:actual panicipanrs ;and then dividing 1his result by the lowest estimated p.1rcicip:uion rare. The Ovcthe2d 

Costs are caken from J&diMid Fimmcial Mmlllg~mmt Rrport n~t CHIP Expmditum FY 20/2and indude 

the National Hcaltl1 Insurance Ttthnology (HIT). The HIT costs for FY 20L2 were djvided by che 

FY 2012 imputed benefit$.. 

MI!DICAID 

The numbers of recipients i~ from the K:a.is<:T Family Found:arion. M(l'!itnid Enrollmmt: junr 201.3 Oa1a 

Sttn;tMt, htcp://kff.orglrepcm ·sea ion/medicaid·c.orollnlenr-june.-2013-dar;~.$n:tpshoc·cor:ll·enroUnwm. 

The papt'r goes on to uate that Mediaid enrollment ls o:p«ted to incrcue :u a result of the Affordable 

t.eglsl:stl\'e Recammenda1ions - Tax Reform: Resttuetute the EITC 
109 

f 


Insert 33425A.105

legislative 

Recommendations 

Care N:r. In fact, Medicaid c:nrollmem has increased to over 60 million in 2014, according co M~JiariJI 

CHIP PartitipmiM Am(trtg Chi/Jrmtmd Parrnts, Medk:otid I CHIP FY 201 'i Se-ptember enrollment d.ua, 

with the number of CHIP participants subtraCted from the coc;:..l, The parlidpouion r.ue is from Lhc: 

highest r«ent r:ue cited in Und~Numding Pnnicipau'(tn Rttus in MMicaid: /mplkntion.s }Dr"" Affimk.tbl~ 

Cn« Act: Ben Sommers.. Rick Kronick, Kenneth l'!incgoldj Rosa l'o. K:uyn Schwam, n.nd Sherry Glic:d 

(Mar. 2012), hnp://ospc.hhs.gov/heahh/r<p<>ns/2012/M«ii<-•id'lokeup/ib.shtml. The r.onge of eligibles 

l$ corn pored at the lowc.r bound by dividing the impropa ~ymc: nl's by the aver-.1ge benefic co obtain the 

:average •'urn\>(r of ineligible parlieipotntsand subu.-cdng this number from the accual p:anicipants a11d 

chen dividing chis re$Uit by the pomicip:uion r:uc. ConveOOy. :t.ll p:tnicip:ams are assumed eligible: and :t.re 

chU$ dividc:d by che p:micip:uion r:ue tO form rhe upper bound. 'flle imprOJ.>er ~ynltnt$, toul benefit$ 

paid , and improper payment r.ne arc fiom the Fcder.tl go\·emmt:nt website: https:J/paymcntoaccur.acy.gov/ 

about-impropcr·J»ymenu (last visitffi Aprll3. 201 5). The overhead costs :a ~ from M~dimid's Nmional 

Hrab!J Expcnditum admininrati,·e C'O$tS for FY 2013. 

ScHOOL L UNCH PaOCRAM 

The recipiencs an:- from N~tti.l)mtf SdXXII Luncb Progmnr: Total Pllrti(ijNitio" (FY 2013). The total bendir,s, 

imprope--r ~ytnenu. and improper payment r.ue for FY 2013 are from che fedtral g<~ven nenc's improper 

pay•tlent website: hctps://paymemaccuracy.gov/:about-impropcr-p:ayments. The amount of improper 

p:ayl'nents :and che improper payment r:ue :also come from this source. There is ;a slight discn:p:ancy 

between the :amount of imputed payments and the :unount in a 2014 GAO report (SO. I btl! ion 

difference). The d igiblcs a~ determined from the National Umc:r for Education.1l Statlstics, Table 216.60 

NumlkranJ Percmtag~ of publir srhool stutlml$ aigibl~ for ft« or r~du«d pric~ lund, by Jc/)()()//rwll«nl~ 

and 11udn" m<d <t/m;rifJ 2011·12. hnps://ne<"S.oo.g<>v/progr>msldige,./d 131tablesldtl3,.ll6.60.a>p (bst 

visited ApriJ ?. 2015). TI1e lower bound of the: panicipouion nuc is dnem1ined by reducing dlt' number 

of panicipant.s by the estim:uC'd. improper rtcif>iencs (dttcnnined by dividing the improper paymcms by 

the :t\-e~ge benefic -amount) and dividing b)' the digible childrel'l (sec above). 11'e upper bound assumes: 

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Taxpayer Advocate Servlu - 2016 Annual Report to Contress - Vot.ume One 357 
110 

Chairman BUCHANAN. Thank you very much. 

At this time, we will now proceed to the question-and-answer 

session. I think we are going to have to limit the questioning to 

four minutes instead of five, because we have a briefing at 10:00, 

so I would ask all the Members to adhere to that. 

As is my custom, I will hold my question until the end. I now 

recognize the gentleman from Arizona, Mr. Schweikert, for any 

question he might have. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman, and Ms. Olson. 

This is sort of unique for a couple of us up here because we are 

so used to actually having witnessed, particularly in the IRS, 

where we have a series of dodging stories and things that are frustrating. 

When we have reached out to Arizona, we actually had people 

say nice things about the organization, a little concern on speed, 

but actually said nice things. So you win a prize for having a 

unique conversation with us today. 

Can I start with one thing, though, that did come up in the conversations we had in Arizona about this hearing that was coming 

up, and that was, with outreach to our office and then also to your 

office, individuals who are—were called in the gig economy, the 

Uber driver, the person who crowdsources their work through the 

internet, and the discussion of how they access information saying, 

‘‘Hey, here are the rules for me to save for my retirement, here are 

my rules on what must be set aside.’’ 

First, as the Advocate, do you believe your organization is doing 

enough to make it easy to access that information? The way you 

post it up on your website, the way you deliver that information? 

And then the same thing for, as you observe, how the IRS delivers 

that information to those folks in that part of our economy? 

Ms. OLSON. Well, I am very concerned about this population as 

it is growing. It is a very fast growing part of it. And I am concerned they will get into trouble with self-employment tax, not save 

for retirement, et cetera. 

One thing that my office is working on right now, that we receive 

suggestions about from other sectors, is to develop a wizard where 

people who are starting in the gig economy can actually go on to 

our taxpayer toolkit online and see all the steps that they need to 

do and get to the different places: Get an employer identification 

number, understand about calculating self-employment tax and 

when they need to pay it; get to the place where they can calculate 

or learn about the different forms of retirement saving, et cetera; 

and then, most importantly, if they have problems, how they can 

resolve them, including getting to the Taxpayer Advocate Service. 

That is something we are developing right now. 

Mr. SCHWEIKERT. And I know that may be slightly different 

than as you viewed your charter as the Advocate, but sometimes 

the Advocate may be proactive. And this is something that we all, 

as Committee Members, are going to have to deal with right now 

is that associated mother organization, if they were to give advice 

saying, ‘‘You know you can save for your retirement.’’ They may 

have just set them off as becoming an employee and no longer 

being an independent contractor. And we are going to have to sort 

111 

of figure out, you know, what are we going to do to help this population be able to have that future? 

Now, on the IRS side, do we see the agency itself doing enough? 

Does the public access have access to the organization you are contracted with? Where does that person go right now to get that information? 

Ms. OLSON. So, the IRS did create a web page in response to 

a small business hearing last year to address some of the issues 

for the gig economy. I think, as always, we can all do more. 

This goes back to the fact that there are only 98 employees conducting outreach and education to the self-employed population in 

the United States. And there are 14 States that do not have one 

of those employees located in them. 

Mr. SCHWEIKERT. And I know we are in our last 30 seconds. 

I have a fixation that the use of technology as a way to direct folks 

who are having difficulties with the IRS. 

Do you actually, as the Advocate, almost publish saying this is 

a problem that comes to us quite often, here is how it has been resolved, here is the form you need? What are you doing proactively 

in that part of the world? 

Ms. OLSON. Well, we identified the needs of the gig economy as 

a most serious problem in my annual report to Congress, and we 

made recommendations. And we have also created materials from 

my local taxpayer advocates in each State to actually conduct outreach proactively to groups, and that is one of their assignments 

to identify stakeholders in their communities. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. I yield back. 

Chairman BUCHANAN. I now recognize the distinguished Ranking Member, Mr. Lewis, for any questions he might have. 

Mr. LEWIS. Thank you, Mr. Chairman. 

Ms. Olson, it is my understanding that you held a dozen public 

meetings around the country. What did you learn? 

Ms. OLSON. You know, it was remarkable. We learned a number 

of things: One was how hard people are trying to communicate 

with the IRS and how much they actually want to. We learned that 

people thought that having digital online tools would be very, very 

helpful, but they were no replacement for talking to the IRS; and 

that there was a very strong desire for the IRS to hear them and 

listen to them. 

We learned that—from all sorts of different populations, the concern about identity theft and the scams that are going on out there. 

Those were very strong issues. We learned about issues about payroll service providers ripping off taxpayers who are securing their 

services. 

And then we heard from experts about how best to design digital 

services to make them usable by people, but not replace the communication, the person-to-person communication, whether it is on 

the phone or in person. And that was a very strong message. 

Mr. LEWIS. I know, as the Taxpayer Advocate, you don’t believe 

that quality service can be provided on the cheap. 

Ms. OLSON. Taxpayer service is, to me, the key way that you 

build trust with taxpayers. And you can do taxpayer service whether you are trying to do outreach and education or within an audit 

or within collection activities. 

112 

If you take that approach that you are trying to bring the taxpayer into voluntary compliance and understand why they are having compliance difficulties, and you are listening to the taxpayer, 

then that is how you bring taxpayer service and taxpayer rights 

into what I call the ethos of the organization. 

And there is no conflict with exercising the enforcement and compliance tools that you have. Providing taxpayer service doesn’t 

eliminate a single one of those powers that the IRS has when they 

need to use them. 

Mr. LEWIS. Do you think the 1998 Reform Act was successful? 

Ms. OLSON. I think the 1998 Reform was very successful. I 

think that what we need to do is go back—and that is partly why 

I gave you all the list of some of the provisions that I saw that 

weren’t successfully implemented from the IRS. 

I think what Congress focused on in 1998 was very key, and we 

need to make sure that the IRS does what you all directed them 

to do, or learn why they couldn’t do it and then revise it so that 

it fits into 21st century tax administration. 

Mr. LEWIS. Did it achieve its goals? 

Ms. OLSON. I think that it achieved it. It made the IRS focus 

on taxpayer service, but with these budget cuts, it sort of moved 

away from that as a primary focus. And it is really moving away 

from that person-to-person contact. 

And I keep saying to people in the IRS, people are giving up 

their money. We are taking their money for the greater good. Why 

would we not want to talk to them and hear from them and listen 

to their concerns, even if we have to tell them, you know, we can’t 

solve your problem in the way you want, this is the law. By listening to them, we gain trust, and that is what we need to do. And 

we have gotten away from that. 

Mr. LEWIS. Again, thank you for being here, and thank you for 

your years of service. 

Chairman BUCHANAN. I now recognize the gentlelady, Mrs. 

Walorski, from Indiana. 

Mrs. WALORSKI. Thank you, Mr. Chairman. 

Thanks, Ms. Olson. Again, many thanks from my constituents in 

Indiana’s Second District. You have helped—in the five years I 

have been here, you have been able to mitigate and help somewhere over 90 percent of the questions that we have had. And I 

am very, very grateful to you for what you have done. You have 

probably seen everything in 16 years. 

So I just wanted to pick up on what you said that you learned 

from the hearings that you guys had on the issues of ID theft, tax 

fraud, and scams. That is what we really get burdened by, folks in 

our district that have gotten caught in these issues. 

And my question is this: On this Return Review Program, the 

RRP, that started in 2009, this thing has tended to end up to be 

like a boondoggle. I just kind of wanted to hear from you on its 

predecessor, the Electronic Fraud Detection System, or the EFDS, 

which, in 2010, the IRS said was too risky to maintain, upgrade, 

or operate beyond 2015. But here we are in 2017. The EFDS is still 

the principal fraud detection system, because the RRP still isn’t 

ready for prime time. 

113 

In fact, TIGTA said there is no estimated date for full implementation, and GAO estimates that the program has incurred over 

$86.5 million in cost overruns. So when the RRP has run as a pilot, 

it yielded a high false-positive rate, and it missed $313 million in 

fraudulent filings. 

So let’s set aside the numbers and stats and talk about the actual people behind them. You have documented well what taxpayers go through in your annual reports. But for the benefit of everyone here, can you walk us through what happens to a single 

mom, a small business owner, a person who either gets flagged as 

a false positive or a fraudulent return? 

Can you just go through how do you find out what hoops they 

go through and what this really means to people? 

Ms. OLSON. Right. Depending on what system triggers them as 

a suspected fraudulent return, they either get a letter or they are 

just—their refund is just held up and they have to call the IRS. 

If they get a letter, they are told that they have to verify themselves either online or they may have to go into a walk-in site. And 

to do that, they just can’t walk in. There are no longer walk-in 

sites; they have to make an appointment. And sometimes you are 

told it might take weeks to get an appointment, and you won’t be 

able to get your refund before you do that. 

And, then, even if you go through that, it may be that your return is stopped by some other filter once it goes back into the processing, so then you have to go through it all again. 

Identity theft and refund fraud have been the top two case receipts in TAS, Taxpayer Advocate Service, for the last 5 years, and 

they really are a significant part of our inventory. It is devastating 

to people. 

Mrs. WALORSKI. So aside from the time element and the frustration, does it not cost taxpayers money as well if they need to 

seek professional services to be their Advocate? 

Ms. OLSON. Well, absolutely. Absolutely. And this affects people 

who are low income, high income. It doesn’t matter. And people are 

having to get their preparers to call, and people often submit documentation multiple times. 

There is no one person assigned to their case, so every time they 

call, they have to tell their story to a different person. These are 

all recommendations we have made. 

You know, the other thing on the filters is that we have recommended that the IRS create sort of a dedicated team during the 

filing season on the IT side. So as we start seeing filters that have 

very high false positive rates, that you have a team that can get 

in there and adjust those filters. Don’t wait until later. 

Mrs. WALORSKI. I apologize about interrupting, but what about 

commercially available technology that is there? Is it your opinion 

that just from a commonsense perspective, this would be where we 

would move to with an unbelievable amount of errors in fraud and 

money that is being spent and this whole lack of accountability on 

the system? 

Would you not agree that that would be someplace that we could 

look at and say let’s mitigate this as quickly as we can on behalf 

of the taxpayers? 

114 

Ms. OLSON. Certainly, the financial sector has tried to figure 

out about financial fraud and, you know, electronic fraud. And the 

IRS is meeting with those people. The commissioner established 

the security summit, and I think that is a significant step. 

Mrs. WALORSKI. I appreciate it. We are out of time. 

I yield back. And thanks again. Thanks, Mr. Chairman. 

Chairman BUCHANAN. I now recognize the gentlelady from 

Washington, Ms. DelBene. 

Ms. DELBENE. Thank you, Mr. Chair. 

And thank you, Ms. Olson, for being with us today and for all 

of your service. 

I wanted to talk to you about technology in particular, because 

you talked so much about that in your testimony and kind of the 

dire state that it is in right now. Can you give us a brief overview 

of how technology decisions are made at the IRS today, and kind 

of, briefly, whether you think the organizational chart is working 

well in terms of helping make those decisions? 

Ms. OLSON. Well, I think, you know, there are lots of executive 

steering committees on the technology side that review the priorities of how the IRS is going to spend its money. And the IRS, in 

addition to the cybersecurity concerns that we have, which are very 

great, the major concern that we have got, in addition to the RRP 

system, which is our return fraud detection system, is our enterprise case management system. 

We have about over 60 systems, and they don’t communicate 

with one another. And so employees have to get permission to get 

into things, and often they can’t. It slows things down. It is manual. It is not virtual. Our case files aren’t virtual. 

It is astonishing. And that is a heavy lift that the IRS, in my 

opinion, is very far behind on, but is finally beginning—after 

spending millions of dollars, to get up to speed. 

And then we have the fact that we are still on—we have the two 

oldest information systems in the Federal Government, according 

to GAO, where we are keeping our taxpayer information on. And 

that is a significant concern, getting from those systems to something that is 21st century is going to be a huge lift. 

Ms. DELBENE. And I assume, when we talk about cyber having 

old systems, that is very concerning, and it is concerning because 

access to information is so cumbersome, as you said, it slows down 

your ability—IRS’s ability to do so its job. 

Ms. OLSON. Right. 

Ms. DELBENE. Why do you think things have gotten so bad? 

Why are we so outdated? 

Ms. OLSON. My personal opinion, from observing it while I have 

tried to develop my own case management system for my own employees, is that partly, we don’t have the talent inside the IRS. We 

haven’t been able to recruit the people that we need to. 

And then I think that there is not enough communication between the IT function and the business operating divisions who are 

going to use these systems, so that things go—get developed that 

actually aren’t what the operating divisions need, but then the operating divisions don’t have a chance to tell that. And then money 

gets wasted, and I have seen that a lot. 

115 

Ms. DELBENE. You know, I think that is a common problem 

that we have seen in technology implementations in government 

generally and something we need to continue to focus on. Do you 

have current modernization plans within the IRS that you think 

are going to help address these issues? 

Ms. OLSON. I think particularly for the ECM, the IRS has just 

put out a request for information to hear from off-the-shelf products that are doing a case management system to see what is out 

there, and then they will build to request for a proposal. 

I think that is the appropriate approach to really get a sense of 

the universe, instead of focusing on one thing that turns out not 

to be good, but we have invested $80 million in it or something like 

that. So they are finally on the right track in that regard. 

They do need more funding to be able to bring in the talent, but 

they also need more oversight from you all so that you all are understanding that that funding is being spent appropriately. 

Ms. DELBENE. Thank you so much. My time has expired. 

I yield back, Mr. Chair. 

Chairman BUCHANAN. Thank you. 

I now recognize the gentleman from Pennsylvania, Mr. Meehan. 

Mr. MEEHAN. Thank you, Mr. Chairman. 

And thank you, Ms. Olson, for your work. 

Ms. Olson, oftentimes, the IRS has a direct relationship with taxpayers because it relates to the taxpayer paying his or her taxes. 

But they serve another role, and it implicates a lot of people in 

which the information that one puts into his or her IRS tax return 

is relevant for another purpose. 

And I speak to something which is touching families all across 

America today, and that is, college applications, including for financial aid. And so as colleges and universities interact with their students, they are reliant on the ability for the applicants to let people 

know what their financial status is, and that means they need to 

get into IRS databases. 

Outward facing tools have been used by the IRS so that I authenticate who I am, and then you allow me to go back into my 

tax return and forward that information onto my financial aid application. As a parent who has gone through this process—and I 

know I am speaking for many—it is so incredibly frustrating to 

begin with. 

But now, we are seeing that this system, which has purportedly 

been put in place, the outward-facing tools, has actually been compromised. Hundreds of thousands of Americans trying to make this 

application have found that their identities have been stolen. 

And as a result, now we not only can’t utilize the tool, but you 

have people who are trying to make those applications who are now 

frustrated, feeling time deadlines for applying to their schools, 

don’t know where to go to get the information. 

And it is particularly egregious because oftentimes, the very people making these applications, may be a student who doesn’t know 

the information that his or her parents have. 

Can you speak to me about the outward-facing tools that the IRS 

is using, what you know about this compromised situation, about 

what the IRS is doing to make that taxpayer relationship move 

more slowly—flow more appropriately. 

116 

Ms. OLSON. Well, first, the information the IRS has is such a 

valuable asset of the Federal Government and the taxpayers of the 

United States that we have to make sure that it is protected in 

every way possible. And that means that there has to be very 

high—high-level screens for people to authenticate who they are, 

because identity thieves are very sophisticated. 

And last year, the IRS learned that there were risks to the way 

that people were getting access to IRS data through this FAFSA 

system. And while they tried to work with the Department of Education over time, they learned that what the IRS needed for the 

protection of that data, the Department of Education couldn’t put 

into their system. And they had to make—they gave several 

workarounds, and those workarounds weren’t able to be implemented by the DOE. 

Mr. MEEHAN. Was the problem on the Department of Education 

part? 

Ms. OLSON. It was my understanding it was on the level of, you 

know, the types of systems that DOE has, and we were setting 

very high standards for access to that information. And so the IRS 

had to—really felt, according to their risk analysis, that they had 

to stand down. 

And now they have just put it back up again. They have worked 

through some issues. But I think that it is going—this is where you 

have some difficulty where you have one agency and the another 

agency, and you need to get them together. 

Mr. MEEHAN. Well, what is your sense? Is the Department of 

Education collaborating and cooperating with the IRS? 

Ms. OLSON. I think they are now, and I think—this is my personal opinion, but I think they are now. I think it is a matter of 

technology. But it is also that I think they didn’t understand initially the level of concern that we have about people getting access 

to this incredibly important data and misusing it. 

Mr. MEEHAN. Well, thank you. I would ask for your continuing 

oversight on that particular issue, because as we speak, millions of 

Americans—— 

Ms. OLSON. Certainly. 

Mr. MEEHAN [continuing]. Are dealing with this very frustrating system. Thank you. 

Ms. OLSON. Certainly. 

Mr. MEEHAN. I yield back. 

Chairman BUCHANAN. I now recognize the gentleman from 

Connecticut, Mr. Larson. 

Mr. LARSON. Thank you, Mr. Chairman. I especially appreciate 

the opportunity to meet the committee. I want to thank you and 

Mr. Lewis for this opportunity. 

Ms. Olson, I have nothing but great respect and admiration for 

you and the job that you have done. 

Representative Courtney and myself have been dealing with an 

issue, along with Representative Neal up in New England, that 

deals with foundation crumbling, not dissimilar to a case that happened many years ago in the south with what they referred to as 

a Chinese drywall. 

And in both cases, the circumstances are that, through no fault 

of the individual, they all of a sudden find themselves in a situaVerDate Sep 11 2014 11:28 Mar 13, 2019 Jkt 033425 PO 00000 Frm 00120 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\33425.XXX 33425
117 

tion in the case of Connecticut where their foundations are crumbling. There is no insurance coverage. And so we are pursuing relief—in this case, from the IRS, to use this as a casualty loss. 

And as I said, there is ample precedent for this in the China 

drywall situation. And our initial discussions with both the Commissioner and Secretary Mnuchin have been very positive, but— 

and we also know that in Connecticut, the Taxpayer Advocate 

Service has been incredibly supportive. 

Any advice or recommendations, and could we beseech you for 

the support of the National Taxpayer Advocate? 

Ms. OLSON. Well, I have been aware of this problem and had 

my staff attorneys meet with chief counsel attorneys of the IRS to 

look at the law pertaining to casualty loss deductions and why it— 

how it could apply in this instance. And just this week, we submitted to the IRS chief counsel a request for priority guidance that 

they put this issue on their priority guidance plan to give guidance. 

And we have actually—it wasn’t just a request, we pointed out 

how they could do it to grant relief to these taxpayers. And I will 

be more than happy to share that request with you so you can see 

what we wrote up. 

Mr. LARSON. I would be delighted to receive that. And we appreciate your continued advocacy. And as I said earlier, this is 

something that impacts people, and now it is estimated that more 

than 30,000 people in Connecticut will be impacted by this. But the 

straining actually runs from Canada all the way down to the 

Sound, so we are trying to forewarn people as well with this. 

But I can’t thank you enough as well as both the cooperation 

that we have received today from the IRS and Treasury. And I 

view that, in large part, because of your involvement and the Taxpayer Advocate Service involvement. 

Ms. OLSON. Thank you. 

Mr. LARSON. With that, Mr. Chairman, I would—I would just 

like to also ask you at some point—not for here—but I would love 

to get your opinion on the Japanese system of collecting and simplifying their Tax Code and what opinions you might have on that. 

That is not a question for here, but perhaps later I could follow up 

with you on that. 

Ms. OLSON. Certainly. 

Mr. LARSON. With that, Mr. Chairman, I thank the committee 

for indulging me and yield back my time. 

Chairman BUCHANAN. Anytime, Mr. Larson. 

I now recognize the gentleman from North Carolina, Mr. Holding. 

Mr. HOLDING. Thank you, Mr. Chairman. 

Ms. Olson, I would like to ask you about a subject that came up 

at one of your public forums last year. A tax practitioner in Red 

Oak, Iowa, raised concerns about statistical audits, meaning audits 

that are done for research purposes by the IRS. 

And although you acknowledge the importance of these research 

audits, you also recognize that they can be painful for taxpayers, 

and you even described the taxpayer under audit as, quote, ‘‘a 

guinea pig.’’ So I have significant concerns about these audits. You 

mentioned a couple of potential solutions at the forum last year. At 

118 

the time, you said you had only been discussing these options internally. So has your thinking evolved any on these suggestions? 

Ms. OLSON. So, you know, the audit—as a representative—I 

represented taxpayers for 27 years, and as a representative, I had 

to sit through the predecessor to these audits, the tax compliance 

measurement program. And it was expensive and painful for the 

taxpayer, painful for the representative. 

But I also recognize the importance of these audits so that we 

don’t go out and willy-nilly audit people that shouldn’t be audited. 

You know, we need some kind of statistical gathering thing. 

And my thinking about these taxpayers being guinea pigs is that 

they are actually doing a service for the public. These are random 

audits. There may be nothing wrong with their returns at the end 

of the day, but the IRS is using it for data gathering. 

And so if they are doing that public service, they should be paid. 

And either that or either/and maybe we don’t assess the tax at the 

end of the audit. You know, we found the errors, but they have sat 

through this for the public good, and so maybe we don’t assess the 

tax that we found. Or we give them compensation for sitting 

through it. And I would suggest that that compensation be nontaxable so we don’t, you know—— 

Mr. HOLDING. Well, let me ask you this: Yesterday, GAO released a report on the national research program and employment 

taxes. And the GAO concluded that the IRS doesn’t even have a 

formal plan to timely analyze, let alone actually use, the data it 

collected. 

So do you believe the IRS should continue to subject taxpayers, 

in your words, guinea pigs, to these burdensome, random audits if 

there is no plan to even use the information? And shouldn’t the 

IRS actually use the data? If it is going to pay folks for the data, 

you know, of your suggestion, shouldn’t they use it or shouldn’t 

they just shut down the program? I mean, if GAO says there is no 

plan to even use it. So that is kind of doubly disturbing. 

Ms. OLSON. Yeah. I don’t think they should shut down the program. I mean, they need to use the data. And I will look very carefully at the GAO audit, because I think GAO—that gives a plan for 

how the IRS could use it. 

I think the IRS needs to be an organization that uses the data 

that it has. And often, it doesn’t develop strategies based on the 

data or it takes a long time to get it into operation, and that is just 

inexcusable. 

Mr. HOLDING. Well, listening to your answer to Ms. DelBene’s 

question on technology in the IRS, it seems like the IRS has difficulty with technology just in its basic functions, and this is something above its basic function. And it makes it, perhaps, triply disturbing now that Ms. DelBene asked the probing question. 

Ms. OLSON. I think that the IRS is challenged in a lot of ways. 

I do believe that—— 

Mr. HOLDING. That is the understatement of the day. 

Ms. OLSON. Yes. 

Mr. HOLDING. Mr. Chairman, I yield back. 

Chairman BUCHANAN. Thank you. I now recognize the gentleman from New York, Mr. Crowley. 

119 

Mr. CROWLEY. Thank you, Mr. Chairman. Thank you for holding this hearing today. 

Thank you, Ms. Olson, for participating here, as well. 

Ms. Olson, recently, my good friend and colleague, John Lewis, 

introduced a bill, the Taxpayer Protection Act of 2017, which I am 

a cosponsor of, to repeal the private debt collection program. Do 

you think the IRS should outsource Federal tax collection, and 

should a new IRS have the authority to do this, hire private companies to collect unpaid taxes? 

Ms. OLSON. Well, it is my personal and professional opinion 

that the collection of tax is an inherently governmental function, 

because it requires the exercise of judgment and discretion to do 

it right, and take into consideration the facts and circumstances of 

taxpayers. 

But Congress has made the decision to create this outsourcing, 

and now, my focus has been on how the IRS is implementing this 

provision. And I have a lot of concerns about how it is being implemented. 

Mr. CROWLEY. For for-profit motive. Is that it? 

Ms. OLSON. I think that is part of the fundamental flaw with 

the program, that at least whatever you say about IRS—I mean, 

I think that IRS collection employees understand that the goal of 

collection is to bring taxpayers into voluntary compliance. And that 

may mean that you are focusing on the future that they be able 

to pay going forward, and will deal with their debt later. 

And the private debt collectors have the incentive to collect tax, 

just the amount that is before them, and get their commission. 

They don’t—they would have no incentive to think about voluntary 

compliance going forward. 

Mr. CROWLEY. The consequence as it pertains to the taxpayer 

as well. Kind of, in my mind, my concern about criminal justice reform and privatizing of prisons, you know, you create beds. They 

need to fill them. That is how they get paid. 

In terms of the EITC, I know there has been a great deal of concern about fraud existing within the program itself. I would like to 

get your thoughts in terms of how much is really fraud and how 

much is basically mistakes that are made in terms of filling out the 

proper requisite papers. 

Ms. OLSON. Well—— 

Mr. CROWLEY. Hank Paulson, for instance, I went into Goldman Sachs, he filed and he did it wrong, just to demonstrate, even 

the most brilliant, so to speak, can make mistakes. 

What recs do you have to make it an even more efficient—and 

more accessible and more efficient as well? 

Ms. OLSON. Right. Well, this year, in my annual report to Congress, I made a legislative recommendation that was really designed around trying to minimize the errors and fraud in the EITC, 

and we have attached it to my testimony. 

I do think that most of the errors are attributable to the complexity of the law, but the complexity of the law also creates opportunities for others to game it. And a lot of the fraud, the pure 

fraud, comes from some unregulated preparers that, you know, are 

preying upon an unsophisticated population and selling them something that is too good to be true. 

120 

So you have got a lot of different things playing around there. 

But I believe that there are things that you can do, both administratively and legislatively, to minimize the improper payments. 

Some of that is going to the design, and others are going into the 

kind of both outreach and education and oversight that the IRS 

needs to do on this issue. 

Mr. CROWLEY. Thank you. I think for the integrity of the program itself, we need to be vigilant, mindful, but also understand, 

I think, the complexities in terms of the clientele—— 

Ms. OLSON. Yeah. 

Mr. CROWLEY [continuing]. And their ability to actually fill out 

those forms properly. 

And, Mr. Chairman, just let me thank you for holding this hearing today as well in a very bipartisan spirit. 

Mr. Roskam and I have been working together on issues in relation to taxpayers’ relationship with the IRS. We know it is not always pleasant. We know you all don’t always get it right, and that 

is why I think we need a Congress, a vigilant Congress, Mr. Chairman, and a committee like this to keep an eye on it to help you 

do your job, help us do our job, but help, most importantly, protect 

the interest of our constituents, the U.S. taxpayer. 

So, thank you, Mr. Chairman. 

Chairman BUCHANAN. Thank you. 

I now recognize the gentlelady from Tennessee, Mrs. Black. 

Mrs. BLACK. I thank the Chairman. I thank you for allowing me 

to sit in on the Subcommittee, although I am not a Member of the 

Subcommittee. 

But, Ms. Olson, I want to thank you for the work that you and 

your folks do at your agency. And as you said at the beginning of 

your comments that most people do want to pay their fair share 

and just to be left alone. They understand that they have a responsibility to pay their taxes. The U.S. has about 98 percent of voluntary tax compliance rate and has always been linked to be perceived fair and impartial. 

But in the most recent years, we have seen more of that impartiality, and I think that that is part of what we are seeing in the 

general population, that they have really lost trust in the IRS. So 

your agency is particularly important for helping us to be sure that 

we do at least have one reach into helping with that. 

One of the things that I wanted to go to is, of course, the complexity of the Tax Code doesn’t help, and that is up to Congress to 

reform the Tax Code so that it can be something much simpler, 

which we are working on on our side. 

But the IRS is also a unique creature in that it doesn’t really 

have a regulatory process like other Federal agencies do. And so 

they issued these guidances, and they don’t solicit any public comments like you would in a Federal agency where there would be a 

change and there would be an opportunity for those public comments. 

And, in fact, on the IRS website, it actually has a section that 

says, ‘‘Understand the IRS guidance. ’’ And it has seven kinds of 

guidance to taxpayers that they should be familiar with. And I will 

note the irony of this is that the IRS actually acknowledges within 

121 

that statement that they say, and I quote, ‘‘It may be puzzling and 

a mystery.’’ 

And so I wanted to ask you to talk a little bit about those guidances and what we can do to keep that from happening, and how 

that actually rolls out and takes place? 

Ms. OLSON. The IRS has many different types of guidances you 

point out, and some of them do go through the Administrative Procedure Act, you know, notice and comment, the regulations that we 

do. 

But it has—you know, it believes that getting out guidance is 

helpful to taxpayers. And, so, rather than going through what it 

views as the cumbersome regulatory process, which would require 

notice and comment, it does stuff to get out guidance faster. 

The downside about that is, as you say, there is no vehicle that 

they have designed for public comment on that. That doesn’t mean 

you couldn’t do it that way, but they don’t. And I am very concerned about that. 

I am even more concerned—and I have written about this as a 

most serious problem—that they are moving more toward FAQs, 

you know, which are great in the sense that you get things up 

quickly, but you can’t tell when a change has been made in the 

FAQ unless you print out the FAQ every single day and track it 

word for word. 

And they are not reliable, so that if you say you rely on an FAQ, 

and then the IRS says, Well, that is wrong, that is no defense. So 

you are—and as that gets done more, you are really leaving the 

taxpayer in a very vulnerable situation. 

Mrs. BLACK. And I want to reference that that is one of the 

things that I hear from my constituents is they call into to get the 

guidance, and they give the guidance, and they ask, can you please 

send me an email or something that I can use to verify if I use 

what your recommendations are. 

And the IRS will refuse to send them anything in writing. And 

this, to me, is a really big problem, where people are trying so hard 

to do it the right way, and then they get caught on it. And they 

say, ‘‘But I called in, and I asked a question,’’ and what they got 

from the IRS was, ‘‘We cannot give you that in writing.’’ 

Ms. OLSON. Right. 

Mrs. BLACK. And so I see this as a big area that has to be 

looked at. And I appreciate you being here today and, again, thank 

you—— 

Ms. OLSON. I am very happy to work with you on that. 

Mrs. BLACK. Thank you. 

Chairman BUCHANAN. I now recognize the gentleman from 

Michigan, Mr. Bishop. 

Mr. BISHOP. Good morning. Thank you. Thank you, Mr. Chairman, for the hearing today. 

I am looking at—the IRS is responsible for processing approximately 150 million tax returns every year, issuing refunds to taxpayers for about 70 percent of those 150 million tax returns. According to the IRS estimates, it says that the cost for a refund 

check is about a dollar. 

And I am wondering what the cost would be for a direct deposit—instead of a check, and also, how we might address that 

122 

issue, the cost and the time using prepaid debit cards, and whether 

or not the IRS uses, for the tax returns, the debit express cards. 

Ms. OLSON. You know, this is something we identified in my annual report this year, is that it is so much—and it is so less expensive to do direct deposit, and then we have a large part of our population that is un-banked. 

And, so, rather than them going through check cashing places, 

et cetera, if they are already participants in this direct express program that is run by Treasury, why couldn’t we put tax refunds on 

it? 

And, frankly, I am baffled why we don’t do it. The Treasury can 

negotiate very good rates and charges. They already have this 

product. And it just makes sense. So I really don’t have a good answer for you. That is why we made it a most serious problem: Why 

aren’t we using it? 

Mr. BISHOP. So doesn’t that open this wide open for fraud if we 

don’t utilize this system? 

Ms. OLSON. Well, I think the concern about the fraud is obviated by the fact that people have to go to a bank to prove their 

identity. So you have all the PATRIOT Act requirements that were 

put in about proving your identity to open a bank account, and that 

is what they have to do for direct express. It is actually much more 

than what they would have to do to just get a card from, you know, 

some check cashing place. 

Mr. BISHOP. That is assuming that you could use that product 

for the refund. 

Ms. OLSON. Right. 

Mr. BISHOP. But we now use prepaid debit cards that don’t 

have to go through that process. 

Ms. OLSON. Exactly. 

Mr. BISHOP. So that is what I am talking about to expose yourself to fraud; whereas, if we utilized it at the direct express debit 

card, we wouldn’t have that problem. 

Ms. OLSON. Right, exactly. 

Mr. BISHOP. Has there been any discussion about allowing taxpayers to use prepaid debit cards for tax payments? 

Ms. OLSON. For payments? 

Mr. BISHOP. Yes. 

Ms. OLSON. I think that they can, actually. If they haven’t, then 

the IRS is working on that to accept that online. They are really 

trying to work on the different ways that you can make electronic 

payments online directly. 

Part of the problem, though, is they now have on their online account you can make those payments, but you do have to be able 

to sign on as a taxpayer, and some of the security is very, very high 

for that. 

Mr. BISHOP. What is the cost to process a check from a taxpayer? 

Ms. OLSON. You had said a dollar. I don’t have that information 

right here, but I can get you it between the check versus direct deposit versus a debit card. 

Mr. BISHOP. We can agree it would probably be significant savings? 

Ms. OLSON. Oh, significantly less—yeah. 

123 

Mr. BISHOP. Thank you very much. 

And, Mr. Chairman, I yield back. 

Ms. OLSON. Thank you. 

Chairman BUCHANAN. Thank you. 

Ms. Olson, I want to thank you upfront for your leadership and 

service over a lot of years. Like I said, I have heard a lot of good 

things. But I have got a litany of things I wanted to run down and 

touch on. We have got a few minutes. 

Identity theft. It has been huge in Florida. A CPA is coming to 

me—I think the CPA even had maybe his identity stolen. And I 

have got to tell you, to be candid about it, I think this is more, 

maybe two or three years ago, two years ago. It seems like it is a 

little better today, but I would like to get your take on where are 

we at with identity theft? 

Ms. OLSON. I think it is going better than it has been. The IRS 

has improved its processes somewhat. But three things have happened that have really made a difference: One is the legislation 

that you all passed, getting us the W–2 information by January 31, 

because that lets us be—if we can get the employer W–2s, we can 

see which is the legitimate W–2 versus the altered, fake W–2. 

The other thing that is happening is that the IRS is now, you 

know, requiring the software companies to ask for driver’s licenses 

when they are filing electronic returns, and that really helps us 

identify whether this is a legitimate taxpayer or an identity thief, 

in many instances. 

And the third thing is there is a program that we are trying to 

get more and more employers to use where there is a code that is 

unique to that taxpayer’s W–2 from that employer. And when they 

go to file electronically, if that code is put in, then we can tell that 

this is the correct W–2 and it is not an identity theft W–2. 

Chairman BUCHANAN. Let me ask you, just for the sake of 

time, you know, how many of the criminals, or the syndicates, are 

outside the U.S.? Do you have any sense of that? Someone claims 

a lot of this is done by Russia and others—— 

Ms. OLSON. I really don’t know. The criminal investigation division is working with so many other enforcement agencies to really 

monitor that. And, you know, it is so hard to track this stuff down. 

Chairman BUCHANAN. Because you say there is a bunch in the 

States, but you also hear that it is outside the country—— 

Ms. OLSON. You hear about India and elsewhere, yeah. 

Chairman BUCHANAN [continuing]. Different organizations, 

Eastern bloc countries or something like that. 

Mr. Crowley brought up earned income tax credit. I know there 

are some complications probably in filing, but 24 percent fraud, 

tens of billions of dollars, I guess, a year. What is your take on 

that? I mean, why is it we can’t seem to improve it somewhat? Is 

it lack of resources to educate people? I am sure that is part of it. 

He asked how much that was a part of it, but I was curious, just 

from your standpoint, where are we at on that? 

Ms. OLSON. I don’t think there is any one thing we can do to 

bring that rate down. I think it is a sum of multiple things: It is 

education; it is doing really specific audits on it; it is doing other 

kinds of compliance activities; and it is doing a redesign of the proVerDate Sep 11 2014 11:28 Mar 13, 2019 Jkt 033425 PO 00000 Frm 00127 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\33425.XXX 33425
124 

visions. Knowing what we know about where the errors and fraud 

are, we can change the design a little bit legislatively. 

Chairman BUCHANAN. Does it make sense to have higher 

standards for preparers, do you think, a lot of people are doing a 

lot of this work? Would that make a difference, education, training, 

and maybe some licensing? 

Ms. OLSON. I do think there would have to be minimum competency standards for preparers, primarily in the EITC area, because that is where we see—we know that the unregulated, unaffiliated preparers, not with the large preparation firms, are the 

greatest source of errors for the EITC population in the preparer 

base. 

Chairman BUCHANAN. Now, you were here, I think, 20 years 

ago, at the IRS. Were you here then when they did the IRS reforms? 

Ms. OLSON. I was actually a witness before this committee as 

the representative of a low-income taxpayer clinic. 

Chairman BUCHANAN. Okay. In your thought, it seemed like 

that made a big difference. I thought I heard you say that in your 

testimony. So in terms of where we are at today, it sure seems like 

20 years, we could work together on a bipartisan basis to make 

some real reforms that make a big difference to the country. Do 

you think—you agree with that? 

Ms. OLSON. Yes. And I think the way that it was done in 1998, 

where you heard from a diverse group of people, internal and external, experts in government, experts in business, you know, it made 

an incredible record. And when you read those hearings again, they 

are just very impressive. 

Chairman BUCHANAN. Well, we want to work with you and get 

all the stakeholders at multiple hearings. We are going down the 

road to see if we can’t make a difference in that space. 

One other thing that has come up, or a couple of things that 

have come up in our area, is small business disputes. They seem 

like—it is usually sometimes not a lot of money, but it is a dispute. 

But they could end up spending more in professional fees and outsiders than just paying the check itself. Where are we at on that, 

or what is your sense of that? 

Ms. OLSON. You know, I think that that raises the issue of not 

just the audit side where there are these disputes, but the appeals 

function. And that, again, is one of my concerns that the IRS has 

moved to a more centralized, remote, impersonal appeals function, 

which really was the safety valve for small businesses. 

There are 12 States that don’t have an appeals officer in them, 

so they don’t understand the conditions of that State. And I think 

that it really takes—we should take a look at that appeals function 

and see how we really make it work as the safety valve that it was 

intended to be. 

Chairman BUCHANAN. And then my last question is just protecting taxpayers’ rights is a key foundation. What additional tools 

could you use to make you even more effective on behalf of taxpayers? 

Ms. OLSON. Yeah. I think—I have written about this in my annual report. I have made recommendations about codifying, 

strengthening the taxpayer assistance order authority, and codiVerDate Sep 11 2014 11:28 Mar 13, 2019 Jkt 033425 PO 00000 Frm 00128 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\33425.XXX 33425
125 

fying something called the taxpayer advocate directive, where I can 

order the IRS to change its processes that would affect groups of 

taxpayers. 

And those are very important tools. But right now, they are 

just—the taxpayer advocate directive is just administrative. 

Chairman BUCHANAN. Okay. Thank you. 

I would like to thank our witness for appearing before us today. 

Please be advised that Members have two weeks to submit written 

questions to answer later in writing. Those questions and your answers will be made part of the formal hearing record. 

With that, this Subcommittee stands adjourned. 

[Whereupon, at 9:58 a.m., the Subcommittee was adjourned.] 

[Member Questions for the Record follows:] 

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Insert 33425A.106

Chairman Buchanan (FL-16) Questions for the Record 

Ways and Means Subcommittee on Oversight 

Hearing entitled IRS Reform: Lessons Learned from the National Taxpayer Advocate 

May 19,2017 

Questions for Ms. Olson, National Tax paver Advocate, IRS 

Ms. Olson, as noted during your testimony, the IRS has sought to more expeditiously provide 

guidance to taxpayers by issuing Frequently Asked Questions (FAQs) in lieu of formalized 

regulations, which would be subject to Administrative Procedure Act provisions such as public 

comment. To clarify, if the IRS issues FAQs as the only form of guidance on a particular tax 

topic, can a tax.payer who comes under IRS review cite those FAQs as a valid reason for or in 

defense of their position? 

Conversely, if guidance such as FAQs is non-binding, can the IRS legally enforce a decision on a 

taxpayer based on those FAQs? For example, the IRS virtual currency guidance instntcting 

taxpayers to treat virtual currencies as property was only issued in FAQ form. Does the 

Taxpayer Advocate believe that the IRS can enforce this guidance on taxpayers under audit 

based solely on the F AQs? 

Do you have any recommendations on how to remedy this situation while still ensuring that IRS 

guidance is provided in a timely manner to taxpayers? 

Response: 

Taxpayers deserve a simple answer to the question of what guidance they can rely on. 

Unfortunately, the answer is not simple at all. 

Generally speaking, there are three buckets of tax guidance: 

I. Regulations- Treasury (tax) regulations are subject tO a public notice-and-comment 

period pursuant to the Administrative Procedures Act (APA). Accordingly, Treasury 

regulations are deemed to be binding on both the IRS and taxpayers, except in rare 

instances where a taxpayer is able to persuade a court to invalidate the regulation. 

Treasury (tax) regulations are published in the Federal Register. 

2. Other "Official" Tax Guidance - The IRS publishes various forms of guidance in the 

Internal Revenue Bulletin (IRB). This is referred to as "published guidance" and 

includes revenue ru lings, revenue procedures, notices, and announcements. Documents 

published in the IRB generally do not go through a notice-and-comment process. The 

IRS is generally required to follow published guidance and to administer the taw in 

accordance with it. However, it represents merely the IRS's interpretation of the law, so 

taxpayers may challenge the position in court and seek to persuade a judge that their own 

interpretatioo of the law is correct. 

3. Other "Unpublished" Guidance - The IRS provides guidance in many other forms. It 
127 


Insert 33425A.107

issues tax forms and instructions as well as publications. It issues press releases. And it 

posts Frequently Asked Questions (FAQs) and answers on TRS.gov. These forms of 

guidance are generally not reviewed by the Treasury Department, and sometimes do not 

even go through an internal review process. For that reason, the IRS takes the position 

that taxpayers may not rely on them and that the IRS may change its position at any time. 

Many F AQs are posted on TRS.gov and therefore are not considered to be "published guidance.'' 

However, some FAQs are published in the IRB and are considered binding on the IRS. In your 

question, you note that the IRS virn1al currency guidance iostructing taxpayers to treat virtoal 

currencies as property was only issued in FAQ fonn. I want to point out that these FAQs were 

included as part of a notice that was published in the IRB. Accordingly, they represent the 

official position of the IRS, and the IRS is bound to maintain the position taken in the virtual 

currency FAQs unless and until it publishes further guidance in the IRB modifying or revoking 

them. 

I fan FAQ is not published in the lRB, the IRS may change its position at any time. Indeed, the 

IRS recently reminded its examiners that FAQs "and other items posted on IRS.gov that have not 

been published in the lntemal Revenue Bulle/in are not legal authority ... and should not be 

used to sustain a position unless the items (e.g.. FAQs) explicitly indicate otherwise or the IRS 

indicates otherwise by press release or by notice or announcement published in the Bulletin."1 

However, the fact that an FAQ had been posted may provide taxpayers with some degree of 

protection from penalties. In general, a taxpayer may avoid penahies if it is determined he or she 

had " substantial authority" for the position taken, and "IRS information or press releases" are 

considered "authorities" for this purpose.

2 The regulations regarding "substantial authority" are 

complex, and l will not discuss them in detail i.o this response. 

Apart from penalties, however, the IRS may change the answer to an FAQ (or unexpectedly 

reinterpret an FAQ) to the detriment of taxpayers who rely on them. One recent example that 

illustrates the problem with FAQs involves the Offshore Voluntary Disclosure Programs 

(OVDPs). The OVDPs are a series of fRS settlement programs. In the past, the IRS published its 

settlement programs in the IRB after incorporating comments from stakeholders and obtaining 

approval from the Treasury Department.~ Beginning March 23, 2009, however, the IRS issued 

an intemal memorandum and a series ofF AQs to promulgate the 2009 OVDP terms, which were 

oot vetted by imeroal or exteroal stakeholders or approved by the Treasury Department.4 All 

• Memorandum from Director, Examination • Field and campus Policy to Area Directors, Examination -

Field, SBSE-04-0517-0030. Interim Guidance on use of Frequently Asked Questions (FAQs) and other 

items posted to IRS.gov (May 18, 2017), https://www.irs.govlpubffoia/igfspder/sbse-04-0517-0030.pdf. 

2 1RC § 6662(d)(2)(B); Treas. Reg.§§ 1.6662-4(a) and -4(d)(3)(iii). In general, a taxpayer may also avoid 

penalties by disclosing the position in question. /d. 

3 See, e.g .. Rev. Proc. 2003-11, 2003-1 C.B. 31 1 (describing the terms of the Offshore Voluntary 

Compliance Initiative, a predecessor to the OVDP). 

' Memorandum for Commissioner, Large and Mid-Size Business (LMSB) Division and Commissioner, 

Small BusinesstSelf-Employed (SBISE) Division from Deputy Commissioner for Services and 

Enforcement, Authorization to Apply Penalty Framework to Voluntary Disclosure Requests Regarding 

Offshore Accounts and Entities (Mar. 23, 2009); Memorandum for SBJSE Examination Area Directors and 

LMSB Industry Directors from Deputy Commissioner, Emphasis on and Proper Development of Offshore 

2 
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Insert 33425A.108

subsequent OVDPs have been governed by FAQs posted to the IRS website, rather than 

published in the IRB.5 

The OVDP FAQs were issued in such haste and so poorly drafted that the IRS had to clarify 

them repeatedly.6 As a result, they treated similarly situated taxpayers inconsisteotly.' These 

FAQs are frequently the subject ofdisputes.8 The IRS changes them regularly without providing 

any formal record of what changed and when.

9 Only certain practitioners know how the IRS 

interprets them. 10 Disputes arise when it does not interpret them in accordance with their plain 

language. Taxpayers and practitioners who do not work on OVDP cases often are at a 

disadvantage because they do not know how the LRS interprets its OVDP F AQs. 

This approach is unfair to taxpayers. Although the IRS may have felt an urgent need to provide 

OVDP guidance as FAQs in 2009, I see no compelling justification for continuing to run its 

OVDPs this way over seven years later. At the very least, the IRS should publish its FAQs and 

all updates to them in the IRB. It should also give serious consideration to issuing the OVDP 

FAQs using the notice and comment process established under the AP A Such a procedure could 

help avoid the problems large numbers of taxpayers have experienced with the OVDPs to date. 

More generally, my view is that the IRS should use FAQs when there is a need to provide 

guidance on an emergency or highly expedited basis. Examples include relief provided to 

victims of Hurricane Katrina or victims of the Bernard MadoffPonzi scheme. However, my 

recommendation is that the IRS convert FAQs into published guidance as quickly as possible 

whenever an issue affects a significant number of taxpayers or will have continuing application. 

U.S. taxpayers are entitled to finaliry, and the prospect that the IRS may change its position and 

assess additional tax after a tax rerum has been fi led in reliance on an IRS's position is simply 

unfair. 

In addition, to ensure taxpayers understand the limitations of FAQs and other unpublished 

!,>uidance, we recommend the IRS prominently display a disclaimer near such guidance that says 

something along the following lines: "Taxpayers may only rely on official guidance that is 

Examination Cases, Managerial Review, and Revocation of Last Chance Compliance Initiative (Mar. 23, 

2009). 

• See, e.g .• National Taxpayer Advocate 2017 Objectives Report to Congress 164-176 (discussing prior 

reports). 

6 See, e.g .• National Taxpayer Advocate 2017 Objectives Report to Congress 164-176; Taxpayer 

Advocate Directive 2011-1 (Aug. 16, 2011) (same). 

7 Seeid. 

8 National Taxpayer Advocate 2017 Objectives Report to Congress 164-176 (discussing prior reports). 

9 For example, between March 1, 201 1, and August 29, 2011, the IRS made 12 changes to the 2011 

Offshore Voluntary Disclosure Initiative FAQs (another version of the OVDP). which were entirely 

removed from the IRS's website in 2016. See IRS, 2011 Offshore Voluntary Disclosure Initiative (Sept 

16, 2016). https:l/www.irs.govluac/201 1-offshore-voluntary-disclosure-initiative (revisions on file with 

TAS). 

' 0 National Taxpayer Advocate 2018 Objectives Report to Congress (Area of Focus: The Offshore 

Voluntary Disclosure Programs Still Lack Transparency, Violating the "Right to Be Informed'). 

3 
129 

f 


Insert 33425A.109

published in the Internal Revenue Bulletin. Various IRS functions try tO provide unofficial 

guidance to taxpayers by posting Frequently Asked Questions (F AQs) and other information on 

lRS.gov. Unless otherwise indicated, however, this information is not binding, and taxpayers 

may not rely on it because it may not represent the IRS's official position." 

4 
130 


Insert 33425A.110

Rep. Schweikert (AZ-06) Questions for the Record 

Ways and Means Subcommittee on Oversight 

Hearing entitled IRS Reform: Lessons Learned from the National Taxpayer Advocate 

May 19, 2017 

Questions for Ms. Olson, National Taxpayer Advocate, IRS 

Ms. Olson, should the IRS allow a business or company to assist in the provision of tax 

information to individuals operating on its platform? 

Response: 

Workers, also referred to as "service providers" in the sharing economy, would benefit and likely 

become more tax compliant if companies provide relevant tax information. According to a 

recent survey conducted by the National Association for the Self-Employed (NASE), 69 percent 

of entrepreneurs who participate in the sharing economy received absolutely no tax guidance 

from the companies with wltich they work.

11 The NASE survey results underscore the 

importance of educating sharing-economy entrepreneurs and merchants about the fact that they 

are operating a self-employed, small business and need to understand certain basic tax 

obligations (i.e., making required quarterly estimated payments throughout the year to avoid 

penalties). 

Companies are in the best position to provide this infomtation because they have a direct line of 

communication with their workers and they understand the nature of the work performed. 

Accordingly, the IRS should encourage companies in the sharing economy to provide tax 

guidance to workers as soon as they enter the platform to educate them about their tax 

obligations at the outset. To alleviate any concerns companies may have that providing tax 

information to workers could affect worker classification deterntinations, the IRS should publicly 

clarify that the mere provision of tax ittformation to workers will not be used as a factor in 

classifying workers as employees or independent contractors. 

Question: Should a business or company who assists by withholding taxes on behalf of 

independent contractors operating on its platform should be reclassified as an employer? 

If not, does your calculus change if the company actua lly files taxes on behalf of an 

independent contractor operating on its platform? 

Response: 

A worker's classification as either an employee or independent contractor should not depend 

solely on whether the company withholds taxes or files a return on behalf of a service provider. 

The basis for determining the status of a worker as an independent contractor or employee 

'' NASE. htlp:/lw.NW.nase.org/about-us!Nase News/2016/04/29/nase-releases-new-survey-data-onsharing-economy. The survey was sent in March 2016 to more than 40,000 small businesses and 

received over 500 responses, mainly from the self-employed, about their participation in the sharing 

economy. 

5 
131 


Insert 33425A.111

primarily rests on a common-law test of20 factors that enumerates the degree of control a person 

engaging the services of another has on the work, detail, and means by which the work is 

performed.12 Congress has also addressed employment status by enacting Section 530 of the 

Revenue Act of 1978Y This section prohibits the IRS from reclassifying independent 

contractors as employees, provided that the payor consistently treats tl1e payee as a comractor in 

good faith. lt also bars the lRS from issuing guidance oo the employment status of individuals.

14 

I have previously recommended that Congress repeal § 530 and replace it with safe harbors 

applicable to both employment and income tax determinations. I$ 

The test to determine proper worker classification is complex and subjective, and it does not 

always produce clear answers. The potential for errors and abuse is high it1 areas where not all 

factors yield the same result, particularly because there are no weighting rules. 16 To provide 

more certainty in this area, I recommended in my 2008 Annual Report to Congress that the IRS 

develop an electronic self-help tool, similar to a tool known as an " Employment Status 

Indicator" (ESI) in the United Kingdom. Her Majesty's Revenue and Customs (HMRC) 

provides taxpayers with this free, web-based service that asks service recipients a series of 

questions and, based on the answers given, supplies an "indication of employment status."17 

Employers should be able rely upon the classification generated from the online tool, unless they 

misrepresent the information input into the system while answering questions o r circumstances 

have materially changed. IS 

Moreover, because research shows taxpayers are most compliant in paying taxes oo income 

subject to withholding, the IRS should encourage taxpayers to enter into voluntary withholding 

agreements with service recipients.19 Service recipients would need an incentive to take on this 

t2 See Rev. Rul. 87-41, 1987 C.B. 296. 

13 Section 530, Revenue Act of 1978, Pub. L. No. 95·600, 92 Stat. 2763 (1978), as amended. 

14 Section 530(b), Revenue Act of 1978, Pub. L. No. 95·600. 92 Stat. 2763 (1978), as amended. 

1

s See National Taxpayer Advocate 2012 Annual Report to Congress 19·20; National Taxpayer Advocate 

2010 Annual Report to Congress 371; National Taxpayer Advocate 2008 Annual Report to Congress 375· 

90. Repeal would also remove restrictions on IRS guidance. Our initial recommendation published in the 

2008 Annual Report to Congress required the Secretary of the Treasury to issue guidance. However, 

based on our discussions with small business groups, we subsequently refined the recommendation to 

propose that Congress mandate the IRS to hold a series of consultations with the industry and report 

back to the tax-writing committees on the findings. 

16 In Revenue Ruling 87-41, 1987-1 C. B. 296, the IRS developed a list of 20 factors. based on cases and 

rulings decided over the years, to determine whether an employer-employee relationship exists. To 

complicate the matter even further, the Department of Labor issued a memorandum in which it adopted 

an expansive interpretation of the definition of ·employees· under the Fair Labor Standards Act, which 

may result in many workers currently treated as independent contractors being reclassified as employees. 

United States Department of Labor, Administrator's Interpretation No. 2015-1 (July 15, 2015). 

'

7 For more information on the ESI. see http://www.hmrc.gov.uklcalcs/esi.htm (last visited May 12, 2016). 

'

8 National Taxpayer Advocate 2008 Annual Report to Congress 375-390 (Legislative Recommendation: 

Worker Classification). 

19 For more information about the tax gap, see IRS, The Tax Gap, https://www.irs.gov/uac/The-Tax-Gap 

(last visited May 9, 2016). 

6 
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Insert 33425A.112

extra administrative burden. However, we believe that many of the large companies 

participating in the sharing economy already have experience with income tax withholding 

obligations for their administrative employees who are classified as employees, so the voluntary 

withholding agreements would not require new systems. 

Nevertheless, in order to encourage companies to take on any additional tax compliance burdens 

associated with voluntary withholding agreements, the IRS could, on a case-by-case basis, 

provide a safe-harbor worker classification in which it essentially agrees not to challenge the 

classification of workers who are a party to such agreements. Thus, these agreements could 

reduce both underreporting by payees and the controversy associated with worker classification. 

The IRS has authority to accept such agreements under IRC § 3402(p)(3) but it may need to 

work with the Department of the Treasury to issue regulations before it can use such authority. It 

may also prefer to receive additional and specific legislative authority to etHer into such deals.

20 

For that reason, I have recommended in the past that Congress direct the IRS to take the 

following actions: (i) set up a program whereby taxpayers can enter into voluntary withholding 

agreements under lRC § 3402(p)(3); (ii) determine the feasibility of the JRS agreeing to not 

challenge the classification of workers who are parry to such agreements; and (iii) work with the 

Department of the Treasury to issue regulations setting forth the requirements for such 

agreements. 

Question: Could a company track the wear and tear of a vehicle, gas consumption, hours 

worked, and other data without being considered an employer? 

Does this calculus change if the independent contractor uses this data for tax deductions? 

Does this calcul us cha nge if the company assists in the preparation of these deductions? 

Response: 

As described above, the classification of a worker as an employee or an independent contractor is 

subject to a complex 20-factor test, which evaluates the degree of control that the company 

maintains over the work, detail, and means by which the work was performed.

21 It is a detailed 

and specific fact-and-circumstances analysis as to whether tracking data about a worker's 

perfom1ance rises to the level of exertion of control over the worker's job performance. The 

calculus should not change if the company provides the data collected in an information repon to 

be given to the worker in order to assist in tax return preparation. 

Question: When, in r egards to act·ions surrounding tax, does an inde1>endent contractor 

breach t he independent contractor model and move into that of an employer? 

Response: 

20 National Taxpayer Advocate 2005 Annual Report to Congress 55-75 (Most Serious Problem: The Cash 

Economy). 

21 See Rev. Rul. 87-41, 1987-1 C.B. 296. 

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Insert 33425A.114

Rep. Curbelo (FL-26) Questions for the Record 

Ways and Means Su bcommittee on O versight 

Hearing entitled fRS Reform: Lessons Lea rned from the National Taxpayer Advocate 

May 19, 2017 

Questions for Ms. Olson, National Taxpaver Ad vocate, IRS 

The Volunteer Income Tax Assistance Program (VITA) provides a means for taxpayers living in 

low-income and underserved communities to seek help filing tax returns. The IRS has 

traditionally supponed the VITA program through training resources. Since FY2008, the IRS 

has also provided financial assistance to some VITA programs through matching grants. In FY 

20 14, VITA grantees he lped prepare more than 1.4 million taxpayers. 

Ms. Olson, as you know, the Volunteer Income Tax Assistance Program, or VITA, provides 

assistance for low-income and residents in underserved communities in filing tax returns. Can 

you tal.k about the program's i.nJpact oo reaching underserved communities, especially for nonEnglish taxpayers? 

Response: 

The Volunteer Income Tax Assistance (VITA) program plays a critical role in helping 

underserved populations, including non-English speaking taxpayers, comply with their tax 

obligations. The VITA and Tax Counseling for the Elderly (TCE) programs provide free basic 

income tax return preparation with electronic filing for taxpayers who generally make $54,000 or 

less, including low-wage worke rs, persons with disabilities, taxpayers living in rural 

communities, and taxpayers with limited English proficiency.

22 Together, they serve several 

million taxpayers every year. 

In past years, the IRS itself prepared tax renuns for low income taxpayers in its roughly 400 

Taxpayer Assistance Centers (TACs) around the country. But in 2014, the IRS ceased all tax 

rerum preparation in the T ACs. At the san1e time, it sharply cunailed the scope of tax law 

questions it would answer during the filing season, and it stopped answering any tax law 

questions at all after April IS. 

Not surprisingly, the reduction in IRS return preparation suppon has led to increased demand for 

assistance from VITA programs. In FY 20 16, VITA and TCE volunteers prepared about 3.8 

million tax returns, a 12 percent increase as compared with about 3.4 million returns in FY 

2013.

23 It is worth noting that these totals do not reflect the oumberoftaxpayers who sought 

22 VITA and TCE sites provide free tax rerum preparation services for qualified individuals in conjunction 

with IRS assistance and direction. See IRS, Free Tax Return Preparation for Qualifying Taxpayers, 

hltps://www.irs.gov/individualslfree·tax·return·preparation·for-you·by·volunteers (last visited May 17, 

2017). The income amount changes each taxable year. 

23 IRS SPEC FY 201512016 COmparative Scorecard, Ending Sept. 30, 2016, IRS SPEC FY 201312014 

Comparative Scorecard, Ending Sept. 30,2014. VITA prepared 1,507,239 retums in FY 2013; 2,128,765 

returns in FY 2014: 2,168,981 retums in FY 2015, and 2.186,054 returns in FY 2016; while TCE prepared 

9 
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Insert 33425A.115

assistance from VITA or TCE sites but were named away because the issues they sought help 

with are deemed "out-of-scope."24 I anticipate more taxpayers will be using VITA and TCE 

services in FY 2018. Thus, Congressional support and oversight for these programs is extremely 

important to provide assistance to eligible taxpayers. VITA and TCE programs need an 

authorizing statute establishing permanent funding, clear nates, and qualifying conditions that 

can be modeled after section 7526 of the Internal Revenue Code, which goveros low income 

taxpayer clinics (LITCs). Such legislation would create more certainty for VITA and TCE 

partners, volunteers, and the taxpayers they assist. 

Question: The 20.1 4 annual report to Congress put out by your office raised concerns that 

certain scope-limitations were making it difficult for VITA programs to serve some 

taxpayers, can you elaborate on these concerns? 

Response: 

Because VITA programs are staffed primarily by volunteers who are not tax professionals, the 

IRS has understandably been concerned about allowing them to prepare returns that involve legal 

complexity. Topics the IRS prohibits VITA programs from addressing are referred to as "out of 

scope" topics. Yet the consequence of the out -scope restrictions is that some categories of 

taxpayers are unable to obtain assistance. At the top of that list are self-employed taxpayers. 

Sole proprietors in non-farm businesses are required to file a Schedule C. Unincorporated farm 

businesses are required to file a Schedule F. IRS rules prohibit VITA programs from preparing 

the Schedule F. Regarding the Schedule C, the IRS now allows VITA to prepare them in some 

cases, but it imposes significant limitations. For example, the IRS's VITAffCE Volunteer 

Resource Guide cautions that "(b]usinesses with inventory, employees, contract labor, 

depreciation, business use of the home, expenses over $25,000 or a net loss are out of scope."25 

There are many other out-of-scope topics that prevent other groups of taxpayers from obtaining 

VITA assistance. 

If Congress enacts legislation authorizing the VITA program, I believe it would be helpful if the 

authorization or the accompanying committee report directs the IRS to provide a portion of t11e 

grant funds to programs that prepare Schedules C and F for taxpayers at or below certain income 

levels (for instance, at or below 250 percent of the federal poverty leve1),

26 thereby avoiding 

potential competition issues with the private sector. The legislation also could benefit VITA 

programs by mandating that sites commit to hiring a tax expert to train volut1leers on out-ofscope topics such as these and to conduct quality reviews. 

1,595,860 returns in FY 2013, 1,343,931 returns in FY 2014, 1,366,162 returns in FY 2015, and 

1,407.219 returns in FY 2016. 

24 See IRS Publication 5220, VITAITCE Volunteer Site Scope & Referral Chart (Dec. 2016). 

25 1RS Publication 4012, VITAITCE Volunteer Source Guide D-29 (revised Deoember 2016). 

26 The Department of Health & Human Services (HHS) issues poverty guidelines that are often referred to as the "federal poverty level. • 

10 
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Insert 33425A.116

Question: What are some of the common challenges that you observed facing tbe VITA 

program over the past couple years? Are there actions the IRS could take to address these 

challenges and further support the VrTA program? 

Response: 

As I have discussed in my reports to Congress, I am concerned that the restrictions placed on 

VITA programs prevent them from providing assistance to many taxpayers who require tax 

return preparation assistance and meet tbe program's general income and other eligibility 

requirements. 

In March 2015, I sent the Commissioner a memorandum that, among other th ings, recommended 

the IRS remove VITA program grant restrictions for specific tax forms, schedules, and issues, 

including Schedules C, D, and F, and Individua l Taxpayer ldentifica.tion Numbers (ITINs); and 

allow grant funds to be used to pay for staff serving as quality reviewers or Certified Acceptance 

Agents (CAAs), or to manage year-round services at select sites.27 To date, these 

recommendations have not been implemented by the IRS. 

The IRS responded that expanding the complexity and scope of VITA assistance would increase 

the burden on IRS employees to develop training materials for VITA partners and to manage the 

quality of returns prepared. The IRS also stated that expanding the scope would burden 

volunteers to learn topics that come up infrequently and that they may not actually encounter.

23 

One response is that some out-of-scope decisions can be made on a regional basis. For example, 

a VITA program in n1rallowa should be equipped to prepare a Schedule F for a farmer, even if a 

VITA program in New York City is not. 

The IRS grants do not allow VlT A sites to pay preparers for quality reviews or screening 

activities. Nor does the IRS authorize VITA sites to fund activities involving CAAs who assist 

non-citizens in obtaining ITTNs, which they need to file U.S. tax returns. The IRS contends that 

paying volunteers for quality review with VITA or TCE grant funds would contradict the intent 

oftl1e volunteer program and would "add[] complexity to managing volunteers, liability of 

volunteers, volunteer recruitment, and ensuring appropriate use of federal funds. "29 In my view, 

the IRS's argument regarding extra burdens and liability imposed on the sites is overstated 

because VITA and TCE sites are already responsible for managing day-to-day activities. 

Although volunteers certified at the advanced level may now prepare certain Schedules C, they 

are subject to significant limitations and therefore fail to meet the needs of some taxpayers. 

Moreover, many farmers need help in preparing the Schedule F. The IRS's approach to 

managing volunteer tax return preparation programs is not based on data or research about 

taxpayer needs, but rather on what is conveoient for tbe IRS itself. The LRS makes it difficult 

and sometimes impossible for VITA and TCE sites to assist taxpayers who are not Form W-2 

wage earners. By prohibiting grant recipients from preparing certain fonns and by not allowing 

27 National Taxpayer Advocate 2014 Annual Report to Congress 66. 

28 National Taxpayer Advocate Fiscal Year 2016 Objectives Report to Congress, Vol. 2, 20-23. 

29 ld. at 21. 

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Insert 33425A.118

Rep. Bishop (Ml-08) Questions for the Record 

Ways a nd Means Subcommittee on O versight 

Hearing entitled IRS Reform: Lessons Lear ned from the National Taxpayer Advocate 

May 19,201.7 

Questions for Ms. Olson, National Taxpaver Advocate, IRS 

Ms. Olson, in your testimony you mentioned that the IRS has costs associated with processing 

tax payments. Can you please provide what you have found to be the costs to the IRS of 

receiving payments via check, wire transfer/electronic payment from a bank, and payment from a 

debit and or prepaid card? 

Response: 

In my 20 16 Annual Report to Congress, we noted that it costs the IRS more than $ 1 per refund 

check issued, compared to only ten cents for each direct deposit made.11 The LRS says it cannot 

differentiate between direct deposits made to a traditional bank account or to a debit card, so the 

costs of these refund methods are presumably identical. 32 

Question: Has your office identified any statutory barriers that prevent the IRS from using the 

Direct Expre.ss program to provide tax refunds to citizens? 

Response: 

No, we are not aware of any statutory barriers that would prevent the IRS from participating in 

the Direct Express debit card program. Because Direct Express is a Treasury-recommended 

debit card, I find it perplexing that the IRS does not participate in the Direct Express program. 

Q uestion: In your response to the recent TIGTA Report on civil asset forfeiture you said, "I 

believe the IRS should clarify that CI employees must act in accord with taxpayer rights, even in 

the context of gr331d jury investigations or the administration of laws not codified in Title 26." 

Instead of relying on the IRS to make this clarification, has your office been able to identify a 

legislative solution to this issue? 

3• IRS, Direct Deposit Your Refund, www.lrs.gov/individuals/get-your-refund-faster-tell-irs-to-directdeposit-your-refund-to-one-two-orthree-accounts (last visited June 8, 2017). 

32 1RS, Wage & Investment (W&I) response to TAS information request (Sept. 22, 2016). 

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Insert 33425A.119

Response: 

Yes. The IRS Criminal Investigation function (CI) takes the position that taxpayer rights, such 

as those included in the Taxpayer Bill of Rights (TBOR), only apply when it is conducting 

investigations under Title 26 of the U.S. Code (i.e., the Internal Revenue Code). CI says 

taxpayer rights do not apply in the cases described in the March 2017 TIGT A report, either (I) 

because Cl is acting at the direction of the Justice Department in a grand jury investigation or (2) 

because the structuring laws are codified io Title 31 of the U.S. Code (ratl1er tban Title 26), so 

the subject of the investigation sbould be viewed as a "property owner" rather than a "taxpayer." 33 

I fwd that position deeply concerning. First, when CJ conducts structuring investigations, the 

investigations may lead to tax assessments or even criminal charges under Title 26, blurring the 

distinction between investigations under Title 31 and Title 26. Second, section 7803(a)(3) of the 

Internal Revenue Code requires the Commissioner to ensure that "employees oftbe Internal 

Revenue Service are familiar with and act in accord with taxpayer rights as afforded by [Title 

26], including [the ten rights in the TBOR]." That blanket statement identifies Title 26 as a 

source of taxpayer rights applicable to all IRS employees. Neither the TBOR tbe IRS initially 

adopted nor the statute Congress enacted makes exceptions for Cl employees or for IRS 

employees conducting investigations under other titles. To reach the conclusion that CJ 

employees may ignore taxpayer rights when conducting investigations under Title 31, Cl seems 

to be reading tbe statute as if the words "but only where IRS employees are investigating 

potential violations under Title 26" were appended at the end. Those words are not there. 

If the IRS were to adopt CI 's interpretation that the TBOR does not apply outside the context of 

Title 26, all rRS employees would be able to ignore taxpayer rights when responding tO Freedom 

of Information Act requests, making determinations, or promulgating regulations under Title 5; 

administering bankruptcy laws tu1der Title II; or enforcing the stmcturing laws under Title 3 I. 

Such a narrow interpretation would gut the TBOR and is unlikely to have been the IRS's or 

Congress' intent. 

Although my memorandum did not discuss this point in detail, I note that the TIGT A report 

found CI invoked the concept of a "grand jury investigation" very broadly to avoid triggering 

constinttional rights. According to the report, Cl has issued guidance which takes the position 

that constitutional rights are not required duriog "grand jury investigations" and which defines 

the term "grand jury investigation" to include "the issuance of grand jury subpoenas." TIGTA 

found that "(g]randjury subpoenas were used in roost of the civil forfeiture cases in [its] sample 

to obtain bank records," yet "CI's explanation that 'special agents must follow the procedures 

directed by the AUSA assisting the grand jwy' does not account for situations i.n wbich a grand 

jury subpoena is used to obtain records but the matter never appears before a grand jury." By 

CI's loose definition, taxpayers in a large number of cases that do not involve true grand jury 

iovestigations can be deprived of their rights. 

33 TIGTA, Ref. No. 2017-30-025, Crimina/Investigation Enforced Structuring Laws Primarily Against Legal 

Source Funds and Compromised the Rights of Some Individuals and Businesses (March 2017), 

https://www.treasurv.gov/tigta/auditreports/2017reoorts/201730025fr.pdf. 

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Rep. Holding (NC-02) Questions for the Record 

Ways and Means Subcommittee on Oversight 

Hearing entitled [RS Reform: Lessons Learned from the National Taxpayer Advocate 

May 19,2017 

Questions for Ms. Olson, National Taxpayer Advocate, IRS 

Ms. Olson, do you believe Enforcement is a necessary component for maintaining the current 

98% taxpayer compliance rate? 

In the Special Focus section of your 2016 annual report you stated, " there is only on.e true 

' enforcement' function in the IRS, and that is the Criminal Investigation function." Do you 

believe the Criminal Investigation division plays an important role at the IRS? 

Ms. Olson, Given the increasing number of extremely serious and very grave areas of concem 

currently before the Internal Revenue Service, including but not limited to, the need, as you have 

pointed out, for the agency to orient itself with its taxpayer service responsibilities, and the 

ongoing IRS failures to secure private taxpayer data, are you confident in the ability of the 

agency to fulfill its current responsibilities, let a lone take on any new initiatives? 

Response: 

Effective tax administration requires a combination of high-quality taxpayer service, compliance 

measures like audits and collection acti vities to pursue unreported or unpaid taxes, and lawenforcement actions to pursue taxpayers who flagrantly evade their tax obligations. 

In FY 2016, the IRS collected $3.3 trillion in tax revenue. Of that amount, about 98 percent was 

paid voluntary, and about two percent was collected through enforcement activities.34 There is 

no doubt that both IRS civil compliance and IRS cfiminal enforcement measures are necessary 

components for maintaining high levels of tax compliance. While those actions only bring in 

two percent of tax revenue directly, they deter taxpayers who might otherwise evade their tax 

obligations due to fear of possible detection and punishment. Tbat deterrent effect is sometimes 

referred to as an "indirect" impact of tax compliance activities. 

"' See GAO, GA0-17-140, Financial Audit: IRS's Fiscal Years 2016 and 2015 Financial Statements 25 

(Nov. 2016), https:/lwww.gao.gov/assets/690/680957.odf (showing the IRS collected $3.3 trillion in 

FY 2016); IRS, Fiscal Year 2016 Enforcement and Service Results, 

https:Uwww.irs.gov/PUP/newsroom/fv 2016 enforcement and service results.odf (showing the IRS collected $54.3 billion through enforcement activities in FY 2016). The question asks whether I believe 

enforcement "is a necessary component for maintaining the current 98% taxpayer compliance rate?" As 

a point of clarification, the IRS's most recent study of tax compliance found that the voluntary compliance rate is 81.7 percent, and the net compliance rate after compliance actions is 83.7 percent. IRS, Tax Gap 

Estimates for Tax Years 2008-2010 (April2016), 

https:/lwww.lrs.gov/pub/newsroom/tax%20oap%20estimates%20for%202008%20through%202010.pdf. 

16 
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Insert 33425A.122

As I said in my written statement, I see no conllict whatsoever between providiog high quality 

taxpayer service and taking steps to ensure tax compliance, particularly on the part of persons 

actively seeking to evade tax. Taxpayer service and enforcement should not be viewed as an 

"either/or" proposition. Indeed, I have made many recommendations in the past to improve IRS 

compliance programs.3} 

I have several concerns about the way the IRS operates today: (i) the ageocy seems to me to 

exh.ibit an enforcement mentality that emphasizes enforcement over service; (ii) the ageocy, 

despite adopting the Taxpayer Bill of Rights (TBOR), bas not done enough to incorporate the 

principles of the TBOR into its dealings with taxpayers; (iii) taxpayer service is poor, partly 

because the agency has faced significant budget curs that have limited its perfonnance; and (iv) 

the agency's compliance programs are not as effective as they could be.36 

To elaborate, ! believe tl1e IRS historically has viewed itself first and foremost as an enforcement 

agency, and that approach to tax administration continues to predominate.l7 More than 43 

percent of the IRS budget is allocated for Enforcement (a figure that rises to more than 60 

percent with Operations Support dollars apportioned), as compared with four percent for Prefiling Taxpayer Assistance and Education.l8 By contrast, the IRS currently has fewer than 500 

employees in its Stakeholder Partoerships, Education and Communication (SPEC) and 

Stakeholder Liaison (SL) outreach functions out of a workforce of roughly 80,000 (i. e., about 

one-half of one percent).39 The fRS revised its mission statement in 2009, without any public 

discussion, to change its focus from "applying" the law to "enforcing" the law. In illustrating its 

"Future State" vision, the IRS developed and posted on IRS.gov four "vignettes" to illustrate the 

35 See, e.g., National Taxpayer Advocate 2011 Annual Report to Congress, vol. 2, at63-90 (An Analysis 

of the IRS Examination Strategy: Suggestions to Maximize Compliance, Improve Credibility, and Respect 

Taxpayer Rights); National Taxpayer Advocate 2010 Annual Report to Congress, vol. 2. at 39-70 (An 

Analysis of the IRS Collection Strategy: Suggestions to Increase Revenue, Improve Taxpayer Service, 

and Further the IRS Mission). 

36 /d. 

37 National Taxpayer Advocate 2016 Annual Report to Congress 1-41 (Special Focus: IRS FUTURE 

STATE: The National Taxpayer Advocate's Vision for a Taxpayer-Centric 21" Century Tax 

Administration). 

36 See Consolidated Appropriations Act, 2016, Pub. L. No. 114-113, 129 Stat. 2242 (2015); U.S. 

Department of the Treasury, Internal Revenue Service FY 2017 Budget-in-Brief 1, httos:l/www irs qoytpublnewsroom/IRS%20FY%202017%20BIB.Odf, which shows fY 2016 enacted 

funding levels of about $4.86 billion for Enforcement and about $630 million for Pre-filing Taxpayer 

Assistance and Education out of a total appropriated budget of $11 .235 billion. The Pre-filing Taxpayer 

Assistance and Education category includes about $173 million for Taxpayer Advocate Case Processing, 

which generally does not involve pre-filing taxpayer assistance or education. After backing out that 

amount, the remaining Pre-filing Taxpayer Assistance and Education budget comes to about $457 million, or four percent or the total IRS budget. In addition, about $3.75 billion, or 33 percent of the IRS budget, is appropriated for the Operations Support account. When Operations Support dollars are apportioned to 

the Taxpayer Services and Enforcement accounts in rough proportion to their respective allocations ($2.33 billion for Taxpayer Services and $4.86 billion for Enforcement), overall spending on Enforcement 

activities comes to more than 60 percent of the IRS budget. 

" IRS response to TAS fact check request (Dec. 16, 2016). 

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taxpayer experience; all involve IRS compliance activities and all reach the conclusion that the 

IRS is right and the taxpayer is wrong. 

Lastly, I do believe the IRS is capable of fu lfilli ng the responsibilities Congress assigns to it. As 

I have repeatedly recommended, however, I believe it would be helpful for Congress to conduct 

greater oversight to make sure the agency is fulfilling its responsibilities as you intend and to 

make clearer to the IRS leadership what congressional expectations are. At first blush, I don' t 

know whether the IRS leadership would welcome that recommendation. But at the end of the 

day, I believe it would benefit the agency - and ultimately taxpayers - if Congress and the IRS 

can get on the same page regarding prioritie.s and strategies. There is no doubt that the cuts to 

the IRS budget in recent years have been driven, in large part, by congressional mistrust. If the 

fRS works more closely with Congress, it will have an opportunity to win back trust, and that 

ultimately is likely to lead to additional funding and other support that will enable the IRS to do a 

better j ob. 

18 
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[Public Submissions for the Record follows:] 

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Insert 33425A.124

May 19,2017 

House Committee on Ways and Means, Oversight Subcommittee 

II 00 Longworth House Office Building 

I Independence A venue SE 

Washington, DC 20003 

RE: Political Activity Guidance for Nonprofit Organizations 

Dear Chairman Buchanan, Ranking Member Lewis, and Subcommittee Members; 

As the Committee begins the difficult work ofrefonning the Internal Revenue Service and the 

Internal Revenue Code, we at the Bright Lines Project write to urge the committee to pay 

particular attention to ensuring that the Code's defioitioo of political activity for nonprofit 

organizatioos is workable for the Service aod especially for nonprofits themselves. 

The Bright Lines Project (BLP) has been advocating for clarity in this area of the law for years, 

because we have seen first-baud that imprecision in the Code has not ooly caused coofusioo at 

the Service, but also has chilled the activities of nonprofit organizations, particularly those 

organized under section 50I(c)(3). A better system of mles, such as that the BLP has proposed, 

would enable groups to engage fully in nonpartisan civic participation activities, while making 

enforcement easier for the Service. 

As the Committee considers tbe best way forward for this area of law, we ask that you encourage 

your colleagues on the Appropriations Committee to lift the budget rider preventing the Treasury 

Department and the Service from providing any guidance on the rules governing political 

activity for 50 I(c)(4) organizations. The rider was initially included in the 2016 Consolidated 

Appropriations Act and has remained in force ever since. At a time when new rules are urgently 

needed in this space, the rider bas now for years halted progress in this area affecting all 

nonprofits. Even when the changes to be proposed by this Committee are final, nonprofits will 

need the valuable advice Treasury and the Service can provide, and the rider could serve to tie 

their bands and prevent them from offering clear, predictable advice. 

We also strongly encourage you to preserve the ban on 50I(c)(3) e lectioneering on candidates 

for public office. The law as it is written allows those organizations to speak out on issues 
146 

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Insert 33425A.125