Taxpayer Advocate Service: Caseload Has Grown and Taxpayers Report Being Satisfied, but Additional Measures of Efficiency and Effectiveness Are Needed
Released: 2007-03-26T00:00:00

Letter

Background

TAS is an independent office within IRS created to assist taxpayers in resolving problems with IRS, identify areas in which taxpayers have problems in dealing with IRS, and propose administrative and legislative changes to mitigate such problems. TAS is the successor to the Problem Resolution Program (PRP) which IRS founded in 1976 to provide an independent means of helping taxpayers solve problems that they encountered in dealing with IRS. Initially, PRP units were established in IRS district offices. In 1979, IRS expanded PRP to its service centers and created the position of Taxpayer Ombudsman to head PRP. Generally, PRP personnel were district or service center employees who did not report directly to the Ombudsman. The Ombudsman was appointed by and reported to the Commissioner of Internal Revenue.

Congress has since renamed the Ombudsman the “National Taxpayer Advocate” and taken steps to enhance the independence of the Advocate.

While the Advocate continues to report to the Commissioner of Internal Revenue, the Advocate is now appointed by the Secretary of the Treasury after consultation with the Commissioner of Internal Revenue and the IRS Oversight Board. In the IRS Restructuring and Reform Act of 1998, Congress required that the individual not be an IRS employee for 2 years preceding his or her appointment and that the individual agrees to not accept a position elsewhere in IRS for 5 years following his or her tenure as the Advocate. In addition, Congress replaced the prior PRP organization with an independent reporting structure of taxpayer advocates who report directly to the Advocate and mandated that a local taxpayer advocate be available to taxpayers in each state. TAS currently has 65 local offices with at least one in each state, Puerto Rico, and the District of Columbia. TAS also has 10 offices located at IRS campuses. The current Advocate was appointed in 2001.

Section 7803 of the Internal Revenue Code, as amended by the Restructuring Act of 1998, provides that the National Taxpayer Advocate is entitled to compensation at the same rate as the highest rate of basic pay established for the Senior Executive Service under 5 U.S.C. Section 5382 or, if the Secretary of the Treasury so determines, at a rate fixed under the streamlined critical pay authority set out in 5 U.S.C. § 9503 (up to the equivalent of the Vice President’s salary, or $212,100 in 2006). The Advocate is also eligible to receive bonuses. On January 10, 2001, the Secretary of Treasury approved the appointment of Nina Olson as the National Taxpayer Advocate under section 7803 and chose to set her pay using the streamlined critical pay authority. The Advocate’s salary was $162,100 and her bonus was $22,900 in 2006.

TAS has two primary functions—case advocacy and systemic advocacy, although it is also responsible for administering the Low Income Taxpayer Clinic (LITC) Grant Program and overseeing the Taxpayer Advocacy Panel (TAP). Figure 1 shows TAS’s primary functions as well as sources of work.

TAS receives case advocacy cases through several sources including referrals from IRS, direct taxpayer contact via walk-in, phone calls, or mail, and the National Taxpayer Advocate toll-free line. The acceptance criteria for case advocacy fall into four general categories: economic burden, systemic burden, best interest of the taxpayer, and public policy. Economic burden cases involve a tax-related issue that has caused financial difficulty for the taxpayer. Procedural burden cases involve an IRS process, system, or procedure that has failed to operate as intended and, as a result, IRS has failed to resolve or respond to the taxpayer issue. Best interest of the taxpayer cases are those that raise questions of equity or taxpayer’s rights in how the tax laws are administered. Finally, public policy cases are those that the Advocate decided should be worked based on specific issues or areas of public concern. TAS uses TAMIS to track its case advocacy activities.

In some cases, TAS is able to use its statutory or delegated authorities to take the necessary steps to resolve a case. When TAS does not have statutory or delegated authority to take action, TAS issues an Operations Assistance Request (OAR) to the function within IRS that can take the needed action to resolve the taxpayer’s problem. If IRS and TAS are unable to agree on the proper course of action, TAS might use a Taxpayer Assistance Order (TAO) to require IRS to take a certain action as permitted by law, cease an action currently being taken, review an action, refrain from taking any action, or release property previously levied. In fiscal year 2006, TAS issued 46 TAOs. Figure 2 provides an overview of the case advocacy process.

Currently, TAS and IRS are renegotiating the procedures TAS and IRS functions will follow to process an OAR. Also, officials told us that the Advocate has reviewed TAS’s delegated authorities with Office of Chief Counsel, Appeals, Tax Exempt/Government Entities, W&I, and SB/SE officials and plans to make recommendations to the Commissioner on possible changes.

TAS receives suggestions for systemic advocacy projects from TAS and IRS employees and the public. Systemic advocacy officials evaluate each suggestion to determine if it meets the definition of an immediate intervention—an administrative issue which could cause immediate, significant harm to multiple taxpayers that needs quick resolution. For those issues that do not become immediate interventions, systemic advocacy officials apply the general criteria described in figure 1 in order to score each issue. TAS creates a systemic advocacy project for those issues that meet or exceed the current threshold for converting an issue into a systemic advocacy project. This threshold can change depending on available resources to work on systemic advocacy projects. For immediate interventions and advocacy projects, systemic analysts research the issue and develop recommendations for IRS. For additional details about creating immediate interventions and systemic advocacy projects including a complete list of the criteria used to score systemic issues, see appendix II.

TAS also conducts systemic advocacy through participation in TAS and IRS research initiatives and task forces, hosting town hall meetings, conducting focus groups, and through TAS’s two required annual reports to Congress. One of the two reports, the annual report to Congress, hereafter referred to as the annual report, is due by December 31, and summarizes TAS’s activities during the prior fiscal year. It must include, among other things, a discussion of at least 20 of the most serious problems encountered by taxpayers and administrative and legislative recommendations for resolving taxpayer problems. For details about how the most serious problems are selected, see appendix IV. The other report, due by June 30 of each year, must identify the objectives of the Office of the Taxpayer Advocate for the fiscal year beginning in that calendar year.

Responsibility for the LITC Grant Program was transferred from W&I to TAS in May 2003. The IRS Restructuring and Reform Act of 1998 established the LITC Grant Program to help accredited academic institutions and nonprofit organizations represent low-income taxpayers in controversies with IRS and operate programs to inform individuals for whom English is a second language about their rights and responsibilities. TAS has responsibility for selecting LITC grant recipients and conducting site visits to ensure that LITCs are fulfilling their obligations. See appendix V for more information on the LITC Grant Program. TAS also has responsibility for overseeing the TAP, which was established in October 2002 under the Federal Advisory Committee Act as a way of improving IRS responsiveness to taxpayers’ needs. The panel, consisting of approximately 104 volunteers nationwide including every state, Puerto Rico, and the District of Columbia, provides input on IRS’s strategic initiatives and provides a venue for raising issues identified by citizens.

TAS’s budget is part of the overall IRS appropriation and does not have a separate line item in the budget. TAS resources are spread across three appropriations: processing, assistance, and management; tax law enforcement; and information systems.

TAS’s budget increased from about $135.4 million in fiscal year 2001 to about $170.3 million in fiscal year 2006. Over 86 percent of TAS’s fiscal year 2006 budget was for its case advocacy function, while the rest was split between systemic advocacy, the LITC Grant Program, TAP, and other expenses such as training, travel, and support. TAS’s full-time equivalent (FTE) staff years decreased slightly from 2,064 in fiscal year 2001 to 1,894 in fiscal year 2006. Table 1 summarizes TAS’s budget and staffing.

Growth in TAS’s Caseload since Fiscal Year 2004 Correlates with Increases in IRS Enforcement Activity

The growth in TAS’s caseload was not uniform over types of taxpayer problems, but was correlated with increases in IRS enforcement activity.

TAS’s Caseload Increased Significantly in Fiscal Years 2005 and 2006

After decreasing from fiscal years 2002 through 2004, TAS’s case receipts increased 43 percent from fiscal year 2004 to 2006, as shown in figure 3. Case receipts increased by 28,660 cases or 17 percent in fiscal year 2005 over fiscal year 2004 and another 45,021 cases or 23 percent in fiscal year 2006. Since fiscal year 2004, by comparison, TAS staffing decreased by 171 FTEs as was shown in table 1.

Figure 3 also shows that the number of cases that TAS closed each year followed a similar pattern as case receipts, with declines in fiscal years 2002–4 and increases in fiscal years 2005 and 2006. In the earlier years the closure rate exceeded the number of cases coming in, so TAS was decreasing its backlog of cases. In fiscal years 2005 and 2006, however, TAS closed fewer cases than it received, and its backlog of cases increased by around 7,500 cases in each of those years. TAS officials said that the growing number of cases is posing a challenge to staff, but that the challenge has not become overwhelming.

The growth in TAS’s caseload after fiscal year 2004 varied across types of taxpayer problems. (TAS tracks taxpayer problems by assigning one of 114 primary issue codes to each case. Specific issue codes include processing an original or amended return, lien release, and stolen identity. See app. VI for a full breakdown of cases by issue code for fiscal years 2002 through 2006.) Furthermore, the percentage of each type of issue, in terms of total caseload, varied over time. Data on taxpayer issues showed the following: The growth in caseload was distributed across many issues with 7 issues increasing by more than 1,000 cases in fiscal year 2005 and 17 doing so in fiscal year 2006. (See app. VII for a breakdown of issues that increased by more than 1,000 cases in fiscal years 2005 and 2006.)

The growth in caseload was not uniformly distributed by issue over time.

None of the 5 issues with the greatest growth in fiscal year 2005 were among the top 5 in fiscal year 2006. Also, the most common issue in both fiscal year 2005 and 2006, criminal investigation (CI), increased substantially in fiscal year 2005, but declined in fiscal year 2006.

Total caseload was distributed over many issues with no single issue accounting for more than 8 percent of the total in fiscal year 2006. For example, although CI was the largest issue in fiscal years 2005 and 2006, it accounted for only 14 percent of cases in fiscal year 2005 and 8 percent in fiscal year 2006.

The issues with the highest number of cases varied from year to year. Of the 5 issues with the highest number of cases in fiscal year 2002, only 2 remained in the top 5 in fiscal year 2006.

Growth in TAS’s Caseload since Fiscal Year 2004 Was Correlated with Increases in IRS Enforcement Activities and Specific Enforcement Programs

According to the Advocate, the majority of the increase in TAS’s caseload in fiscal years 2005 and 2006 was due to an increase in IRS enforcement activities. For example, the National Taxpayer Advocate’s 2007 Objectives Report to Congress states that “The impact of the IRS’s substantial increases in enforcement activities is evident in the corresponding increase in TAS Taxpayer Delinquent Investigation, Levy, and Automated Underreporter case receipts.” Data from TAS and IRS are consistent with this argument, showing a correlation between increases in TAS’s caseload and increases in IRS’s overall enforcement activities since fiscal year 2004. The data also show correlations between the growth in particular IRS enforcement programs and the corresponding TAS issues.

However, IRS’s enforcement programs were also growing between fiscal years 2002 and 2004, a time when TAS’s caseload was shrinking. A senior TAS official said that increases in IRS enforcement were leading to new TAS cases in fiscal years 2002–4, but that the increases in caseload were more than offset by declines for other reasons. For example, the official stated that in 2000–1, TAS was still clearing out a backlog of taxpayer problems from the late 1990s and new problems were also arising from confusion stemming from the major reorganization of IRS from divisions based on processes to divisions based on types of taxpayers being served. As TAS dealt with the backlog of cases and as the IRS reorganization was completed, the number of cases fell. Data for testing this explanation were not available.

Overall, IRS enforcement activities have been increasing, as shown by the number of individual examinations in figure 4 and the amount of enforcement revenue collected in figure 5.

At the same time, the majority of the growth in TAS’s caseload was due to issues that are enforcement related, as shown in table 2. Table 2 combines TAS’s 114 types of taxpayer issues into a few broad categories. Categories that consist largely of enforcement issues, as shown by the shaded rows in the table, accounted for over half of the growth in TAS caseload between fiscal years 2004 and 2006. Moreover, there are also enforcement-related issues in other categories. For example, a case that TAS classifies as “document processing” may involve a taxpayer having trouble filing an amended return after an audit.

The correlation between TAS caseload growth and IRS enforcement increases can also be seen for particular enforcement actions. The two types of TAS cases that increased the most—CI cases in fiscal year 2005 and levy cases in fiscal year 2006—are examples. While we could not verify that there was a causal relationship between IRS activity and TAS caseload, for CI and levy cases, we found a positive correlation. The number of CI refund freezes increased by 23 percent in fiscal year 2005 over fiscal year 2004 and at the same time the number of TAS CI cases increased by roughly 71 percent, as shown in figure 6. In December 2005, the Advocate issued a report critical of the number of taxpayers whose refunds were frozen and then later released, as well as the lack of information given to taxpayers about the status of their refund in these cases and the number of years that freezes are in effect. CI officials said that they subsequently made significant changes to the program in early 2006, freezing fewer refunds in 2006 and issuing fewer multiyear freezes. TAS and CI officials said that this likely caused the number of taxpayers seeking TAS assistance for refund freezes to decrease. While data on the number of CI refund freezes for fiscal year 2006 were not yet available when we completed our work, the number of TAS CI cases decreased by 25 percent that year.

Similarly, as shown in figure 7, the number of IRS levy cases increased between fiscal years 2002 and 2005, including a 35 percent increase in fiscal year 2005 over fiscal year 2004. The number of TAS levy cases also increased by 27 percent in fiscal year 2005 over fiscal year 2004.

Although there is a correlation between growth in overall IRS enforcement activity and growth in TAS caseload, as well as a correlation between growth in some specific IRS programs and corresponding TAS issues, the correlation does not always hold. For example, as shown in figure 8, the number of TAS lien cases increased by 27 percent in fiscal year 2005 while the number of IRS liens decreased by 2 percent.

Other Factors Have Also Been Cited as Contributing to TAS’s Increased Caseload

As previously shown in table 2, non-enforcement-related TAS cases also increased since fiscal year 2004. TAS officials said that increased TAS outreach and external factors, such as taxpayers with problems related to the disruptions caused by Hurricane Katrina and changes in the overall economy, contributed to the caseload increase.

IRS officials and others also said that changes made to TAS’s case acceptance guidance may have contributed to TAS’s caseload increase. However, our analysis of TAS data does not support this. The Advocate made changes to TAS’s case acceptance guidance twice since fiscal year 2004, which is when TAS’s caseload started to increase. On January 13, 2005, the Advocate issued an internal memorandum to all TAS staff called “Common Sense and Good Judgment in Case Processing.” According to the Advocate, the memo did not change the criteria but sought to clarify the criteria and ensure that staff were not creating unnecessary obstacles for taxpayers seeking TAS assistance. In January 2006, TAS implemented an expanded version of its case acceptance criteria. The revisions included slight modifications to some of the existing criteria and the creation of criteria 8 and 9.

The January 2005 memorandum clarified that TAS should accept all cases (1) where a taxpayer specifically requests TAS assistance and (2) that were referred from IRS even if the case does not meet TAS’s case acceptance criteria to avoid sending the taxpayer back to IRS. According to the memorandum, in these situations, the case should be classified as meeting criteria 7—a system or procedure failed to operate as intended or failed to resolve the taxpayer’s problem. Therefore, if following the memorandum contributed to the increase in TAS’s caseload, we would expect to see a disproportionate increase in criterion-7 cases. However, criterion-7 cases did not increase disproportionately in 2005 and 2006, rather the number of these cases grew at a slower rate than other cases, as shown in table 3. Furthermore, the changes made by TAS in January 2006 did not significantly affect TAS’s caseload given that the two added criteria resulted in just over 500 of the approximately 244,000 cases received in fiscal year 2006.

Taxpayers Report Being Satisfied, and Quality Improved in Most Years, but TAS Lacks Measures of Efficiency and Cost

TAS tracks its case advocacy performance in several dimensions. Two of TAS’s performance measures, customer satisfaction and case quality, meet all of the criteria that GAO developed as attributes of successful performance measures. However, its employee satisfaction survey suffers from a declining response rate and TAS does not measure some important dimensions of performance such as cost per case.

Taxpayers Report Being Satisfied, and Case Quality Improved since Fiscal Year 2002 with a Slight Decline in Fiscal Year 2006

TAS case advocacy performance measures include measures of customer satisfaction, case quality, and employee satisfaction. Table 4 shows TAS’s performance against its goals for fiscal years 2002–6.

Taxpayers who have used TAS have consistently reported being satisfied to very satisfied since fiscal year 2002, as shown by the customer satisfaction survey results in table 4. TAS determines customer satisfaction through an independent and confidential telephone survey process to gauge the opinions of a random selection of taxpayers and their representatives who had recently closed cases. The survey uses a five- point scale where 5 represents “very satisfied” and 4 represents “somewhat satisfied.” TAS’s customer satisfaction scores varied only slightly from fiscal years 2002 to 2006 with customers remaining on average somewhere between somewhat satisfied and very satisfied. As shown in table 4, there was only a small amount of change in this measure from year to year, and only a small difference between actual performance and the goals for fiscal years 2005 and 2006. For additional information on TAS’s customer satisfaction results, see appendix VIII.

TAS’s case quality improved between fiscal years 2002 and 2004 (the changes are statistically significant) and then leveled off, also shown in table 4. The slight increase in 2005 and the slight decline in 2006 are not different in a statistically significant sense from the 2004 results. As shown in table 4, TAS met its case quality goals for 2004 and 2005 but did not do so in 2006. To calculate the quality index, TAS randomly selects cases each month and measures them against eight quality standards. These standards are meaningful in that they cover aspects of quality—timeliness and technical correctness, for example—that IRS has found important to measure in other contexts, such as telephone service. The eight standards and their point values are shown in table 5.

In the past, TIGTA has raised issues with TAS’s timeliness and has made recommendations that TAS take additional steps to improve timeliness. TIGTA based its findings on a review of a sample of cases. Although the Advocate disagreed with TIGTA’s conclusions on specific cases, the Advocate agreed to make changes to improve timeliness by introducing two types of case management reviews. The first type is an early intervention review where a TAS manager must be involved in a minimum of 25 percent of open cases within 10 calendar days from the received date for criteria 1–4 cases and within 30 calendar days for criteria 5–9 cases. The second type of review is a 100-day review where a manager must review all cases that have been open for 100 days within 15 days of reaching the 100-day mark, and a minimum of once every 60 days thereafter. According to the Advocate, these reviews help ensure that cases are resolved in a timely manner. TAS’s efforts to improve timeliness are reflected in three timeliness standards that are part of the TAS quality standards shown in table 5. For example, the score for timeliness standard number 3, “Did TAS take all subsequent actions timely?” increased from 81.5 percent in fiscal year 2004 to 86.5 percent in fiscal year 2005. Also, TAS improved on the average number of days it takes to close a case, which declined from 67.6 in fiscal year 2003 to 51.2 in fiscal year 2006.

Employee satisfaction increased from fiscal year 2002 to 2004 but the results for 2005 and 2006 (all shown in table 4) may not be accurate because of declining survey response rates. TAS determines employee satisfaction through an annual IRS-wide survey conducted by an independent organization using a five-point scale where 5 represents “extremely satisfied.” In fiscal years 2002 through 2004, 80 percent or more of TAS employees responded to the survey while only 48 percent and 33 percent responded in fiscal years 2005 and 2006 respectively. Survey response rates also declined throughout IRS during this period. Response rates this low may bias the results if nonrespondents have different opinions than respondents.

The measures of customer satisfaction and case quality on which the previous description of case advocacy performance is based are sound, according to criteria we have previously used for assessing IRS’s performance measures. These two measures have all the attributes of successful measures as shown in table 6, including clarity, objectivity, and reliability. While it is conceptually sound to measure employee satisfaction with a survey, as already discussed, the employee satisfaction measure does not satisfy the objectivity and reliability criteria because of the possibility of nonresponse bias in the survey in recent years.

This attribute applies to the overall suite of measures. IRS considers these measures to be balanced since they address priorities such as employee and customer satisfaction and business results. However, additional measures such as cost of service could improve the balance of TAS priorities.

TAS Does Not Measure True Case Advocacy Efficiency or Cost

TAS has an additional case advocacy measure called “efficiency” but it does not measure efficiency as conventionally defined. Nor does TAS have a measure of cost per case. The efficiency measure, which TAS defines as the percentage of total case receipts that are procedural burden cases (cases accepted under criteria 5–7) is missing important attributes of a successful performance measure, including linkage and clarity. TAS is working to develop processes to capture components of a meaningful case advocacy efficiency measure, which will be useful for the development of a useful efficiency measure in the future.

TAS’s case advocacy efficiency measure is not linked to TAS’s case advocacy mission. According to the Advocate, TAS developed its efficiency measure with the thought that the percentage of procedural burden case receipts should eventually decrease as IRS fixes systemic problems in response to TAS’s systemic advocacy efforts. However, the current TAS measure is really a measure of systemic advocacy effectiveness rather than case advocacy efficiency. The Office of Management and Budget (OMB) agrees. OMB’s Program Assessment Rating Tool (PART) review described TAS’s efficiency measure as a proxy measure for TAS’s success in helping IRS fix systemic problems. However, it provides only limited information on the success of TAS’s systemic advocacy mission because it is sensitive to a number of outside factors unrelated to TAS activities. For example, the number of procedural burden cases could increase because of an increase in new IRS errors, regardless of how well TAS had identified corrections for earlier systemic problems.

In addition, TAS’s efficiency measure lacks clarity because it is not a true measure of efficiency. Simply put, efficiency is the ratio of the outcome or output to the input of any program. TAS’s efficiency measure includes no information on inputs into the program, such as time, and does not adequately measure output.

To develop a true measure of case advocacy efficiency, TAS would need information on case advocacy outputs, such as the number of cases closed, and inputs—primarily the amount of time spent on those cases.

Currently, TAS managers do not have information on inputs because TAS does not track the amount of time spent working each case; however, TAS plans on implementing a method to track time in January 2007. TAS would also need to adjust the number of cases closed for the complexity of the cases and the quality of the work. In a past report, we said that efficiency measures that are not adjusted for quality and complexity could yield misleading information. For example, an increase in cases closed per case advocate would not be a true increase in efficiency if cases were becoming less complex.

According to TAS officials, cases have been becoming more complex in recent years; however, we could not verify this because TAS only has a limited way to measure complexity. At this time, TAS classifies cases as routine or complex. However, TAS is in the process of developing a more sophisticated method for determining case complexity. TAS is currently testing a model for determining the complexity of a case and plans on making changes to TAMIS in order to collect complexity data. A more sophisticated complexity index should provide the ability to adjust case output to reflect changes in complexity over time.

TAS also does not have information on the cost of working each case, preventing interpretation of efficiency information in light of cost effectiveness. Having data on the cost of each case would allow TAS managers, and external stakeholders, to make better decisions about where to allocate both TAS’s case advocacy resources and systemic advocacy efforts. Without such data, TAS managers do not know if some categories of taxpayer issues are noticeably more costly to resolve than others. The high cost of case advocacy might become a factor in deciding how to prioritize systemic advocacy efforts. OMB also recommended in its PART report that TAS introduce a case advocacy unit cost measure. TAS officials indicated that they will start collecting unit cost data once they implement a method for tracking time on case.

TAS and IRS Are Working Jointly to Improve Coordination

As discussed in the Background section, TAS has limited authorities to take action on some cases. When TAS does not have authority to take action on a case, it must request that IRS take the action through an Operations Assistance Request (OAR). TAS and IRS operating divisions have agreements in place that govern the OAR process. Several IRS and TAS officials identified coordination problems regarding the OAR process that could delay the resolution of taxpayer problems. Some of the problems that IRS officials identified include the following: TAS sends OARs when TAS could have resolved the case using their authorities or conversely TAS takes the action when they should have sent an OAR.

TAS does not always do the necessary research or collect the necessary documentation before sending an OAR. OARs have to either be mailed or faxed. TAS routes OARs to the incorrect area. TAS accepts cases that do not meet its criteria or where the taxpayer has not taken the necessary steps to resolve his or her problem with IRS, which increases OAR volume and circumvents normal case processing.

Some TAS officials also reported some confusion over the OAR process. For example, officials stated that it is not always clear what documentation is required and the procedures for taking certain actions in the Internal Revenue Manual are vague, leaving room for interpretation. The Advocate’s 2007 Objectives Report to Congress stated that it is a challenge for TAS employees to identify when an OAR should be sent, given the continuing state of change in IRS operating division personnel and procedures. These types of issues could lead to IRS rejecting more OARs, which causes delays for the taxpayer and unnecessary rework for TAS and IRS.

The Advocate plans to take actions to reduce the number of rejected OARs, including identifying TAS and IRS operating division training needs, improving the clarity of the IRM, and working with IRS operating divisions to ensure TAS routes OARs to the right place. TAS is also working with IRS operating divisions to develop a method to send OARs electronically.

TAS has taken actions to deal with past issues related to TAS-IRS coordination. In 2002, TIGTA found that TAS employees were taking actions on taxpayer cases that were outside of their authority. In response to TIGTA’s findings, the Advocate agreed that there was confusion about the scope of TAS authorities and outlined corrective actions TAS had taken. As part of those actions, TAS provided additional training and modified the case quality review to include an accuracy standard that ensures actions taken are technically and procedurally correct and within TAS’s authorities. TAS is looking for ways to improve the quality review and one of the proposals is to isolate the OAR process during the review so that they can better identify gaps in the OAR process. Senior TAS officials have provided the Advocate with recommendations for improving the quality review.

IRS and TAS are also currently reviewing the need to change TAS’s authorities. The Advocate said that she supports certain additional authorities, but only those that do not undermine the unique responsibility of TAS, namely, advocating for the taxpayer inside the IRS. The Advocate said that she is concerned that her role may become blurred if she is asking IRS to take an action while simultaneously possessing authority to take the same action directly. Furthermore, the Advocate said that there are benefits to having the IRS confront taxpayer issues and become aware of recurring issues, which may not happen if TAS had the authority to make the changes itself without IRS involvement.

TAS Does Not Measure the Effectiveness of Systemic Advocacy, and Reporting on Systemic Issues Is Not as Useful as It Could Be

TAS’s systemic advocacy efforts have the potential to benefit large numbers of taxpayers. However, since TAS is just beginning to pilot a process to measure the effectiveness of its systemic advocacy efforts, TAS, IRS, Congress, and other stakeholders do not know how successful TAS is at accomplishing its systemic advocacy mission.

TAS Is Piloting Process to Measure the Effectiveness of Systemic Advocacy

TAS is piloting a process to analyze a few systemic issues in depth to assess progress in correcting underlying problems, but does not have a process for measuring systemic advocacy effectiveness more broadly. TAS worked with W&I to develop a process for using information from TAMIS and SAMS, feedback from TAS case workers on new problems observed in TAS cases, and input from the TAP to identify top systemic issues. TAS and the operating divisions will then collaborate to identify the root causes of those issues, implement needed changes to IRS procedures and systems, and assess whether progress is being made in correcting the underlying problems. If TAS management decides that the number of occurrences has been sufficiently reduced, the issues will be replaced by others. TAS is now piloting this process.

In August 2006, TAS used TAMIS data to identify the top issues. TAS and W&I officials agreed to address the issue of problems related to processing amended returns. If the pilot is successful, TAS plans to concurrently apply the process to three additional issues, replacing each one as the incidence of the issue has been sufficiently reduced. By using data to identify issues, testing to determine progress in addressing issues, and piloting the new process before determining if it should become standard procedure, TAS has taken the first steps towards developing a system to measure the effectiveness of its systemic advocacy activities.

While gathering in-depth information about a few systemic advocacy issues is important, this approach will not provide TAS managers, IRS, or Congress with an assessment of TAS’s systemic advocacy efforts more broadly. Using information from TAMIS on the types of new issues coming in from individual taxpayers and the systemic projects being suggested through SAMS, TAS managers could develop measures of the extent to which systemic issues are recurring, which would in turn, provide a measure of TAS success in identifying and addressing the root causes of these problems. Past reports by the IRS Oversight Board, TIGTA, and GAO have also noted the need for TAS to have better information about systemic advocacy effectiveness.

Annual Report to Congress Omits Important Information about Whether Systemic Issues Were Addressed

The National Taxpayer Advocate’s annual report to Congress does not include adequate information about steps taken to address systemic issues, either new issues or issues raised in the past. IRS managers and other interested parties, including Congress, need this information to know whether issues have been addressed to TAS’s satisfaction and whether additional steps need to be taken.

Report Does Not Include the Status of All Legislative Recommendations

The annual report does not provide a way to track the status of TAS’s legislative recommendations. A table is included in the annual report but it provides only limited information (see table 7 for a copy of the 2005 table). We found that the table does not provide potentially useful information, making it difficult to determine what has happened as a result of a specific legislative recommendation. For example, the table does not list all past recommendations, listing only recommendations for which the current Congress took some action, omits information about actions taken by prior Congresses either on the listed recommendations or on previous recommendations, does not include summaries of the recommendations or how the recommendations are addressed by proposed legislation, and does not show the date of the recommendations it includes.

Each annual report includes information on actions IRS has taken or intends to take related to the most serious systemic problems covered in that report. The annual reports do not include such information related to the problems included in previous annual reports. By not including this information, it is difficult to determine which problems have been addressed and are no longer serious problems, and what actions, if any, have been taken or remain to be taken to address a particular problem.

TAS sent the recommendations included in the 2004 and 2005 annual reports to IRS. IRS provided information about the actions it had taken for the 2004 recommendations and, as of November 2006, was in the process of providing TAS with similar information for the 2005 recommendations. TAS officials said they plan to include an update of IRS actions in response to recommendations made in the annual reports and that this update may be included in the annual report or posted on the TAS Web site.

TAS Does Not Explain Why Most Serious Problems Are Different Each Year

By law, the annual report must include a summary of at least 20 of the most serious problems encountered by taxpayers. These do not have to be the 20 worst problems, however, and the Advocate is free to list different problems from year to year. The annual report does not explain this, however, and it does not explain what happened to the problems in the earlier reports. As a result, readers may have the impression that the problems described in an annual report are the top problems facing the taxpayers that year. Also, when a problem is included in one year’s annual report and not in the next, readers may mistakenly think that the problem has been resolved.

A discussion of prior serious taxpayer problems may be helpful to IRS stakeholders, including Congress, because the problems cited by TAS vary from year to year. For example, of the 21 most serious problems included in the 2005 annual report, only 4 were included in any of the prior three reports, as shown in table 8.

In addition, TAS’s analysis of the most serious problems included in the 2005 annual report showed that nine problems had not been specifically addressed in previous reports while the remaining problems were related to serious problems included in previous annual reports. For example, a serious problem included in the 2005 annual report was entitled “trends in taxpayer service” while a problem in the 2003 report was entitled “taxpayer assistance centers” and a problem in the 2004 report was entitled “taxpayer access: face-to-face interaction.”

The Advocate said that it is a balancing act each year to decide which taxpayer problems to include. She said that TAS should not issue an annual report that repeats many taxpayer problems from year to year because the annual report is the primary way that TAS informs Congress and the public about systemic problems. As there are more than just 20 problems facing taxpayers, reporting on new problems every year is the best approach. Other TAS management officials expressed similar viewpoints.

In addition, as previously described, the Advocate must also prepare another report that identifies TAS’s objectives for that year. According to the Advocate, she uses the objectives report as TAS’s strategic plan and the report gives her a midyear chance to discuss the effect of IRS initiatives on taxpayers. The Advocate believes both reports are important and if they were combined, she would lose a communication tool that allows her to keep Congress informed about problems taxpayers are encountering and TAS’s plans to mitigate those problems.

Conclusions

Congress established TAS to help taxpayers with problems that were not resolved through normal IRS channels as well as to reduce the number of such problems through systemic advocacy. The recent increase in TAS caseload may raise questions about the effectiveness of TAS systemic advocacy at preventing new taxpayer problems from arising. However, the available data—particularly the varied makeup of TAS’s taxpayer cases from year to year—suggest that the increase in caseload may not be an indicator of TAS and IRS performance at preventing taxpayer problems but be due to other factors such as increases in IRS enforcement activities or changes in the economy. As IRS’s enforcement actions have changed over time, so has the nature of the problems taxpayers bring to TAS. As certain problems have been reduced in number, other problems have taken their place.

On the other hand, conclusions about the effectiveness of both case and systemic advocacy are necessarily limited by a lack of some performance information. Without measures of case advocacy efficiency and cost, TAS management lacks information potentially useful for managing its case advocacy staff and prioritizing its systemic advocacy efforts. Understanding efficiency is especially important in light of the challenge posed by a growing caseload. Without a broad-based measure of the effectiveness of systemic advocacy, TAS, IRS, and Congress lack information about whether efforts to prevent taxpayer problems, rather than resolve them after they arise, are achieving any success. Similarly, TAS’s current reporting leaves key information about the status of the issues it raises and IRS and congressional responses to past recommendations unmentioned. TAS may have options about the best way to provide more complete information to Congress and the public and to do so does not necessarily mean adding to the length of the annual report. For example, it might be preferable for TAS to use the Internet to make available tables listing both current and past recommendations and summarizing IRS and legislative actions to date. We note that TAS is already considering posting to its Web site the actions IRS has taken to address the recommendations related to the most serious problems in the 2004 annual report.

Recommendations for Executive Action

We recommend that the National Taxpayer Advocate improve TAS case advocacy performance measures with the addition of a true measure of efficiency that incorporates case complexity and quality and a cost measure; supplement the detailed information on specific systemic advocacy issues currently being developed with a broad measure of the effectiveness of systemic advocacy; and improve TAS reporting by (1) describing actions taken in response to TAS legislative recommendations, (2) describing actions taken by IRS to address the most serious problems encountered by taxpayers, and (3) making it clear that the most serious problems included in the annual report to Congress are at least 20 of the most serious problems but not necessarily all of the top problems faced by taxpayers.

Agency Comments and Our Evaluation

The National Taxpayer Advocate provided written comments on a draft of this report in a February 12, 2007, letter which is reprinted in appendix IX. The Advocate agreed with our recommendations. Her letter notes that TAS already collects quality data which will be needed to develop an efficiency measure, has taken the first steps to collect case complexity and time spent on cases to be used to develop cost data, and has submitted work requests to collect additional case complexity and time spent on case data. Her letter says that TAS will then use this data to develop a method for measuring case advocacy efficiency. She also noted that TAS recognizes the value of a broad measure of the effectiveness of systemic advocacy and said that TAS will develop one. TAS is implementing an enhanced process to monitor actions taken in response to TAS legislative recommendations and the outcomes will be included in the annual report to Congress and be posted on the TAS web site. TAS will monitor the status of recommendations included in the annual report that address serious problems and post the results semiannually on the TAS web site. TAS included language in the 2006 annual report to Congress to clarify that the most serious problems included in the report are at least 20 of the most serious problems but not necessarily all of the top problems faced by taxpayers.

We also provided a draft of this report to the Commissioner of Internal Revenue for his review and comment. The draft report did not include any recommendations addressed to the Commissioner. The IRS Office of Legislative Affairs provided informal technical comments, and we incorporated them as appropriate.

As agreed with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after its date. At that time, we will send copies of this report to the National Taxpayer Advocate, the Secretary of the Treasury, the Commissioner of Internal Revenue, and other interested parties. This report is available at no charge on GAO’s web site at http://www.gao.gov.

If you or your staffs have any questions, please contact me at (202) 512- 9110 or whitej@gao.gov. Key contributors to this report were David Lewis, Assistant Director; Shellee Soliday; Lindsey Houston; John Mingus; Shirley Jones; and Jennifer Gravelle.

Appendix I: Objectives, Scope, and Methodology

Our first objective was to determine why the Taxpayer Advocate Service’s (TAS) caseload increased since 2004. To address this objective, we reviewed the case advocacy process; TAS’s case acceptance criteria, changes made to the criteria by TAS, and TAS guidance for applying the criteria; the legal requirements for TAS’s case acceptance criteria; TAS documents that included discussions of why their caseload was increasing, and the fiscal years 2002–5 National Taxpayer Advocate’s annual reports to Congress, hereafter referred to as the annual report. We analyzed TAS caseload data from the Taxpayer Advocate Management Information System (TAMIS) for fiscal years 2002–6. To conduct our analyses, we associated cases with the fiscal year in which they were opened. Also, for cases that TAS closed and subsequently reopened, all of our analyses relate to the original case. To assess the reliability of the TAMIS data, we reviewed TAS documentation, conducted interviews with key officials, and conducted electronic testing of key variables. Based on this work, we determined that the TAMIS data were sufficiently reliable for our purposes. We also analyzed data related to Internal Revenue Service (IRS) enforcement activities for fiscal years 2002–5 that were included in the IRS Data Books or obtained from IRS officials. We interviewed several TAS officials including the National Taxpayer Advocate, hereafter referred to as the Advocate, the Executive Director of Case Advocacy, the Acting Director of Management Accountability, Policy and Strategy, and Local Taxpayer Advocates in three state offices and one campus office. We also interviewed Wage and Investment (W&I), Small Business/Self Employed (SB/SE), and Criminal Investigation (CI) officials to obtain their views about why IRS referrals to TAS were increasing.

Our second objective was to determine how well TAS conducted its case advocacy activities in terms of measures such as customer satisfaction and quality. To address this objective, we reviewed TAS’s performance measures for case advocacy; TAS’s performance results and targets for fiscal years 2002–6; TAS’s fiscal year 2002–5 annual reports; previous GAO reports on performance measures and other performance measure literature; and the Office of Management and Budget’s (OMB) 2004 Program Assessment Rating Tool (PART) report that discussed TAS’s measures. We assessed TAS’s performance measures using criteria previously established by GAO. We interviewed TAS officials, including the Advocate and the Executive Director of Case Advocacy. We also interviewed W&I, SB/SE, and CI officials to obtain their views about coordinating with TAS to resolve taxpayer cases. In addition, we reviewed the Treasury Inspector General for Tax Administration’s (TIGTA) report on the timeliness of TAS’s case advocacy process and GAO’s report on restructuring the Office of the Taxpayer Advocate, which included an evaluation of the adequacy of the Advocate’s measures.

Our third objective was to determine how well TAS measures and reports its systemic advocacy efforts. To address this objective, we reviewed TAS’s performance measures for systemic advocacy to determine if they addressed the effectiveness of systemic advocacy. We interviewed TAS systemic advocacy officials including the Executive Director for Systemic Advocacy, Acting Director of Systemic Advocacy Projects, Director of Immediate Interventions, the Project Manager for the Annual Report to Congress, and the Senior Advisor to the National Taxpayer Advocate and the Annual Report to Congress. In addition, we reviewed OMB’s report that summarized the results of its use of PART to assess TAS for the year 2004, TIGTA’s report on the effectiveness of systemic advocacy efforts, and GAO’s report on restructuring the Office of the Taxpayer Advocate to identify any issues raised related to measuring systemic advocacy activities. We reviewed the 2002–5 annual reports to determine what information they included about actions taken to address systemic issues identified in them. We focused on the annual reports to Congress since they are the primary method used by TAS to report on systemic advocacy efforts. In addition, we reviewed the legal requirements for the annual report and the Department of the Treasury report that summarized the actions TAS took to address the recommendations included in a 2003 Treasury Inspector General for Tax Administration report related to the management of systemic advocacy.

We performed our work from September 2005 through December 2006 in accordance with generally accepted government auditing standards.

Appendix II: Process for Creating Immediate Interventions and Systemic Advocacy Projects

Immediate Interventions

Taxpayer Advocate Service (TAS) systemic advocacy staff analyze systemic issues to determine if they meet the definition of an immediate intervention. Immediate interventions are administrative issues which cause immediate, significant harm to multiple taxpayers and demand an urgent response. Also, the issues have clear sources; are highly visible and sensitive locally, areawide, or nationally; and require that a resolution be identified within 3–5 calendar days. The staff does not have written guidance for determining if an issue meets the definition and instead use factors such as their knowledge of Internal Revenue Service (IRS) operations and problems taxpayers are having with IRS to assess whether the issues meet the definition.

If the systemic advocacy staff determines an issue meets the definition of an immediate intervention, they elevate the issue to the Director of Immediate Interventions who decides on whether to create an immediate intervention. If an intervention is not created, then the staff applies the TAS criteria used to determine if an issue should become a systemic advocacy project. These criteria are described in the following section.

An example of TAS’s use of the immediate intervention process was when a taxpayer submitted an issue to TAS’s Systemic Advocacy Management System (SAMS) describing an experience while using a publicly shared computer at a library to access www.irs.gov. The taxpayer used the computer to complete and download IRS forms. After signing off and exiting the Web site, the taxpayer’s personal information remained on the computer. TAS immediately raised the issue to the level of an immediate intervention due to the sensitive nature of the issue and the potential disclosure of taxpayer information via the external IRS Web site. TAS worked with other offices within IRS and the software vendor to correct this problem.

Systemic Advocacy Projects

TAS systemic advocacy staff use written criteria to score each systemic issue that does not become an immediate intervention. The scores are used to determine which issues will become systemic advocacy projects. Such issues are systemic and affect a segment of taxpayers; require study, analysis, recommendations, and action to effect positive results; involve systems, processes, procedures, or legislation; and involve more than one taxpayer.

TAS systemic advocacy staff use the following 14 criteria, which are divided into five categories, to score the issues.

Extent of the problem: The following three factors help determine how widespread a problem may be. The greater the number of taxpayers potentially affected, the more widespread the problem, and the greater the frequency of occurrence, the more criteria points awarded. Potential volume of taxpayers affected within the identified segment (i.e., individuals, small businesses): Of the taxpaying population within the identified segment, how many could be affected by this issue? Designate as high, medium, or low the number of affected taxpayers relative to the overall segment of taxpayers.

Geographic scope: Does the issue affect taxpayers across the nation (national), in clustered areas (area, region), or only in certain places (local)? Issue frequency: Does the issue happen on a recurring or cyclical basis, on a limited or sporadic basis, or only one time?

Interest/visibility/sensitivity: The following three factors help determine the amount of interest, visibility, or sensitivity associated with the problem. The higher the level of congressional, community, and media interest or support, the more criteria points awarded. Congressional interest/support: How much support or interest has Congress expressed about this issue? Did the support or interest come from one member’s office or is it widespread in the House or Senate or both (high, moderate, or low)?

Community/external stakeholder interest/support: How much support or interest have external stakeholders expressed about this issue? Was the support from one specific group (i.e., AARP) or spread across various sectors such as accountants, lawyers, and other special interest groups (high, moderate, or low)?

Media interest/publicity: How much interest have the media shown in this issue? What level of coverage does this issue rate (high, moderate, or low)?

Taxpayer burden: The following four factors help determine the level of burden placed on the taxpayer trying to resolve the issue from the taxpayer’s point of view. The more effort, time, and money required to straighten out the problem, the more criteria points awarded. If taxpayers are treated disparately, the issue is awarded criteria points. How long to resolve: How long does it take, from the taxpayer’s perspective, to resolve this issue? The choices range from “less than 3 months” to “greater than 1 year.” The longer it takes, the more points are awarded.

Effort: How much effort is required, from the taxpayer’s or other stakeholder’s perspective, to resolve this issue (minimal, moderate, or significant? The more effort it takes to resolve the issue, the more points are awarded.

Financial: What is the financial effect on the taxpayer excluding tax, penalties, and interest (minimal, moderate, or significant)? Factors include issues such as the cost of representation, whether the taxpayer has money available for this expense, the cost of repeated photocopies or express mail for documentation, and so on.

Fairness: Is this taxpayer treated disparately compared to other taxpayers? If the taxpayer is treated fairly, the issue is not awarded criteria points. If the taxpayer is not treated fairly, the issue is awarded criteria points.

Taxpayer rights: The following two factors help determine how the problem affects taxpayers’ rights. If rights are negatively affected, or if rights are enhanced, the issue is awarded criteria points. Denial of taxpayer rights: Did the taxpayer have the opportunity to exercise a right or was he or she denied something that the taxpayer had the right to (i.e., privacy, collection, appeal)? If taxpayers’ rights are violated, the issue is awarded criteria points; otherwise no points are awarded.

Enhancement of taxpayer rights: Does this issue enhance taxpayers’ rights? If taxpayers’ rights are enhanced, the issue is awarded criteria points; otherwise no points are awarded.

Ability to effect change: The following two factors help identify issues that may not be resolved without TAS intervention. If the operating division is likely to implement a change without TAS influence, minimal criteria points are awarded. If TAS is likely to influence operating division actions or influence change, more points are awarded. Likelihood of independent operating division action: How likely is it that the operating division will fix the problem without TAS intervention? The higher the likelihood of independent action, the fewer criteria points awarded.

TAS ability to influence change: How likely is it that TAS will be able to influence the operating division to address the issue? The higher the likelihood of TAS influencing change, the more criteria points awarded.

When applying criteria, staff use their knowledge of IRS operations; information contained in IRS systems, obtained from IRS officials, or developed by IRS Research offices; and current events.

After the staff enter information into SAMS for each criterion, SAMS assigns a score. Each week, the staff then sends a list of scored issues to the Director of Immediate Interventions indicating which issues met or exceeded the current threshold for converting an issue into a systemic advocacy project. This threshold can change depending on available resources to work on systemic advocacy projects. The Director of Immediate Interventions, Director of Advocacy Projects, and the systemic advocacy portfolio managers review the issues and decide which will become systemic advocacy projects.

An example of a systemic advocacy project was the tip compliance project. The project stemmed from complaints from taxpayers and practitioners about the manner in which IRS was conducting tip compliance examinations. Problems included, among others, inconsistent requirements for substantiating income, insistence that original tip diaries be sent to IRS, and refusal to provide detail supporting any IRS adjustments. The issue potentially affected a high number of taxpayers; was geographically national in scope; had high congressional, external stakeholder, and media interest; involved significant efforts by taxpayers to resolve the issue; and affected the equitable treatment of taxpayers, among other things, according to the scoring sheet used to rank the issue. TAS worked with Wage and Investment (W&I) and Small Business/Self Employed (SB/SE) staff involved in the examinations. TAS was able to resolve some of the issues at lower levels of W&I and SB/SE. For other issues, TAS submitted an Advocacy Proposal to the management of the Employment Tax Group within SB/SE. These SB/SE officials agreed to correct the issues TAS raised. TAS is monitoring these cases to make sure the problems are not experienced by other taxpayers.

Appendix III: Information to Be Included in the National Taxpayer Advocate’s Annual Report to Congress

The National Taxpayer Advocate is required to prepare an annual report that describes the Taxpayer Advocate Service’s activities for the previous year that shall contain full and substantive analysis, in addition to statistical information, and shall 1. Identify the initiatives the Office of the Taxpayer Advocate has taken on improving taxpayer services and Internal Revenue Service responsiveness. 2. Contain recommendations received from individuals with the authority to issue Taxpayer Assistance Orders under section 7811. 3. Contain a summary of at least 20 of the most serious problems encountered by taxpayers, including a description of the nature of such problems. 4. Contain an inventory of the items described in 1, 2, and 3 for which action has been taken and the result of such action. 5. Contain an inventory of the items described in 1, 2, and 3 for which action remains to be completed and the period during which each item has remained on such inventory. 6. Contain an inventory of the items described in 1, 2, and 3 for which no action has been taken, the period during which each item has remained on such inventory, the reasons for the inaction, and identify any Internal Revenue Service official who is responsible for such inaction. 7. Identify any Taxpayer Assistance Order which was not honored by the Internal Revenue Service in a timely manner, as specified under section 7811 (b). 8. Contain recommendations for such administrative and legislative action as may be appropriate to resolve problems encountered by taxpayers. 9. Identify areas of the tax law that impose significant compliance burdens on taxpayers or the Internal Revenue Service, including specific recommendations for remedying these problems. 10. Identify the 10 most litigated issues for each category of taxpayers, including recommendations for mitigating such disputes. 11. Include such other information as the National Taxpayer Advocate may deem advisable.

Appendix IV: Taxpayer Advocate Service Process for Selecting Problems to Include in the Annual Report to Congress

Prior to 2006, Taxpayer Advocate Service (TAS) systemic advocacy officials who prepared the annual report to Congress used input from the National Taxpayer Advocate, the Advocate’s advisors, local taxpayer advocates, and Taxpayer Advocate Management Information System (TAMIS) and Systemic Advocacy Management System (SAMS) data to identify serious problems that taxpayers were encountering. TAS officials considered several factors when developing the list including effect on taxpayer rights, the number or percentage of taxpayers affected, congressional interest, effect of noncompliance on tax administration or tax revenue, and barriers to taxpayer compliance. The Advocate and the systemic advocacy officials then met and developed a list of serious problems which was sent to the Internal Revenue Service (IRS) for comment. If IRS officials provided information that illustrated one of the proposed problems was not a serious issue, TAS dropped the issue. Systemic advocacy officials then prepared the final list of serious problems and the Advocate made the final decision on which problems were included in the annual report.

When preparing the 2006 annual report, TAS officials used essentially the same process, plus additional sources of information to identify the serious problems. First, TAS officials summarized an environmental scan of documents that described issues that taxpayers have with IRS. Examples of documents included newspaper articles, letters to the Commissioner of Internal Revenue, and a Department of the Treasury news release. Examples of issues included the alternative minimum tax and offers in compromise. Second, TAS officials analyzed the “most serious problems” included in the 2001–5 annual reports. This process involved ranking the problems as critical, high, medium, low, or resolved based on the steps IRS had taken to address them. Third, they reviewed information related to immediate interventions, task forces, operations assistance requests, and low-income taxpayer clinics. They combined these three sources of data with input from the Advocate, the Advocate’s advisors, and the local taxpayer advocates along with TAMIS and SAMS data in order to develop the proposed list of serious problems for the 2006 annual report. The Advocate made the final decision on which problems to include in the report.

Appendix V: Low-Income Taxpayer Clinic (LITC) Grant Program

Responsibility for the LITC Grant Program was transferred from the Wage and Investment division (W&I) to the Taxpayer Advocate Service (TAS) in May 2003. The LITC Grant Program helps accredited academic institutions and nonprofit organizations represent low-income taxpayers in controversies with IRS and operate programs to inform individuals for whom English is a second language about their rights and responsibilities. TAS has responsibility for selecting LITC grant recipients and conducting site visits to ensure that LITCs are fulfilling their obligations.

LITC grant applications go through a three-step selection process involving an eligibility screening, a technical evaluation, and a program office evaluation. To be eligible, grantees must offer services for free or for no more than a nominal fee and either represent low-income taxpayers in controversies with IRS or provide information to English as a second language (ESL) taxpayers about their rights and responsibilities as U.S. taxpayers. Next, a panel of TAS staff knowledgeable about the purpose and mission of LITCs conducts a technical evaluation of the eligible applicants. Panel members rank each LITC applicant based on four weighted criteria: the quality of their programs, their experience in sponsoring a clinic, the quality of their grant administration and accounting procedures, and the number of low-income or ESL taxpayers in the geographic area. Finally, LITC program staff conduct the program office evaluation during which they evaluate the rankings for inconsistencies or discrepancies. The LITC Program Office Director makes recommendations to the National Taxpayer Advocate who makes the final decision on who will receive the grants.

TAS conducts several types of site visits to LITC grantees. Someone from the LITC Program Office visits each new clinic during the first 6 months to educate them on program requirements and to verify operational requirements listed in the grant guidelines such as keeping taxpayer information in a secure location and developing and maintaining relationships with other community-based organizations in order to reach targeted audiences. There are three tiers of additional site visits. The first tier visit is conducted by the local taxpayer advocate and includes checking items such as are the clinic’s hours posted and easily visible, are brochures and posters visible, and does file security appear adequate. The second tier site visit is usually done by someone from the LITC Program Office and is more in-depth than the first tier visit. He or she reviews 30 items such as determining if the goals stated in the program plan are reflected in the program’s actual activities, client records are maintained in a confidential manner, and the clinic has a written process to control and monitor costs and expenditures. If as a result of the second tier visit, the staff member identifies issues that need further review, then the LITC Program Office Director conducts a third tier visit. During this visit, the Director reviews requirements including financial/Office of Management and Budget, personnel, and program requirements in addition to other items including standards of operation and ethical considerations. Third tier visits can result in freezing funds for a grantee.

For the 2006 grant cycle, TAS awarded $8 million in matching grants, ranging from $5,000 to $97,250, to 150 nonprofit organizations and accredited academic institutions. According to the National Taxpayer Advocate’s 2007 Objectives Report to Congress, during 2006, TAS expanded the coverage of clinics into rural and other areas where disadvantaged taxpayers had very limited access to assistance, funding 11 new clinics in areas that were underrepresented.

Appendix VI: Number of Taxpayer Advocate Service Cases by Primary Issue Code, Fiscal Years 2002–6

Civil Penalties other than Trust Fund Recovery Penalty (TFRP)

Unable to Pay–(Currently Not Collectible (CNC))

Multiple/Mixed Taxpayer Identification Number (TIN)

Offer in Compromise (OIC)–Doubt as to Collectibility Form W-7/Individual Taxpayer Identification Number (ITIN)/Adoption Taxpayer Identification Number (ATIN)

Scrambled Social Security Numbers (SSN)

Refund Statute (Refund Statute Expiration Date (RSED))

Other Technical, Procedural, or Statute Issues Application for Exempt Status (F1023/1024)

Individual Retirement Account (IRA) Penalty Carryback / Carryforward Claims (Net Operating Losses (NOL), F 1045/1139)

Streamlined IA (Unpaid Balance of Assessment under $25k and able to full pay in 60 months)

Collection Statute Expiration Date (CSED)

Form 843 (other than interest abatement)

Electronic Federal Tax Payment System (EFTPS)

Tax Exempt/Government Entity (TE/GE) (Employment Plans/Exempt Organizations (EP/EO)) Technical Formal Interest Abatement Request (F 843)

SS-4, Application for Employer Identification Number (EIN)

Invalid Social Security Number (SSN) (Primary / Secondary)

FPLP Levy-Office of Personnel Management (OPM) Retirement Income Alien Taxation Problems/inquiries regarding determinations of alien status for income tax purposes.

Exclusion of Foreign Earned Income Problems/inquiries regarding the exclusion of income.

Assessment Statute (Assessment Statute Expiration Date (ASED))

Collection Appeals Program (CAP) Appeals EITC Certification (Automated Underreporter)

Appendix VII: Types of Taxpayer Advocate Service (TAS) Cases That Increased by More than 1,000 in Fiscal Years 2005 and 2006

Appendix VII: Types of Taxpayer Advocate Service (TAS) Cases That Increased by More than 1,000 in Fiscal Years 2005 and 2006 Closed Under Reporter Program (URP)

Open Audit (Non Remittance Processing System, EITC)

Other Refund Inquiries / Issues Taxpayer Delinquent Return (TDI) – Substitute for Return (SFR) / 6020B Combined Annual Wage Reporting/Federal Unemployment Taxes “Other” consists of the remaining 114 issue codes that TAS tracks. These codes either increased by fewer than 1,000 cases or decreased.

Appendix VIII: Taxpayer Advocate Service Customer Satisfaction Survey Results

Appendix IX: Comments from the National Taxpayer Advocate