National Taxpayer Advocate (NTA) Nina E. Olson released her 37th statutorily mandated mid-year report to Congress. The report focused on funding to improve taxpayer assistance and a taxpayer’s appropriate use of self-service applications. The report also presents a review of the 2019 filling season.
Background. The TAS is an independent organization within IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. It is led by the NTA, who is required by statute to submit two annual reports to the House Committee on Ways and Means and the Senate Committee on Finance.
The first of these reports, submitted mid-year, identifies the objectives of the Office of the Taxpayer Advocate for the fiscal year beginning in that calendar year. The second of these reports is submitted at the end of the year and is required to identify at least 20 of the “most serious problems” encountered by taxpayers and to make administrative and legislative recommendations to mitigate those problems.
The NTA’s annual report to Congress creates a dialogue within IRS and the highest levels of government to address taxpayers’ problems, protect taxpayers’ rights, and ease taxpayers’ burden. The NTA delivers her report directly to the tax-writing committees in Congress (the House Committee on Ways and Means and the Senate Committee on Finance), with no prior review by the IRS Commissioner, the Secretary of the Treasury, or the Office of Management and Budget.
Taxpayer service. The report says poor taxpayer service remains the biggest challenge taxpayers face in dealing with the IRS. As one example, IRS telephone assistors during the recent filing season answered just 25% of taxpayer calls enterprise-wide, and hold times for taxpayers who got through averaged 13 minutes.
The report points out that the President’s Management Agenda for 2018 emphasized the importance of high-quality customer service. It said: “Federal customers… deserve a customer experience that compares to – or exceeds – that of leading private sector organizations,” and it cited data from the American Customer Satisfaction Index (ACSI) and the Forrester U.S. Federal Customer Experience Index as key benchmarks.
The NTA’s report says the IRS is not taking adequate steps to address its service shortcomings. While the Administration’s budget proposal for fiscal year (FY) 2020 requested an increase of 5.0% for enforcement, it requested a decrease of 6.6% in taxpayer services funding.
Appropriate use of self-service applications. In its FY 2018-2022 Strategic Plan, the IRS established the “Enterprise Self-Assistance Participation Rate” as one of its principal measures of taxpayer service. According to the IRS, “[t]his measures the percent of instances where a taxpayer uses one of the IRS’s self-assistance service channels, (i.e., automated calls, web services) versus needing support from an IRS employee (i.e., face-to-face, over the phone, via paper correspondence).”
The NTA’s report cites survey data from Forrester Research and a separate survey recently published in the Harvard Business Review that, in combination, indicate customers who use the Internet are comfortable with self-assistance for some categories of interactions but prefer personal contact (by phone or in person) for others, particularly those that involve uncertainty and complex decision-making known to provoke anxiety.
The NTA’s 2018 Annual Report to Congress contained “roadmaps” that pinpoint the stages of a taxpayer’s “journey” though the tax system. Using the roadmaps, this mid-year’s report says, “we can easily identify where the taxpayer’s anxiety increases and human intervention is warranted. For example, in our Return Processing Roadmap, if a taxpayer’s refund return gets bogged down in Identity Theft processes or in the pre-refund wage verification program, these delays cause anxiety. Where the taxpayer’s refund gets stopped for multiple delays, anxiety skyrockets.”
The report urges the IRS to use a “Taxpayer Anxiety Index” concept to determine where in the process personal contact is most needed and to continue to provide personal service in these circumstances.
Treatment of financially vulnerable taxpayers. The Code and the IRS’s own procedures contain rules designed to protect taxpayers experiencing economic hardship from IRS collection action. For example, the IRS must release a levy if it determines the levy “is creating an economic hardship due to the financial condition of the taxpayer,” and the IRS must make allowance for a taxpayer’s basic living expenses (known as “Allowable Living Expenses”) when considering whether to compromise a tax debt.
However, the IRS generally does not assess whether there is economic hardship unless and until the taxpayer asks it to do so. In particular, it does not attempt to determine whether a taxpayer is experiencing an economic hardship before accepting full-pay installment agreements or serving levies. As a result, the report says, taxpayers entered into about 2.1 million streamlined installment agreements in FY 2018, and about 40% of those taxpayers had incomes at or below their Allowable Living Expenses. The default rate for those taxpayers was 39%—about seven times the default rate for taxpayers with higher incomes.
“[T]he IRS collection system favors knowledgeable taxpayers who understand how to request collection alternatives and, at least in relative terms, discriminates against taxpayers who don’t have that knowledge,” Olson wrote. “That is not the way a fair tax system should work, and it needs to change.”
The report makes two recommendations. First, it recommends that the IRS create an algorithm based on its internal data (tax returns, Forms W-2, and Forms 1099) to identify taxpayers at risk of economic hardship; then, if a taxpayer so identified calls the IRS or seeks to enter into an online installment agreement, the IRS could use that data to trigger a “pop-up” screen noting the possibility of economic hardship and providing information about collection alternatives. Second, the report recommends the IRS send a letter describing collection alternatives to taxpayers who its data show are at risk of economic hardship before it levies against their property.
Filing season review. For most taxpayers, the 2019 filing season went smoothly. The IRS received about 137 million individual income tax returns and issued about 96 million refunds, with an average refund amount of $2,725. About 92% of returns were filed electronically, and about 87% of taxpayers who received refunds elected to receive them via direct deposit. These statistics are comparable to the prior year.
By contrast, service levels declined for taxpayers who required assistance from the IRS. The IRS’s benchmark “Level of Service” (LOS) on its Accounts Management telephone lines dropped from 80% during the 2018 filing season to 67% this year. Time spent on hold on those lines rose from an average of 5.1 minutes to 9.0 minutes. Part of the decline is likely attributable to the partial government shutdown.
The report says the IRS utilizes narrow performance measures that suggest the agency is performing well but do not reflect the taxpayer experience. Notwithstanding the IRS benchmark measure showing an LOS of 67% on its Accounts Management lines, IRS telephone assistors answered only 23% of calls received. For taxpayers calling the compliance telephone lines (which are separate from the Accounts Management lines), performance was worse. The LOS on the various Automated Collection System lines was 33%, and the average hold time was 41 minutes.
TAS priority issues for FY 2020. The report identifies and discusses 12 priority issues TAS plans to focus on during the upcoming fiscal year. Among the key issues are the following:
- Creation and Online Availability of a Roadmap of Tax Controversies. The National Taxpayer Advocate’s 2018 Annual Report to Congress included a series of “roadmaps” depicting a taxpayer’s “journey” through the tax system, including seven stages: (i) tax return preparation; (ii) tax return processing; (iii) notices; (iv) examinations; (v) appeals; (vi) collection; and (vii) litigation. The purpose was to help taxpayers gain a better understanding of the tax administration process, particularly when they are experiencing problems. Since publication of the 2018 report, TAS has continued to develop ways to represent the taxpayer’s journey visually by placing the stages in the format of a metro or subway map. The map is expected to be released next month.
Because of the complexity and number of steps at each stage, the original roadmaps simplified certain processes by omitting multiple sub-steps and detours that in some situations can be significant. To provide a more complete picture, TAS will be working to develop a fully interactive version of the metro/subway map in the coming months. When the interactive map is completed, a taxpayer or representative will be able to enter into it at any step and learn more about that step and the surrounding steps. TAS envisions that a taxpayer or representative will be able to input the number of a letter or notice and generate a pop-up window that provides key relevant information, including where in the process the taxpayer is and what the next steps will be.
- Limitations on Ability of Amish Taxpayers to Receive Full Child Tax Credit Benefits. As part of the Tax Cuts and Jobs Act (TCJA), Congress imposed a requirement that taxpayers include a Social Security number (SSN) for every qualifying child for whom they claim the Child Tax Credit (CTC). The requirement is intended to block claims by taxpayers whose children do not qualify for SSNs. However, the requirement has also created a conflict with the religious beliefs of the Amish and certain other religious groups. In some cases, religious beliefs prohibit taxpayers from accepting government benefits. As a result, many individuals in the Amish community refrain from accepting Social Security benefits and from obtaining SSNs. The IRS has taken the position that it will not allow full CTC benefits for these taxpayers.
In general, the courts subject laws that burden the free exercise of religion to a strict scrutiny test, allowing burdensome provisions to stand only if the government can demonstrate that the application of the burden to a person (i) is in furtherance of a compelling governmental interest and (ii) is the least restrictive means of furthering that compelling governmental interest. The report argues that barring the Amish from receiving the CTC is not the least restrictive means available because the IRS had previously developed and applied procedures to allow them to receive benefits without an SSN. During FY 2020, TAS will continue to urge the IRS to allow Amish taxpayers without SSNs to receive full CTC benefits when otherwise eligible.