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Tax Cuts and Jobs Act

Taxpayer Advocate’s mid-year report notes TCJA challenge & need to improve taxpayer assistance

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

IR 2018-143, 6/27/2018

On June 27, National Taxpayer Advocate (NTA) Nina Olson released her statutorily mandated mid-year report to Congress. It presented a review of the 2018 filing season, identified the priority issues the Taxpayer Advocate Service (TAS) will address during the upcoming fiscal year, and contained IRS’s responses to the 100 administrative recommendations the NTA made in her 2017 Annual Report to Congress.

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.

2018 filing season. Ms. Olson reported that during the 2018 filing season, IRS processed most returns successfully, with most taxpayers who sought refunds receiving a timely refund.

But Ms. Olson said that taxpayers who required assistance from IRS continued to face significant challenges obtaining it. IRS states that it achieved a “Level of Service” on its toll-free telephone lines of 80% percent during the 2018 filing season, which is widely understood to mean IRS telephone assistors answered 80% of taxpayer calls. In fact, the report points out IRS telephone assistors answered only 29% of the calls that the IRS received. Similarly, IRS states that it achieved a customer satisfaction level of 90% on its toll-free lines during FY 2017. Yet the report points out that IRS only surveyed the subset of taxpayers whose calls were answered by telephone assistors and completed.

IRS served fewer taxpayers who sought help at Taxpayer Assistance Centers (TACs) and continued its policy of answering only a limited scope of tax law questions on its toll-free telephone lines and in TACs. Additionally, its identity theft and pre-refund wage verification filters and certain processing glitches significantly delayed refunds for hundreds of thousands of taxpayers who filed legitimate returns, causing frustration, additional work for IRS and, in some cases, financial hardship.

Ms. Olson noted that the filing season began on Jan. 29, 2018, one of the latest starts in recent years, and ended late as well. On the final day of the filing season, hardware failures in IRS’s processing systems prevented taxpayers and practitioners from filing their tax returns, over 90% of which were submitted electronically, forcing them to decide to either wait for the systems to come back online or mail their tax returns (and payment, if required). To its credit, IRS responded quickly and was able to get the systems operational by late afternoon, and it communicated that it would extend the filing deadline by one day (from the Apr. 17, 2018 due date for individuals and businesses with a filing or payment requirement to April 18). Although a relatively new piece of hardware caused the April 17 crash, the incident illustrated the fragility of IRS’s aging technology infrastructure. The NTA and other stakeholders have recommended for years that Congress act to provide necessary funding and oversight to bring IRS technology into the 21st century.

The NTA noted that:

…From January 1 through Apr. 21, 2018, IRS received 42.5 million telephone calls overall, of which 35.7 million were directed to its “Accounts Management” telephone lines. Just over 13 million of those calls were directed to telephone assistors, and IRS answered 80% of them, although this performance measure does not account for the majority of calls IRS received. (IRS routed most calls to automated responses.)

…In 2017, IRS provided face-to-face assistance to taxpayers in the 50 states, the District of Columbia, and Puerto Rico at 371 TACs. Of these 371 TACs, 24 were unstaffed, 87 had only one employee, and five were only staffed seasonally. In fiscal year (FY) 2017, the first full year IRS required taxpayers to schedule appointments in advance of visiting any TACs to receive face-to-face service, taxpayer visits to TACs decreased by 27% from the previous year.

…Both on the phones and in the TACs, IRS continued a policy that sharply limited the authority of IRS employees to answer tax law questions. During filing season, telephone assistors answer only “basic” questions and were generally prohibited from answering any tax law questions outside the filing season, other than those related to the recently enacted tax reform law or specifically related to an account issue about which the taxpayer was calling.

…Also during the 2018 filing season, IRS delayed issuing hundreds of thousands of refunds associated with legitimate tax returns because the returns were flagged as potentially fraudulent. IRS used more than 200 “filters” to identify potentially fraudulent returns, and these filters produce high “false detection” rates over 50%.

Priority issues for 2019. Ms. Olson said that the most significant challenge IRS faces in the upcoming year is implementing the Tax Cuts and Jobs Act of 2017 (TCJA, P.L. 115-97, 12/22/2017), which, among other things, requires programming an estimated 140 systems, writing or revising some 450 forms and publications and issuing guidance on dozens of TCJA provisions. Ms. Olson expressed confidence that IRS will implement the law successfully.

In her report she reiterated her longstanding concern that IRS funding reductions have undermined IRS’s ability to provide high-quality taxpayer service and to modernize its aging information technology infrastructure. The report pointed out that IRS funding has been reduced by 20% since FY 2010 on an inflation-adjusted basis. “Because of these reductions, the IRS doesn’t have enough employees to provide basic taxpayer service,” the report says. “The compliance and enforcement side of the house has been cut by even more. So in addition to answering the fewest number of taxpayer calls in recent memory, the IRS also has the lowest individual audit rate in memory (0.6 percent) and its collection actions are way down.”

In addition to dealing with the the TCJA and improving taxpayer assistance, the 12 priority issues that TAS plans to focus on during the upcoming fiscal year included: the development of an integrated case management system, and the protection of taxpayers facing financial hardship from IRS and private debt collection activities.

New TAS website on TCJA changes. In light of the Tax Cuts and Jobs Act, TAS launched a new website (here) that lists key tax return items under current law (2017), shows which ones have been impacted by the TCJA, and illustrates how the changes will be reflected on tax year 2018 returns filed in 2019. Taxpayers can navigate the website by viewing key tax return topics or seeing them illustrated on a 2017 Form 1040. The line-by-line explanations allow taxpayers to see how the new law may change their tax filings and to consider how to plan for these changes. The website will incorporate updated information as it becomes available. Taxpayers and professionals can sign up to receive email notifications when updates occur.

IRS responses to NTA. Overall, the NTA made 100 administrative recommendations in her 2017 year-end report, and IRS has implemented or agreed to implement 35 of the recommendations, or 35%. The agreed implementation rate was slightly lower than last year’s. Out of 93 administrative recommendations proposed in the NTA’s 2016 year-end report, IRS implemented or agreed to implement 35 recommendations, or 38%.

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