[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]
ANNUAL REPORT OF THE INTERNAL REVENUE SERVICE TAXPAYER ADVOCATE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON OVERSIGHT
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
__________
FEBRUARY 25, 1997
__________
Serial 105-28
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
49634 cc WASHINGTON: 1998
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Oversight
NANCY L. JOHNSON, Connecticut, Chairman
ROB PORTMAN, Ohio WILLIAM J. COYNE, Pennsylvania
JIM RAMSTAD, Minnesota GERALD D. KLECZKA, Wisconsin
JENNIFER DUNN, Washington MICHAEL R. McNULTY, New York
PHILIP S. ENGLISH, Pennsylvania JOHN S. TANNER, Tennessee
WES WATKINS, Oklahoma KAREN L. THURMAN, Florida
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisory of February 13, 1997, announcing the hearing............ 2
WITNESSES
Internal Revenue Service:
Hon. Lee Monks, Taxpayer Advocate; accompanied by Tom
Tiffany, Executive Assistant............................... 7
Hon. Fran Romano, District Taxpayer Advocate, Connecticut/
Rhode Island District, Hartford, Connecticut............... 86
Hon. Tom George, District Taxpayer Advocate, South Texas
District, Austin, Texas.................................... 90
Hon. Louis Romito, Associate Taxpayer Advocate, Pennsylvania
District-Pittsburgh, Pittsburgh, Pennsylvania.............. 94
Hon. Elayne M. Goldstein, District Taxpayer Advocate, Midwest
District, Milwaukee, Wisconsin............................. 98
Hon. Jeanne Williams, District Taxpayer Advocate, North
Florida District, Jacksonville, Florida.................... 101
______
SUBMISSION FOR THE RECORD
American Institute of Certified Public Accountants, statement.... 117
ANNUAL REPORT OF THE INTERNAL REVENUE SERVICE TAXPAYER ADVOCATE
----------
TUESDAY, FEBRUARY 25, 1997
House of Representatives,
Committee on Ways and Means,
Subcommittee on Oversight,
Washington, DC.
The Subcommittee met, pursuant to notice, at 1:11 p.m., in
room B-318, Rayburn House Office Building, Hon. Nancy L.
Johnson (Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON OVERSIGHT
FOR IMMEDIATE RELEASE CONTACT: (202) 225-7601
February 13, 1997
No. OV-1
Johnson Announces Hearing on the
Annual Report of the Internal
Revenue Service Taxypayer Advocate
Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on
Oversight of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing on the first Annual Report to Congress
from the Internal Revenue Service (IRS) Taxpayer Advocate. The hearing
will take place on Tuesday, February 25, 1997, in room B-318 Rayburn
House Office Building, beginning at 2:00 p.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be heard from invited witnesses only.
The Subcommittee will receive testimony from Lee Monks, the IRS
Taxpayer Advocate, and from several IRS District Office Taxpayer
Advocates who work on the front lines trying to resolve taxpayers'
problems. However, any individual or organization not scheduled for an
oral appearance may submit a written statement for consideration by the
Committee and for inclusion in the printed record of the hearing.
BACKGROUND:
Last year, Congress enacted the Taxpayer Bill of Rights 2 (TBOR2)
(P.L. 104-168), which expanded upon existing safeguards available to
taxpayers in their dealings with the IRS enacted in 1988 in the
original Taxpayer Bill of Rights. Among other things, TBOR2 required
the IRS Taxpayer Advocate to make an annual report to Congressional
tax-writing committees identifying the initiatives undertaken by the
Taxpayer Advocate in the previous fiscal year to improve taxpayer
services and IRS responsiveness. The report would also have to identify
the 20 most serious problems taxpayers experience in their dealings
with the IRS, and to recommend appropriate administrative and
legislative actions to address such recurring problems.
The IRS created the Problem Resolution Program (PRP) in 1976 in an
effort to better assist taxpayers in cutting through ``red tape'' and
more quickly resolve tax disputes. In 1979, the IRS created the Office
of the Taxpayer Ombudsman, an executive level position on the immediate
staff of the IRS Commissioner, to head the PRP organization. The
Taxpayer Ombudsman's chief responsibility was to serve as the primary
advocate, within the IRS, for taxpayers.
Throughout the Taxpayer Ombudsman's existence, the position has
been held by a career civil servant selected by the IRS Commissioner.
In response to a perception that the Taxpayer Ombudsman did not have
sufficient stature and authority within the IRS to be an independent
advocate for taxpayers, TBOR2 elevated this position within the IRS,
renamed it the ``Taxpayer Advocate,'' and increased the Taxpayer
Advocate's legal authority to intervene on behalf of taxpayers. Along
with giving the Taxpayer Advocate expanded powers, Congress also wanted
to exercise more oversight over how the Taxpayer Advocate was
administering the PRP. Therefore, TBOR2 required the Taxpayer Advocate
to make the above mentioned annual report to Congress.
In announcing the hearing, Chairman Johnson stated: ``As taxpayers
sit down to prepare their 1996 income tax returns, I want them to know
that Congress is proactively examining ways to improve the quality of
IRS' customer service. The Taxpayer Advocate's Annual Report is one
means of helping us to identify and understand the most frequent
problems taxpayers face in their dealings with the IRS, and to develop
improvements to minimize the frictions that often occur between
taxpayers and the nation's tax collector.''
FOCUS OF THE HEARING:
The hearing will examine the details of the Taxpayer Advocate's
``Annual Report to Congress'' covering fiscal year 1996, to identify
what further administrative and legislative actions may be appropriate
to reduce the burdens taxpayers experience in transacting business with
the IRS.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit at least six (6)
copies of their statement and a 3.5-inch diskette in WordPerfect or
ASCII format, with their address and date of hearing noted, by the
close of business, Tuesday, March 11, 1997, to A.L. Singleton, Chief of
Staff, Committee on Ways and Means, U.S. House of Representatives, 1102
Longworth House Office Building, Washington, D.C. 20515. If those
filing written statements wish to have their statements distributed to
the press and interested public at the hearing, they may deliver 200
additional copies for this purpose to the Subcommittee on Oversight
office, room 1136 Longworth House Office Building, at least one hour
before the hearing begins.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. All statements and any accompanying exhibits for printing must
be typed in single space on legal-size paper and may not exceed a total
of 10 pages including attachments. At the same time written statements
are submitted to the Committee, witnesses are now requested to submit
their statements on a 3.5-inch diskette in WordPerfect or ASCII format.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a
statement for the record of a public hearing, or submitting written
comments in response to a published request for comments by the
Committee, must include on his statement or submission a list of all
clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the
name, full address, a telephone number where the witness or the
designated representative may be reached and a topical outline or
summary of the comments and recommendations in the full statement. This
supplemental sheet will not be included in the printed record.
The above restrictions and limitations apply only to material being
submitted for printing. Statements and exhibits or supplementary
material submitted solely for distribution to the Members, the press
and the public during the course of a public hearing may be submitted
in other forms.
Note: All Committee advisories and news releases are available on
the World Wide Web at `HTTP://WWW.HOUSE.GOV/WAYS__MEANS/'.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-225-1904 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
Chairman Johnson. Good afternoon. The hearing will come to
order. My apologies to my colleagues for being detained at the
hearing of the Health Subcommittee, which went on a good deal
longer than we thought.
I want to welcome you all, though, to this first Oversight
Subcommittee hearing of the 105th Congress. We have a
challenging agenda ahead of us this year and we believe that by
digging into it right off the bat, we can make a real
difference in people's lives.
Today's hearing is a good example of how we can help our
constituents by working to improve the operation of the Federal
Government. Congress and the executive branch have a long
history of working together to try to solve taxpayers'
problems, to help taxpayers with their disputes with the IRS.
The IRS established a Problem Resolution Program in 1976 which
was headed by a Taxpayer Ombudsman. While this effort is
commendable, there are limits to what the IRS can do for
taxpayers, based on its administrative authority. The really
meaningful taxpayer safeguards usually require changes in the
law and this is what happened in the original 1988 Taxpayer
Bill of Rights and last year's sequel, the Taxpayer Bill of
Rights 2, or TBOR2, as we call it.
Congress passed TBOR2 in July 1996. It improved the
procedural rights of taxpayers in dealing with the IRS. For
example, it gave taxpayers who prevail over the IRS in court
the upper hand in getting their attorneys' fees reimbursed by
the IRS. It required the IRS to make reasonable efforts to
corroborate the accuracy of disputed information. It also gave
the IRS the legal authority to abate interest on tax
deficiencies and to return improperly seized property to the
taxpayer.
None of these provisions is flashy or glamorous, but
frankly, these are the type of nitty-gritty details that can
make a taxpayer miserable or happy, bankrupt or solvent when he
or she has a dispute with the IRS. So in the individual lives
of people with problems, these changes make a dramatic
difference.
But TBOR2 did more than just enact several dozen procedural
safeguards for taxpayers. It strengthened the IRS' own
administrative program for helping taxpayers. It established
the position of Taxpayer Advocate within the IRS to replace the
Taxpayer Ombudsman. It increased this office's legal authority
to help taxpayers. But along with this increased authority,
Congress also wanted increased accountability. Therefore, TBOR2
requires the Taxpayer Advocate to submit an annual report to
Congress.
The annual report is supposed to summarize the activities
of the Taxpayer Advocate for the preceding fiscal year. In
particular, it is to discuss the top 20 problems which
taxpayers are experiencing in dealing with the IRS as well as
providing recommendations on how to address these problems
either through administrative or legislative changes.
Therefore, the annual report should pinpoint where
taxpayers are experiencing the most serious problems with the
IRS and present us with possible legislative changes that might
address these problems.
As taxpayers begin filling out their 1996 Federal income
tax returns, we should continue to try to make the experience
as smooth as possible, not one necessarily enjoys, as few enjoy
paying taxes, but the operational mechanics of obeying the law
to be as user friendly as possible. I hope that the Taxpayer
Advocate's Annual Report will give us many good ideas on how to
improve the tax system.
I welcome our witnesses. I look forward to their testimony
and I yield to my Ranking Member, Mr. Coyne.
Mr. Coyne. Thank you, Madam Chairwoman.
Today's hearing will be one of the most important and
interesting sessions that the Oversight Subcommittee will have
this year.
First, I want to welcome Lee Monks, the current IRS
Taxpayer Advocate and thank him for his 1996 report. I look
forward to our discussion of the issues he has raised about,
number one, the most serious problems facing taxpayers
throughout the country, number two, his recommendations for
legislative and administrative reform, and number three, the
IRS' Problem Resolution Program.
The 1996 Advocate's Report provides us with a good
assessment of what needs to be done to make the IRS a more
taxpayer-friendly and customer-oriented operation. Of
particular interest to me are several problem areas highlighted
by the Advocate in his report, such as tax law complexity,
problems in researching IRS rules by telephone, reaching the
IRS by telephone, erroneous IRS notices, administration of the
earned income tax credit, lack of clarity in IRS letters and
notices, and the IRS' failure to understand taxpayers'
concerns.
Clearly, it is our responsibility on the Oversight
Subcommittee to make certain that the IRS, in fact, does take
all necessary steps to make it easier and less frustrating for
taxpayers to fulfill their tax obligations.
Also, before we begin, I want to give a warm welcome to the
five Problem Resolution Officers who have come from many parts
of the country to share with us their thoughts and experiences
in providing assistance to the Nation's taxpayers.
Particularly, I want to thank Louis Romito for coming here
today. Mr. Romito is the Associate District Taxpayer Advocate
for the Pittsburgh area. He will provide the Subcommittee with
his insight into various aspects of the Taxpayer Advocate's
1996 Report, his experiences in acting on behalf of taxpayers
with the IRS and his suggestions for improving the IRS and the
Problem Resolution Program, PRP.
Let me conclude by saying that the Problem Resolution
Program staff are the backbone of fairness within the IRS. All
of us here today appreciate your commitment and continued
efforts to resolve taxpayers' problems. After reading the
Advocate's Report, maybe one of the major problems taxpayers
face is a shortage of PRP staff.
I look forward to working with the Chairwoman and other
Subcommittee Members in our effort to address each of the
problem areas under discussion here today, and I would ask that
my full statement be included in the record.
Chairman Johnson. So ordered.
[The prepared statement follows:]
Statement of Hon. William J. Coyne, a Representative in Congress from
the State of Pennsylvania
Today's hearing will be one of the most important sessions
of the Ways and Means Oversight Subcommittee.
I want to welcome, as our lead witness, the current IRS
Taxpayer Advocate. Mr. Lee Monks will testify on the ``Taxpayer
Advocate's Annual Report to the Congress--Fiscal Year 1996.''
The Report discusses (1) the twenty most serious problems
facing taxpayers in dealing with the IRS, (2) the Advocate's
recommendations for administrative and legislative actions to
address the problems, and (3) the activities of the IRS Problem
Resolution Program.
Also, I want to give a warm welcome to the five Problem
Resolution Officers who have come from all over the country to
share with us their thoughts and experiences in providing
assistance to taxpayers.
Particularly, I want to thank Lou Romito for coming today.
Mr. Romito is the Associate District Taxpayer Advocate for the
Pittsburgh, Pennsylvania area.
Importantly, Mr. Romito will provide the Subcommittee with
his insight into various aspects of the Taxpayer Advocate's
1996 Report, his experiences in acting on behalf of taxpayers
within the IRS, and his suggestions for improving the Problem
Resolution Program.
As a result of the Oversight Subcommittee's work last year,
the Taxpayer Bill of Rights 2 legislation included a
requirement that the Taxpayer Advocate report to the Congress
on the major problems facing taxpayers. Today, we will receive
his Report.
The Report is a good assessment of what the IRS needs to do
to make itself a more taxpayer-friendly, customer-oriented
operation. Accordingly, the Report can be used by the Oversight
Subcommittee, the IRS, and the Treasury Department as a tool
for helping the IRS address the more day-to-day, yet critically
important, problems taxpayers face in dealing with the IRS.
Clearly, the Problem Resolution Program staff are the
backbone of fairness at the IRS. I know that all of us here
today appreciate their continued efforts to work out all those
problem cases dropped in their laps by other IRS employees, by
Congressional offices, or directly from taxpayers.
Frankly, I think that the biggest problem taxpayers face in
dealing with the IRS is that there are not enough Problem
Resolution staff employed by the IRS. I hope to work with the
Subcommittee Chair and Members to see what we can do to insure
the proper and necessary level of Problem Resolution staffing.
Finally, there are several issues of particular concern to
me which I want to raise at today's hearing. They are: lack of
clarity and inappropriate tone of IRS communications; lack of
understanding of taxpayers' concerns; problems maintaining
taxpayers' current addresses; problems in the administration of
the earned income tax credit; and inconvenient times and
locations for doing business with the IRS.
I commend the Chairwoman for her interest in the operations
of the Taxpayer Advocate and his staff, and look forward to
working with all Members of the Subcommittee to develop pro-
taxpayer legislation where needed, to recommend administrative
changes within the IRS, and to consider funding issues with
regard to our annual recommendations to the Appropriations
Committee.
Chairman Johnson. If other Members have a brief comment, I
will recognize them, but we do want to move forward.
Mr. Ramstad.
Mr. Ramstad. Madam Chair, very briefly, I want to thank you
for convening this important hearing on the Annual Report of
the Taxpayer Advocate. It certainly will be useful for this
Subcommittee to learn whether the reforms that we passed last
year in the Taxpayer Bill of Rights 2 are actually helping to
protect taxpayers in their disputes with the IRS.
Earlier this month, Madam Chair, I met with several tax
experts who serve on my tax advisory committee back home in
Minnesota. These are true tax experts representing a lot of the
Fortune 500 corporations and so forth. They are working right
now on drafting a State version of the Taxpayer Bill of Rights
for Minnesota based on what we did here in Washington. They are
anxious to see a copy of the annual report to guide them in
their deliberations. They expect it to be very, very helpful.
I certainly must say, I was disappointed that the report
has no specific legislative recommendations for addressing
certain pressing taxpayer problems, but I hope this hearing
today will propel us toward greater protections and better
services for the American taxpayers.
So again, Madam Chair, thank you for your leadership in
holding this hearing and I thank the witnesses, as well.
Mr. Kleczka. Madam Chair.
Chairman Johnson. Mr. Kleczka.
Mr. Kleczka. Madam Chair, very briefly, on the second
panel, we also have Elayne Goldstein who is from Milwaukee and
is the Midwest District Taxpayer Advocate, and I should say
that she and her colleagues have been very helpful to my office
in Milwaukee and not only my office but also my constituents,
so I welcome Elayne here today and we look forward to your
testimony.
Chairman Johnson. Are there other Members who wish to
comment?
Mrs. Thurman. Madam Chairman.
Chairman Johnson. Yes.
Mrs. Thurman. I would like to take this opportunity also to
welcome Jeanne Williams, who is from North Florida and is our
Taxpayer Advocate. Jeanne, I bring lots of hellos from my
office in Inverness who have talked about you so fondly and
what you have been able to accomplish for many of our
constituents and our taxpayers, and we understand that you are
going to be retiring soon, so we look forward to some very
candid remarks from you this afternoon. Thank you for being
here.
Chairman Johnson. Thank you.
Mr. Monks, welcome to you and please proceed with your
testimony.
STATEMENT OF HON. LEE MONKS, TAXPAYER ADVOCATE, INTERNAL
REVENUE SERVICE; ACCOMPANIED BY TOM TIFFANY, EXECUTIVE
ASSISTANT
Mr. Monks. Thank you, Madam Chair and distinguished Members
of the Subcommittee.
I am very pleased to be here today to discuss the role of
the Taxpayer Advocate and the Problem Resolution Program in
serving the needs of the taxpayers of our country and also the
First Annual Taxpayer Advocate's Report to the Congress.
My name is Lee Monks and I am currently the Taxpayer
Advocate for the IRS and with me is Tom Tiffany, my Executive
Assistant, as well as the five field Taxpayer Advocates from
five of our district offices. I will try to summarize from my
written testimony, which, of course, represents my own thoughts
and not the official position of the IRS.
As was alluded to, 1997 marks an important anniversary for
the Problem Resolution Program, or PRP, for short. PRP was
officially implemented 20 years ago, in 1977, following a test
of the program in four of our district offices during 1976. The
program was originally established to assist taxpayers with
problems that seemingly could not be resolved elsewhere within
the Service.
The continuing success of the program during that time span
has never been more evident than during the past few years. We
continue to provide assistance to thousands of taxpayers on a
weekly basis with their problems with the IRS and we pay
particular attention to those situations involving significant
hardship.
In addition, we also play a major role in the
identification of internal systems, policies, procedures, and
so on, that cause problems for taxpayers and try to determine
the underlying causes of those specific problems.
Organizationally, I report directly to the Commissioner and
serve as a member of the IRS Executive Committee. In each IRS
region, district, and service center, there is a Problem
Resolution Officer, PRO, who reports directly to the head of
office and receives functional program direction and oversight
from the Taxpayer Advocate.
Just to give you a feel for the magnitude of our program,
during fiscal year 1996, PRP received over 282,000 regular PRP
cases and over 30,000 Taxpayer Assistance Orders requests. A
majority of our cases are referred and identified by Service
employees, over 50 percent, with the balance split between
referrals from tax preparers and those received directly from
taxpayers.
The Taxpayer Bill of Rights 2, or TBOR2, provided a number
of enhancements to PRP and to the position of Taxpayer
Advocate. First of all, of course, the title of the position
was changed to Taxpayer Advocate and the Advocate was provided
with additional authority to assist taxpayers in hardship
situations.
In addition, the Advocate was designated to participate in
the selection and evaluation of all field PROs and the
authority to modify or rescind Taxpayer Assistance Orders was
limited to the Commissioner, Deputy Commissioner, and the
Taxpayer Advocate. It is my belief that these actions provided
both additional authority to the Advocate and our field PROs
and also served to strengthen the lines of authority and the
working relationships between the PROs in the field and the
Taxpayer Advocate.
One of the most significant aspects of TBOR2 as it impacted
on my position was the requirement to issue two reports
annually to the Congress. One report, which is due June 30 of
this year, will detail the objectives and activities of my
office for the coming fiscal year.
The primary report, the subject of this hearing, was
published at the end of the year and focuses on the major
activities of my office and that of our field PROs for the past
fiscal year. It includes a number of areas that were
specifically required by TBOR2 legislation. For example, the
Advocate is required to identify the initiates undertaken to
improve service to taxpayers along with a summary of at least
the 20 most significant problems encountered by taxpayers. A
list of specific recommendations for dealing with the problems
identified and the Service's response to those recommendations
is also required. This report provides a mechanism for the
Taxpayer Advocate to elevate continuing problems, issues, and
gain support for organizationally driven improvement
activities.
As a result of the first report to the Congress and the
data provided by my office to the members of the IRS Executive
Committee, a number of improvement initiatives are already
underway, all of which should have a positive impact on
taxpayers, and I'll touch on some of that activity a little
later in my remarks.
Other areas required to be reported on include Taxpayer
Assistance Orders not honored in a timely manner and the extent
to which regional PROs participate in the selection and
evaluation of local PROs.
As specified in TBOR2, the Advocate is required to submit
this report directly to the Congress without prior review by
officials of the IRS, the Department of Treasury, or the Office
of Management and Budget.
My office has also been highly involved with a number of
other elements of TBOR2, including the lien and levy provisions
and the requirement that IRS provide an annual report to the
Congress on allegations of misconduct by IRS employees. The
chief management and administration and I were designated by
the Deputy Commissioner to take the lead in establishing what
we now refer to as the Customer Feedback System.
Information from that system will reside on the same data
base that we use to currently capture data on our PRP casework,
the Problem Resolution Management Information System, or
PROMIS, for short. We recently completed modifications required
to house this data on the PROMIS system and are currently
completing input of data for October through December 1996.
Following the input and our analysis of this input, we expect
to be able to pinpoint any trends that may be present and to
recommend appropriation actions to the Commissioner. Our first
report on allegations of misconduct is due to the Congress on
June 30 of this year.
I was appointed to the position of Taxpayer Advocate in
June 1993 and am the fifth individual to serve in this
capacity, although, of course, the first to hold the title of
Taxpayer Advocate, and I view this change as certainly a more
descriptive depiction of my role and for that of our field
PROs, as well.
And, in fact, I've recently approved a name change for our
field PROs. Their new titles are now Regional Taxpayer
Advocate, District Taxpayer Advocate, and Service Center
Taxpayer Advocate. They will still be responsible for managing
the Problem Resolution Program within their areas of
responsibility but will also be responsible for supporting
national, regional, and local advocacy initiatives and
providing input to the Advocate's report. This is a role that I
think that they're well suited for and one which many, if not
all, have been engaged in for several years.
Following my appointment to the position of Taxpayer
Advocate, the Commissioner and Deputy Commissioner made
advocacy one of my top priorities. In order to be effective in
this particular area, however, you need to have data on the
types of problems that taxpayers are experiencing with the
Service and the sources of those problems.
We began to revamp our PROMIS system, which at the time was
a loose configuration of local data bases primarily designed to
serve as an inventory control system for our local offices.
While data was rolled up at the regional and national level, it
did not provide top-level management with the ability to track
and trend problem areas, the ability that we have today.
We initiated a change to our case codes to help us better
reflect major problems taxpayers were experiencing with the
IRS, and over the past 18 months have completed a major
transition, from 75 local data bases in each of our districts
and service centers to a single national system housed in the
Kansas City Service Center. This system was the source of the
information provided to the IRS Executive Committee on the top
10 categories for PRP casework within each region and for the
service centers and from which the charts in the Advocate's
Report to the Congress were derived.
The information on the top 10 sources of PRP casework on a
national level is outlined in my report. I'm not going to go
over those because they are in my report, but the number one
and number two items deal with requests for audit
reconsiderations and refund inquiries and requests.
I've asked the Regional Commissioners to review the data
for their respective regions in order to prioritize potential
improvement initiatives and report back on their findings. My
office will provide whatever coordination is necessary with the
regional offices to assure that we are not duplicating efforts
and to maximize coverage of the problem issues that taxpayers
are facing in their dealings with the IRS. This activity, of
course, will be included in my next report to the Congress. We
are also establishing a process to ensure that ongoing feedback
is received from local Taxpayer Advocates on their individual
initiatives and recommendations.
I mentioned earlier that I would comment on some of the
activity underway as a result of my first report and the data
provided on problem issues. First of all, each region has
established a Regional Advocacy Council to serve as the arm for
the Regional Commissioner in reviewing the data that we provide
for each area. Each Regional Advocate will be a key member of
that council.
In addition, the Advocacy Councils will be responsible for
determining, in conjunction with my office, which issues are
the most important and for conducting an analysis of the
casework in their areas to determine underlying causes for
problems and then for making recommendations to correct any
deficiencies that they identify. Several specific issues are
currently being reviewed which are a direct result of their
being included either in the top 10 sources for PRP casework or
in the list of the most significant problems that taxpayers
face in dealing with the IRS. These include collection issues,
failure to deposit penalties associated with Federal tax
deposit requirements, taxpayer access to toll free, notice
clarity, audit reconsiderations, and so on.
In addition to this activity, my staff is constantly
reviewing implementation of various IRS programs, such as the
Revenue Protection Strategy, which was designed to deal with
refund fraud, and the recently enacted legislation on math
errors and individual tax identification numbers to ensure that
taxpayer rights are being protected and that procedures are
developed to expeditiously handle any cases involving taxpayers
that are inadvertently caught up in these processes.
I also indicated in my first report that we have developed
plans to secure direct input from taxpayers through a series of
focus groups cosponsored by our Strategic Planning Division.
Tentative plans are to conduct 10 focus groups in 5 locations
with 5 of these focus groups devoted to individual taxpayers
and the balance to small businesses.
In addition, we plan to also include input from key
stakeholders by working with the various liaison committees
that meet periodically with the Commissioner. This, in my
opinion, will provide a more comprehensive approach to the
identification of problem areas affecting taxpayers in their
dealings with the IRS as well as provide potential sources for
recommendations to correct any deficiencies that we can include
in subsequent reports to the Congress.
One area that I was specifically asked to comment on deals
with the most common problems facing taxpayers in their
dealings with the IRS, and while there is not time to cover
each of the 20 items included in my report, I would like to at
least address the first three items.
The first deals with the complexity that taxpayers face in
complying with the tax law. In dealing with the issue of
complexity, it is interesting to note that over 70 percent of
individual filers use the standard deduction, which means that
they are filing a relatively simple return. We are also trying,
of course, to make this process easier for taxpayers by
offering more methods of electronic filing, such as the
TeleFile Program, which is available to approximately 26
million taxpayers and has already surpassed last year's totals
for the full filing period.
I think it is important to keep complexity in perspective.
Yes, the tax system is complex, and yes, we need to continue to
work with the Congress to make it easier for individual
taxpayers and small businesses to comply with their filing
obligations, but our tax system is viewed by others outside
this country as the model for the world. We receive over 200
million returns and collect over $1.4 trillion annually. In
striving to make this system easier to deal with, we must
recognize that equity and simplicity are often competing
factors and the more we strive to achieve equity in the tax
system, we may be adding complexity.
In my report, I included a proposal that would assist in
determining and perhaps limiting burden by establishing a
methodology to score burden, much as is done for revenue. This
would ensure that burden is given full consideration by the
Congress at the time new tax law is being considered.
The second item that I want to discuss is taxpayer access
to toll free. This has been a problem for several years and has
been the subject of much concern both inside and outside of
IRS. A number of actions have been and are being taken to move
us in the right direction in this program.
First, we have established task groups to identify
specifically why taxpayers are calling us so often for
information that is readily available in their tax packages or
other information forms. The hope is that we will be able to
reduce some of this demand on our system or move certain
traffic to automated systems so that we can provide better
access to those live assisters that actually need to talk to a
live assister to achieve service.
Second, we have put more resources into our toll-free
program this year and the results have been very positive.
Service or access levels are up this year by up to 68 percent,
compared to 48.6 percent last filing period. Obviously, we are
not where we want to be yet, but it is a move in the right
direction. We are also looking at the best in the industry in
the private sector to learn what we can from them in improving
the effectiveness of our toll-free services.
Third, I want to just briefly discuss the progress that is
being made in the improvement of our forms and notices. We have
had a reengineering team reviewing all of our forms and
notices, particularly those identified as high volume or
needing clarification. This task group has identified a number
of changes to improve the wording of our notices and has
proposed eliminating or the combining of notices that cause
confusion for taxpayers. We estimate that we have eliminated
somewhere in the neighborhood of 16 to 18 million notices that
will be issued on an annual basis.
My staff also works closely with the notice review area to
review proposed modifications, trying to look at it from a
taxpayer's perspective. Obviously, there is still much to be
done in this area and we are also interested in input from our
stakeholders. I will be including this as a discussion item
with our taxpayer focus groups and also with our tax
practitioner group discussions later this year.
In closing, I want to stress again the important role that
PRP plays in addressing the needs of taxpayers who experience
problems in their dealing with the IRS. We want them to know
that their concerns are important to us and that they will be
addressed as quickly as possible. Once we fix their problems,
we also want to be able to move forward and fix the systems
that created the problems in the first place.
To meet this challenge, we recognize we need a lot of
assistance. We need the support of the organization in
providing resources to address systemic concerns. We need the
support of our stakeholders to elevate problems to our
attention and to assist in coming up with potential solutions
to identified problems. And, most importantly, we need the
support of the American taxpayers to let us know how we are
doing in serving as their advocate within the IRS.
This ends my prepared comments and I am willing to address
any questions that you might have at this time.
[The prepared statement and report follow:]
Statement of Lee Monks, Taxpayer Advocate, Internal Revenue Service
I am very pleased to be here today to discuss the role of
the Taxpayer Advocate and the Problem Resolution Program (PRP)
in serving the needs of our taxpayers and the first annual
Taxpayer Advocate's Report to the Congress. I want to make it
clear that this testimony reflects my own thoughts and does not
represent the official position of the IRS. As you may be
aware, 1997 marks an important anniversary for PRP. PRP was
officially implemented 20 years ago in 1977 following a test of
the program in four district offices during 1976. The program
was originally designed to assist taxpayers with problems that
seemingly couldn't be resolved elsewhere within the Service.
The continuing success of the program throughout that time span
has never been more evident than during the past few years. PRP
continues to provide assistance to thousands of taxpayers on a
weekly basis with their problems with the IRS. We pay
particular attention to those situations involving significant
hardship. In addition, we also play a major role in the
identification of internal systems, policies and procedures
that cause problems for taxpayers and try to determine the
underlying causes of those problems.
Organizationally, the Taxpayer Advocate reports directly to
the Commissioner and serves as a member of the IRS Executive
Committee. In each IRS region, district and service center,
there is a Problem Resolution Officer (PRO) who reports
directly to the head of the office and receives functional
program direction and oversight from the Taxpayer Advocate. To
give you a feel for the magnitude of the program, during Fiscal
Year 1996 PRP received over 282,000 regular PRP cases and over
30,000 Taxpayer Assistance Orders (TAOs). The majority of our
cases are identified and referred to PRP by Service employees
(over 50 percent) with the remaining total split between tax
preparer referrals and those received directly from taxpayers.
The Taxpayer Bill of Rights 2 (TBOR2) provided several
enhancements to PRP and to the position of Taxpayer Advocate.
First, the title of the position of Taxpayer Ombudsman was
changed to Taxpayer Advocate and the Advocate was provided with
additional authority to assist taxpayers in hardship
situations. In addition, the Advocate was designated to
participate in the selection and evaluation of all field PROs
and the authority to modify or rescind TAOs was limited to the
Commissioner, Deputy Commissioner and the Taxpayer Advocate.
These actions provided both additional authority to the
Advocate and field PROs, and also served to strengthen the line
of authority and the working relationship between field PROs
and the Taxpayer Advocate.
One of the most significant aspects of TBOR2, as it
impacted on the Taxpayer Advocate, was the requirement to issue
two reports annually to the House Ways and Means Committee and
the Senate Finance Committee. One report, due on June 30th of
this year, will detail the objectives and activities of the
Taxpayer Advocate for the coming fiscal year. The other report,
which was due December 31st of last year, focused on the major
activities of the Taxpayer Advocate for the past fiscal year
and includes a number of areas as specified by the legislation.
For example, the Advocate is required to identify the
initiatives undertaken to improve service to taxpayers, along
with a summary of at least the 20 most significant problems
encountered by taxpayers. A list of specific recommendations
for dealing with the problems identified and the Service's
response to those recommendations is also required. This report
provides a mechanism for the Taxpayer Advocate to elevate
continuing problem issues and gain support for organizationally
driven improvement activities. As a result of the first Report
to the Congress and the data provided by the Taxpayer Advocate
to members of the IRS Executive Committee, a number of
improvement initiatives are underway, all of which should have
a positive impact on taxpayers. I will touch on some of that
activity later in my remarks.
Other areas required to be reported on include TAOs not
honored in a timely manner and the extent to which regional
PROs participated in the selection and evaluation of local
PROs. As specified in TBOR2, the Advocate is required to submit
this report directly to the Congressional Committees without
prior review by officials of the IRS, the Department of
Treasury or the Office of Management and Budget.
My office has also been highly involved with a number of
other elements of TBOR2, including the lien and levy provisions
and the requirement that the IRS provide an annual report of
allegations of misconduct by IRS employees. The Chief
Management and Administration and I were designated by the
Deputy Commissioner to take the lead in establishing what we
now refer to as the Customer Feedback System. Information from
that system will reside on the same data base used to capture
trend data on PRP casework, the Problem Resolution Office
Management Information System, or PROMIS for short. We recently
completed the modifications required to house the data on the
PROMIS system and are currently completing input of data for
October through December 1996. Following input and our
analysis, we expect to be able to pinpoint any trends that may
be present and to recommend appropriate actions to the
Commissioner. Our first report on allegations of misconduct is
due to the Congress June 30, 1997.
I was appointed to the position of Taxpayer Ombudsman in
June 1993, following a three month detail to that position
after Damon Holmes' retirement in February 1993. I am the fifth
individual to serve in this capacity, although the first to
hold the title of Taxpayer Advocate. I view the change in my
title as certainly a more descriptive depiction of my role and
for that of our field PROs as well. And in fact, I have
recently approved a name change for the field PROs. Their new
titles are Regional Taxpayer Advocate, District Taxpayer
Advocate and Service Center Taxpayer Advocate. They will still
be responsible for managing the problem resolution program
within their areas of responsibility but will also be
responsible for supporting national, regional and local
advocacy initiatives and providing input to the Advocate's
report. This is a role they are well suited for and one which
many, if not all, have been engaged in for several years.
Following my appointment to the position of Taxpayer
Ombudsman, the Commissioner and Deputy Commissioner made
advocacy one of my top priorities. In order to be effective on
a national scale, however, you need data on the types of
problems that taxpayers are experiencing and the sources of
those problems. We began to revamp the PROMIS system, which at
the time, was a loose configuration of local data bases,
primarily designed to serve as an inventory control system for
the local offices. While data was rolled up at the regional and
national level, it did not provide top-level management of PRP
or the IRS the ability to track and trend problem areas that we
have today. We implemented a change to our case codes to better
reflect major issues or problem areas experienced by taxpayers
and over the past 18 months have completed a major transition
from 75 local data bases to a single national system housed in
the Kansas City Service Center. This system was the source of
the information provided to the IRS Executive Committee on the
top ten categories for PRP casework within each region and for
the service centers and from which the charts in the Advocate's
Report to Congress were derived. The information on the top ten
sources of PRP casework on a national level is outlined on page
7 of my report to the Congress. To recap they are:
1. Requests for audit reconsideration
2. Refund inquiries/requests
3. Lost or misapplied payments
4. Problems in processing of individual returns
5. Processing of claims or amended returns
6. Other penalties (other than FTD penalties)
7. FTD penalties
8. Earned Income Credit issues
9. Revenue Protection cases
10. Installment agreements
I have asked the Regional Commissioners to review the data
for their respective regions in order to prioritize potential
improvement initiatives and report back on their findings. My
office will provide the necessary coordination with the
regional offices to ensure we are not duplicating efforts and
to maximize coverage of the problem issues taxpayers are facing
in their dealings with IRS. This activity will be included in
my next report to the Congress. We are also establishing a
process to ensure ongoing feedback is received from local PROs
on their individual initiatives and recommendations.
I mentioned earlier that I would comment on some of the
activity underway as a result of my first report and the data
provided on problem issues. First, each region has established
a Regional Advocacy Council to serve as the arm for the
Regional Commissioner in reviewing the data we provided for
their region. Each Regional Advocate will be a key member of
their council. In addition, the Advocacy Councils will be
responsible for determining, in conjunction with my office,
which issues are the most important and for conducting an
analysis of casework to determine underlying causes for
problems and then making recommendations to correct any
deficiencies identified. Several specific issues are currently
being reviewed which are a direct result of their being
included either in the top ten sources for PRP casework or in
the list of the most significant problems taxpayers face in
dealing with the IRS. These include collection issues, Failure
to Deposit penalties associated with federal tax deposit
requirements, taxpayer access to toll-free, the Earned Income
Credit, audit reconsideration and penalty administration. In
addition to this activity, my headquarters staff is constantly
reviewing implementation of various IRS programs such as the
Revenue Protection Strategy to deal with refund fraud and the
recently enacted legislation on math error and Individual Tax
Identification Numbers (ITINs) to ensure that taxpayer rights
are being protected and that procedures are developed to
expeditiously handle cases involving taxpayers inadvertently
caught up in these processes.
I had also indicated in my first report that we have
developed plans to secure direct input from taxpayers through a
series of focus groups co-sponsored by our Strategic Planning
Division. Tentative plans are to conduct ten focus groups in
five locations with five devoted to individual taxpayers and
the balance to small businesses. In addition, we plan to also
include input from key stakeholders by working with the liaison
groups that meet periodically with the Commissioner. This will
provide a more comprehensive approach to the identification of
problem areas affecting taxpayers in their dealings with the
IRS as well as a potential source for recommendations to
correct any deficiencies identified.
Although not specifically asked to testify about the
organizational placement of the position of Taxpayer Advocate
or the reporting of field PROs to either the local head of
office or the Taxpayer Advocate, I would like to comment
briefly on both of those issues.
To be truly effective as the Taxpayer Advocate, the
individual in that position must have the support of both the
Commissioner and the Deputy Commissioner. This is true from
several perspectives. First, you must feel free to be able to
identify situations where Service action or inaction has the
potential to harm taxpayers. This may be as the result of
planned changes in policies and procedures by the Service or
when IRS systems fail to perform as expected. Second, you must
be able, through your actions, to provide immediate relief to
taxpayers and/or cause the organization to review the way in
which their systems are operating and take corrective actions.
That latter area is a more difficult task since, although one
may be granted the freedom to point out systemic problems, you
must rely on others, who have ownership of the operational
systems, to assist in or actually conduct the reviews and
analysis of problem areas and then to implement the appropriate
corrective actions.
This points out an important third element of support
required for this job. You must be able to work in conjunction
with and have the support of the operational entities to get
the things done that you feel are critical. I feel that the
Commissioner and the Deputy Commissioner have provided me the
necessary support to accomplish my job. This support has been
highly visible throughout the executive ranks and the
organization. Improved data from the PROMIS system to validate
the volume and types of taxpayer problems have helped gain the
support needed from operational areas to review and correct
systems deficiencies. The additional leverage for systems
improvement provided by TBOR2 and the Advocate's Report should
elevate the organization's efforts in this area to an even
higher level. As a result, I feel strongly that the position of
Taxpayer Advocate should remain within the IRS since we have
demonstrated our capability to be extremely effective in both
assisting taxpayers with their immediate problems and then in
dealing with the underlying causes of those problems and
causing systems improvement activities to take place. Also, by
remaining and working within the organization, we can be more
actively involved in the front end planning of new systems and
procedures (such as the math error and ITIN processes mentioned
earlier), thus reducing the possibility of adverse consequences
to taxpayers.
On the issue of where the field PROs should report, I would
point to some recent testimony by our PRO in the Indiana
District, Rena Girinakis, on January 8th before the National
Commission on Restucturing the IRS. In her testimony, she
indicated that she receives the full support necessary from her
District Director and from the functional division chiefs in
accomplishing her duties as an advocate for taxpayers in the
State of Indiana. To change her status by having her report
directly to the Taxpayer Advocate in Washington D.C. could
potentially jeopardize the current level of support and
cooperation she receives by being a member of the director's
immediate staff and a general peer of the division chiefs. I
daresay you would get the same reaction from each of our field
PROs. We have also received feedback from a number of our
stakeholder groups supporting the current reporting alignment.
The changes brought about by TBOR2 to strengthen the
independence and linkage of field PROs to the Advocate's office
should greatly assist in alleviating any other concerns in this
area. If there are specific concerns, however, that are raised
as a result of the current reporting structure, either now or
in the future, I would suggest they be brought to my attention
in order to ensure they are promptly addressed.
In closing, I want to stress the important role PRP plays
in addressing the need of taxpayers who experience problems in
their dealings with the IRS. We want them to know that their
concerns are important to us and they need to be addressed as
quickly as possible. Once we fix their problems, we want to be
able to move forward and also fix the systems that created the
problems in the first place. To meet this challenge we
recognize we need a lot of assistance. We need the support of
the organization in providing resources to address systems
concerns. We need the support of our stakeholders to elevate
problems to our attention and to assist in coming up with
potential solutions to identified problems. And most
importantly, we need the support of the American taxpayer to
let us know how we are doing in serving as their advocate
within the IRS.
Taxpayer Advocate's Annual Report to Congress FY 1996
Foreword
This is the first Taxpayer Advocate Report to the Congress
as required by the recently enacted Taxpayer Bill of Rights
(TBOR2). The mission of the Taxpayer Advocate is relatively
simple and has two primary facets. First, we work with
taxpayers to address their immediate problems or concerns and
to provide appropriate relief. Second, we have a responsibility
to address continuing systemic problems through analysis of
their underlying causes and to recommend appropriate corrective
actions. This element of our program is generally referred to
as advocacy.
An ongoing role for Problem Resolution Program (PRP) and
the Taxpayer Ombudsman, now the Taxpayer Advocate, for many
years has been advocating for taxpayers through reviewing the
impact of new programs and the source and causes of PRP
casework. While advocacy can take many forms, the primary focus
is to determine potential impacts on taxpayers, and then
working with functional officials to take appropriate
corrective actions. TBOR2 takes advocacy to a higher level by
requiring the establishment of formal monitoring and reporting
systems to track and follow-up on recommendations, as
appropriate. I have also established a more formal process of
conveying PRP recommendations to operational areas through the
use of ``Advocacy Memoranda'' which require a response within
90 days. These memoranda are not intended to replace the
ongoing advocacy activity that takes place at the staff level,
but, in fact, will supplement and expand on those efforts.
Since TBOR2 was not enacted until the end of the tenth
month of the fiscal year, we had a relatively short timeframe
in which to gather input and develop this report. The focus of
the report, therefore, has been placed on activity that had
been documented by the end of the fiscal year and where
responses had been requested from officials responsible for
responding to the recommendations. Feedback on our current list
of the most significant problems facing taxpayers in dealing
with the IRS was gathered from our regional offices and
responses were requested from appropriate operational
officials. Other areas included in the report reflect ongoing
problems with our attempts to locate and ensure we have that
taxpayer's last known address as well as more recent efforts to
reduce the potential for adverse impact of the Service's
Revenue Protection Strategy on taxpayers.
In future reports, I plan to also include direct feedback
from both taxpayers and the tax practitioner community on the
most serious problems that taxpayers face in dealing with the
IRS. I have already initiated a dialogue through the various
Commissioner's liaison committees to start the process of
gathering direct feedback from the following organizations on
areas of importance to their constituents: the National
Association of Tax Practitioners, the American Society of
Certified Public Accountants, the National Association of
Enrolled Agents, the National Association of Accountants, the
American Bar Association, and the Tax Executive Institute. In
addition, I have requested the assistance of our Strategic
Planning Division in conducting a series of focus groups
designed to gather feedback from individual taxpayers and small
businesses on their concerns.
I recently provided members of the IRS Executive Committee
with a copy of the Taxpayer Advocate's analysis of our FY 1996
casework activity. This report identified the top ten sources
of PRP casework for each region, for our ten service centers,
and for the nation. The Deputy Commissioner has asked each
Regional Commissioner and the Service Center Executive Officer
to work with me to identify critical areas of concern, and to
establish teams to review the underlying causes for taxpayer
problems in those areas and to recommend improvements to the
operations of those systems. Each of the regional PRP staffs
will participate in that process and will develop
recommendations in other key program areas as well.
While this initial report represents, from my perspective,
a good beginning, there is much to be done. The inclusion of
direct input from taxpayers and the practitioner community
along with enhanced analysis on the primary sources of PRP
casework will form the basis for a more comprehensive systems
improvement effort that will benefit both the taxpaying public
and the Service.
Lee R. Monks
Taxpayer Advocate
December 31, 1996
I. Introduction
This report by the Taxpayer Advocate to the House Ways and
Means and Senate Finance Committees is mandated by section
101(a) of the Taxpayer Bill of Rights 2 (public law 104-168),
enacted on July 30, 1996.
A. Program Overview
The newly created position of Taxpayer Advocate and the
Office of the Taxpayer Advocate replace the former position of
the Taxpayer Ombudsman and the Headquarters Problem Resolution
Program staff, while enhancing the authority of the position
and expanding the office's scope and responsibilities. This is
the latest enhancement, including those mandated by Congress,
to a longstanding, and, we believe, highly effective program of
taxpayer advocacy and assistance.
The Problem Resolution Program (PRP) was founded in 1976 as
part of the Taxpayer Service organization and was reorganized
as a separate organizational component the following year.
Initially, Problem Resolution Officer (PRO) positions were
established only at the Service's district offices. In 1979,
recognizing that many of the taxpayer problems that reached
district PRP offices related to service center operations, the
program was expanded and PROs were established in each of the
service centers. In both districts and service centers, the PRO
is a member of the Director's immediate staff.
In late 1979, the Taxpayer Ombudsman, an executive level
position on the Commissioner's immediate staff, was created to
head the PRP organization and to provide greater authority and
visibility to PRP both inside and outside the IRS. In 1980,
Regional Problem Resolution Officer positions were established
on the immediate staffs of each Regional Commissioner to
provide program oversight and assistance to the PROs in
districts and service centers.
Since its inception, PRP has provided assistance to
taxpayers who have been unable to get their problems resolved
through normal channels. PRP assured the timely and effective
resolution of more than 325,000 such cases during FY 1996. In
1988, the Omnibus Taxpayer Bill of Rights (TBOR) expanded PRP's
ability to assist taxpayers by providing statutory authority
under section 7811 of the Internal Revenue Code for the
Taxpayer Advocate or his designees, the Problem Resolution
Officers, to issue a Taxpayer Assistance Order (TAO). A TAO may
be issued when necessary to relieve an imminent, significant
hardship as a result of the manner in which the tax laws are
being administered. The original statute authorized issuance of
a TAO to require the release of property from levy or to cease
or refrain from taking actions in certain situations. The
following year, the Commissioner administratively expanded TAO
authority to include relief of hardship in situations beyond
those specified in the law. TBOR2 included this expanded
authority and also allowed the Taxpayer Advocate or PRO to
specify in a TAO a time period by which the ordered actions
must be completed.
During FY 1996, more than 32,150 Applications for Taxpayer
Assistance Order were processed. Of these, 76.5% were granted
relief or appropriate assistance was otherwise provided. Only
five cases required an enforced TAO, in which Problem
Resolution Officers formally exerted their statutory authority
to order relief for the taxpayer. In all five cases, the relief
was provided timely.
Assistance could not be provided in 23.5 percent of the
applications because:
It was determined that relief was not appropriate
(17.3%)
The law prevented the Service from providing
relief (3.6%)
The ATAO did not meet significant hardship
criteria (2.6%)
Relief may be determined to be innapropriate when the
remedy the taxpayer is seeking is not justifiable; e.g., when a
taxpayer requests abatement of an additional tax assessment but
provides no supporting documentation to justify the abatement;
or when granting a request for release of levy would jeopardize
ultimate payment of the tax when the taxpayer has neglected or
refused to make other arrangements with the Service to resolve
their delinquency.
Many denials of relief due to the law preventing Service
action were related to returning levy proceeds or releasing tax
liens. The levy and lien provisions of TBOR2, which were
supported by the Taxpayer Advocate, eliminated prior statutory
constraints in these areas and should increase taxpayer relief
actions during FY 1997.
Over the years, the program's focus has shifted from one of
primarily identifying and resolving instances when taxpayers
have not been able to solve tax problems through normal
channels, or when they were suffering significant hardships.
The focus now is to first assist the taxpayer with their
immediate problem, and then determine the primary sources or
underlying causes of those problems in order to work with IRS
functional areas to initiate corrective actions and prevent the
occurrence of similar problems in the future.
More significantly, TBOR2 enhanced the authority of the
Taxpayer Advocate to ensure that IRS gives appropriate
attention to the underlying causes of problems taxpayers
encounter and that responsible IRS officials seriously consider
and formally respond to recommendations by the Taxpayer
Advocate to improve customer service and IRS responsiveness.
TBOR2 requires the establishment of internal procedures,
referred to as the ``Commissioner's Reporting System,'' for
ensuring a formal IRS response within three months to all
Taxpayer Advocate recommendations, and requires that the
Taxpayer Advocate report directly to Congress on the office's
activities for the past year, including a summary of the
actions taken to implement recommendations and to address the
most serious problems faced by taxpayers.
TAO Program Activity
FY 1996
------------------------------------------------------------------------
Volume Percentage
------------------------------------------------------------------------
Assistance Provided to Taxpayer:
TAO Resolved (Voluntarily).................. 14,862 46.2
PRP Case Initiated.......................... 2,114 6.6
Referred to Function for Resolution......... 4,052 12.6
Resolved by the PRO Without TAO............. 1,076 3.3
Relief Provided Before TAO Issued........... 2,514 7.8
Enforced TAO................................ 5 *
-------------------------
Subtotal.................................. 24,623 76.5
Other:
Relief Not Appropriate...................... 5,546 17.3
Law Prevents Relief......................... 1,147 3.6
No Action Required..........................
(did not meet criteria)..................... 834 2.6
-------------------------
Subtotal.................................. 7,527 23.5
=========================
Total................................... 32,150 100%
------------------------------------------------------------------------
* Less than 0.1%
B. Sources of FY 1996 Casework
In January 1995 the Taxpayer Advocate initiated a change in
the coding process for each case meeting PRP or ATAO criteria
by type of issue (major issue code). The major issue code
represents the issue or process that should be looked at for
the purpose of determining the source or cause of various
problems and then for initiating action to correct systems
deficiencies, address unfair treatment, reduce program cycle
time, or improving customer service.
In FY 1996 enhancements to the Problem Resolution
Management Information System (PROMIS) resulted in creation of
a single nationwide database of PRP/ATAO casework enabling
collection and analysis of PRP's 55 major issue codes with far
more ease and greater reliability than ever before.
The most recent analysis of closed PRP/ATAO cases provided:
A picture of the vital few issues involved in a
significant portion of PRP/ATAO casework throughout the IRS,
An FY 1996 and FY 1995 comparison of major issue
codes,
A breakdown of major issue codes by IRS function
with primary oversight,
Major issue codes by centers, regions and
districts, and for A/C (International)
The Taxpayer Advocate, at a recent meeting of the executive
Committee, shared his staff's analysis of PRP casework for FY
1996, which included charts summarizing the top ten major issue
codes, in terms of PRP casework volume, nationally, for each
geographical region, and for the ten service centers. The
charts that immediately follow this section (pages 7 and 8)
provide a sample of the analysis being conducted by the
Advocate's staff. Chart A reflects the top ten issues or
processes that are the cause of PRP cases on a nationwide
basis. Chart B depicts a distribution of all 55 PRP case codes
for districts, as a whole, and for service centers. Charts C
and D reflect the top ten issues for districts and service
centers, respectively.
Our analysis indicated that the top ten major issue codes,
by volume, for FY 1996, were, as follows:
1. Audit Reconsiderations
2. Refund Inquiries/Requests
3. Lost/Misapplied Payments
4. Processing Individual Returns
5. Processing Claims/Amended Returns
6. Penalties Other Than Federal Tax Deposit (FTD) Penalties
7. Federal Tax Deposit Penalties
8. Earned Income Credit (EIC) Issues
9. Revenue Protection Strategy (RPS)
10. Installment Agreements
Executives in the field and at the Headquarters Office are
expected to provide support to the Taxpayer Advocate through
encouragement of functional participation in the analysis and
systems improvement efforts initiated by their local and
regional PROs. Regional Commissioners have been asked to review
the data for their respective organizations and to initiate
appropriate actions. The Taxpayer Advocate has strongly
encouraged the establishment of Regional Advocacy Councils to
serve as the primary focal point for reviewing PRP problem data
and initiating corrective actions. All four regions have
established councils with cross-functional representation
including PRP.
The Advocate's staff has analyzed the FY 1995 and FY 1996
major issue code data to identify and quantify the most
frequent and most time consuming taxpayer problems. We will
continue to analyze the major issue code data on a quarterly
basis during FY 1997 to identify trends, patterns, aberrations,
and possible anomalies. This analysis, which represents actual
data from PRP casework, will form the basis for the majority of
the advocacy activities undertaken by PRP. We also plan to
supplement this data with input from taxpayer focus groups and
from practitioner stakeholder groups in order to develop a
comprehensive approach to dealing with the problems faced by
taxpayers in dealing with the Service. This process will allow
the Office of the Taxpayer Advocate to:
Better understand the most frequent problems
facing taxpayers,
Rank or categorize problems according to their
potential significance,
Develop data research and analysis project plans
to be assigned to selected regions for completion,
Confirm and quantify the seriousness of each major
issue code problem,
Uncover underlying cause(s) for the most serious
problem codes,
Develop recommendations to prevent such problems
or mitigate their impact on taxpayers.
Convey recommendations in advocacy memoranda from
the Taxpayer Advocate to responsible IRS officials,
Track recommendations in the Commissioner's
Reporting System, and
Report on the of recommendations in the Taxpayer
Advocate's annual report to Congress.
This, in turn, will assist responsible officials in
developing appropriate improvement initiatives that will:
Reduce taxpayer burden in transacting business
with the IRS,
Reduce rework, including PRP/ATAO cases,
Improve IRS efficiency in delivering products and
services, and
Free up resources to be applied to more productive
programs.
Four specific advocacy projects have already been initiated
by our regional offices as a result of our data analysis. The
four projects deal with taxpayer access to toll-free,
collection related issues, earned income credit, and FTD
penalties. Progress on these initiatives and recommendations
will be reported on in my FY 1997 report.
II. Program Support
A. Taxpayer Assistance Orders (TAOs)
TBOR2 provides codified the Taxpayer Advocate's and PRO's
authority to set time periods for completing actions required
by and Taxpayer Assistance Order.
During FY 1996, five enforced TAOs were issued by Problem
Resolution Officers; two in Western Region and three in
Midstates Region. All five TAOs were honored timely by the
receiving officials.
B. Selection and Evaluation of Problem Resolution Officers
In January 1996, the Commissioner issued a directive to all
IRS Heads of Office that the Taxpayer Advocate or his designee,
the Regional PRO, would participate in the selection and
evaluation of all Problem Resolution Officers. TBOR2
subsequently codified that requirement.
Eight Problem Resolution Officers (PROs) were selected
during FY 1996 with a Regional PRO participating and concurring
in each selection; two PROs were selected at the Atlanta and
Fresno Service Center, and an Assistant PRO was selected at the
Brookhaven Service Center; two PROs were selected in the
Brooklyn and Houston Districts, and three Associate PROs were
selected in the Augusta, Portland, and Sacramento posts of
duty. No Regional PROs were selected this year.
The Taxpayer Advocate provided input and gave concurrence
to each Regional Commissioner on the performance evaluation of
each Regional PRO. The Regional PROs participated in the
performance evaluations of the district and service center
PROs, with the exception of two centers. These were both due to
unique circumstances for which steps have been taken to ensure
that this does not recur.
C. Quality Initiatives
During the past year, action was completed to consolidate
quality review (QR) activity for PRP in two locations, San
Francisco for all district offices and the Brookhaven Service
Center for all service centers. The primary purpose of the
consolidation was to achieve more consistency in the review of
PRP casework and application of the PRP quality standards. In
addition, I commissioned a national task force, made up of
field PROs and members of my headquarters staff, to review
concerns expressed by the field regarding the QR process. I
approved thirteen recommendations made by the task force,
designed to refocus quality from the customer's perspective
which should result in both a better understanding of customer
needs and improved quality results across the board. These
changes were implemented during October 1996.
D. Communications
Since I assumed the position of Taxpayer Ombudsman in 1993,
I have been extremely active in promoting the role of the
Taxpayer Ombudsman (now Advocate) and Problem Resolution both
internally and with external stakeholder groups. There was, at
the time and still is, a need to ensure better understanding of
the role we play within the organization. As a result of the
changes created by the passage of TBOR2 that need is even
greater.
For the Advocate to be effective, he or she must be allowed
to operate as an independent voice for the taxpayer within the
Service and to be able to make appropriate recommendations for
improving IRS systems and processes that do not work properly
or have unintended negative consequences for taxpayers. This
requires both an acceptance and understanding of the role by
top-level management within the organization as well as support
from the Commissioner and Deputy Commissioner. The support
required has been there since the time I first assumed this
position. The additional authorities granted by TBOR2 such as
the Advocate's Report to the Congress and the requirement that
functional management must respond promptly to recommendations
made by the Advocate will ensure that greater attention is paid
to this aspect of our program. The balance of the understanding
required will be gained from continued education of executives,
managers and employees.
Since the passage of TBOR2 and even prior to that time, I
have made a number of speeches to various practitioner groups
and at IRS sponsored symposiums for tax preparers to discuss
the changes and enhancements to PRP and my position as a result
of the legislation. I have also indicated a desire to solicit
direct feedback from these groups as part of the process to
identify the most significant problems affecting taxpayers in
their dealings with the IRS. Response has been very favorable
and there have been numerous inquires regarding specific
timeframes for implementation of various aspects of the bill.
Surprisingly, I also learned that there are still a number of
tax preparers that were relatively uninformed regarding how PRP
works and that it is available to them as a resource in dealing
with problem areas with the IRS.
The last area relating to communications deals with direct
feedback from taxpayers. PRP had conducted a series of focus
groups in late 1993 on service offered by PRP. The information
obtained was extremely useful in modifying our program
practices and quality review program focus, but did not offer
any significant insight to problems taxpayers were experiencing
with the IRS as a whole. In 1997, I have initiated a series of
focus groups, in conjunction with our Strategic Planning
Division, to gather data from both individual and small
business taxpayers on the types of problems they encounter in
their dealing with the IRS. This information will be included
in my next report to the Congress and will also assist in
developing the list of the most significant problems as well as
appropriate recommendations for systems improvements.
Obviously, communications and outreach will continue as a high
priority for PRP in 1997.
E. Reorganization of PRP
For the past two years the IRS has been undergoing a
reorganization of its regional and district offices. During
that time the Service has consolidated field operations from
seven to four regions and from 63 to 33 districts. At an early
point in the discussions regarding district operations,
Commissioner Richardson made the decision to retain PRO
positions in all 63 former district offices. This ensured that
each former district location would maintain a local PRP
contact, now designated as an Associate PRO, for liaison with
taxpayers, local congressional offices and the practitioner
community.
While PRP staffing has remained fairly stable for the past
few years, there have been some shift of resources to
accommodate needed transfers of workload. My office has
developed a staffing model based on workload needs to ensure
each district has been allocated an appropriate level of
resources commensurate with local workload demands.
III. Taxpayer Advocacy
A. Initiatives of the Taxpayer Advocate
Since the inception of PRP, the Taxpayer Advocate's staff
and field PROs have been involved in identifying the underlying
causes of taxpayer problems and in recommending solutions to
improve taxpayer service and IRS responsiveness. Because those
recommendations were made in a variety of ways and came in
through different levels of the organization, they were handled
inconsistently at times and often did not receive the support
necessary to ensure implementation.
One of the early actions that I took upon assuming this
position was to establish a more formal approach towards
handling improvement recommendations received from the field
and then in tracking completion of approved actions. Since that
time, we have also developed a more comprehensive management
information system and have used data derived from that system
to pinpoint critical areas of concern. As a result, by the time
TBOR 2 was enacted much of the structure and internal systems
to track and report on improvement initiatives sponsored by the
Advocate's office were already in place. We have established a
formal system of Advocacy Memoranda, which requires a response
to the Taxpayer Advocate within 90 days. We also have a
tracking system in place to ensure approved actions are being
addressed by the appropriate officials until they are resolved
or discontinued.
During the last two months of FY 1996, we issued two
Advocacy Memoranda, to the appropriate responsible official,
which contained recommendations relating to two advocacy
projects undertaken by the Advocate's staff: the first
contained recommendations related to the Revenue Protection
Strategy (RPS) that resulted from an FY 1996 cross-functional
effort to improve processes for the 1997 individual income tax
filing season. The second memorandum followed up on the
implementation of recommendations that had resulted from a 1994
cross-functional effort, the Last Known Address (LKA) Study,
which I chaired, to improve the way the Service determines and
maintains taxpayers' current addresses.
In addition to the aforementioned advocacy projects, my
staff was involved in two other initiatives worthy of mention
in this report and we are also supporting a project originally
initiated by the San Francisco PRP staff and co-sponsored by
the Western Region. The first two projects deal with the
establishment of a servicewide customer feedback system and a
study on issues affecting divorced or separated spouses, now
more commonly referred to as the joint return study and the
Western Region study focuses on audit reconsideration issues,
which represents the number one source of PRP casework (see
Chart A.).
A brief synopsis of each of the five projects follows.
1. Revenue Protection Strategy
The Service's Revenue Protection Strategy (RPS) is an
approach, begun during FY 1995, to take a more aggressive
stance to identify and prevent fraud and abuse of the Earned
Income Tax Credit. Although the strategy has evolved and been
refined since its initial implementation, RPS' basic feature
involved the delay in issuance of certain EIC-related refunds
and the review and screening of questionable EIC claims to
determine whether to disallow the claim through the statutory
notice of deficiency process or to initiate a criminal
investigation. During the 1995 filing season, field PRP offices
received 25,257 Applications for Taxpayer Assistance Order
(ATAO) and 895 regular PRP cases related to RPS refund freezes.
During FY 1995, the Office of the Taxpayer Advocate worked with
field PRP offices and members of Headquarters operational
staffs to monitor the RPS processes and case inventories and to
identify opportunities for improving processes and refining
screening methods. During the 1996 filing season, only 835 RPS
related ATAOs were received, a significant decrease in taxpayer
hardship claims resulting from improved screening and selection
techniques which required far fewer delays in the issuance of
refunds. In 1996, although regular RPS PRP case receipts
increased to 4579, most of those cases were holdover problems
from the prior year, i.e., 1995, refund freeze was not yet
resolved because of processing problems.
During the past fiscal year, the Taxpayer Advocate's staff
partnered with staff members representing the Assistant
Commissioner (Examination), the Office of Refund Fraud, and the
Chief Taxpayer Service to review RPS processes in selected
districts and service centers. Following that review,
recommendations were made in an Advocacy Memorandum to the
Chief Taxpayer Service. We acknowledged in our Advocacy
Memorandum that legislation pending at the time it was issued
to give the IRS authority to adjust EIC amounts and other
return items without requiring issuance of a statutory notice
of deficiency might impact the recommendations being made.
During the 1997 filing period my staff will work closely
with the staff of the Service Center Executive Officer and
other functional areas to monitor the RPS process. This is
critical in light of new legislation providing the IRS with
math error authority on RPS cases and new procedures for
handling taxpayer identification numbers for those individuals
unable to obtain Social Security numbers.
The following is a brief summary of our RPS
recommendations. The recommendations have been numbered in this
report to assist the reader:
1. Revise the wording on the acknowledgment and interim
letters generated through Examination function management
information system.
2. Revise certain RPS taxpayer notices.
3. Establish indicators on RPS accounts to show when
correspondence or telephone inquiries are received from
taxpayers.
4. Establish an indicator to show when additional
information is needed from the taxpayer.
5. Establish separate account indicators to show when an
RPS case is closed because the taxpayer agreed to the proposed
adjustment or when the Service accepted the return as filed.
6. Require the consistent use of indicators among all IRS
offices.
7. Indicate the date acknowledgment and interim letters
were sent on RPS cases.
8. Issue clarifying instructions for the handling of cases
where multiple taxpayers live in the same household.
9. Provide separate indicators for closed cases where no
response was received and for closed cases where a response was
received but the information provided was not enough to
substantiate the taxpayer's eligibility.
10. Provide separate indicators for open cases where no
response was received and for open closed cases where a
response was received but the information provided was not
enough to substantiate the taxpayer's eligibility.
11. Revise time frames for initiating internal referrals
and PRP cases following taxpayer contacts to coincide more
closely with processing times related to the acknowledgment and
interim letters.
12. Revise account research and indicator input procedures
for taxpayer calls routed outside a center's normal servicing
area.
13. Revise indicator input procedures when internal
referrals or PRP cases are initiated at telephone sites.
A more detailed explanation of our recommendations,
responses by the Chief Taxpayer Service and the Taxpayer
Advocate are included in Appendix A.
2. Last Known Address (LKA) Study
During FY 1994, the Taxpayer Advocate sponsored a cross-
functional analysis of the IRS's efforts to improve the way it
updates and maintains taxpayer address records. Twenty-three
recommendations (ten short-term and thirteen long-term ones)
were made as a result of that study and were approved by the
Deputy Commissioner in August 1994.
In a December 1994 report, entitled TAX ADMINISTRATION,
Changes Needed to Reduce Volume and Improve Processing of
Undeliverable Mail, the General Accounting Office (GAO) reached
the following conclusion:
Although it is unlikely that the problem of undeliverable
mail can be totally eliminated, IRS needs to give undeliverable
mail more attention because it adversely affects operations and
can cause undue burden on taxpayers. Although previous efforts
to deal with this mail were primarily limited to IRS' service
center Collection functions, new efforts are expected to have
Service-wide consequences because IRS agreed in August 1994 to
implement recommendations of the Taxpayer Advocate's study. The
implementation of those recommendations should have significant
impact on reducing IRS' undeliverable mail.
Since the December 1994 GAO report, twelve of the twenty-
three approved recommendations were implemented or were closed
(without being implemented). Actions implemented by the Service
involved simplification and standardization of address
instructions to taxpayers, the implementation of new guidelines
for accepting oral statements during compliance contacts,
clarification of procedures dealing with divorced and separated
taxpayers, and expanded training for employees on change of
address input procedures.
Overall we believe progress has been made in this problem
area. At this time we believe most of the remaining issues can
be closed with the exception of a few recommendations which are
still in progress.
One of those projects involves a test funded by the
Taxpayer Advocate's Office and conducted by the Indiana
District Problem Resolution Office. The test provides for the
direct distribution of the IRS change of address form within
the U.S. Postal Service's Change of Address confirmation letter
and Welcome Kit. On December 12, 1996, I issued an Advocacy
Memorandum to the Chief Taxpayer Service recommending that he
consider implementation of this proposal nationwide. My office
is tracking that recommendation separately in the
Commissioner's Reporting System, and I will report on our
progress in my FY 1997 report to Congress.
The second issue provides for the development of a
legislative proposal to define last known address. After review
by Chief Counsel, they agreed to establish a project to define
last known address by regulation in lieu of the legislative
recommendation. At this time we cannot move further until a
business case is completed for the time frames set forth for
processing returns and notifications (i.e., the numbers of days
necessary to process address information from returns and
notification). This item will remain open pending this
response.
A complete listing of the LKA Study recommendations and
discussion points is contained in Appendix C.
3. Customer Feedback System
Following passage of Taxpayer Bill of Rights 2, which
requires that the IRS report on all complaints received related
to employee misconduct, the Taxpayer Advocate and Chief
Management and Administration were assigned responsibility for
the implementation of a Customer Feedback System. The following
recommendations were made to the Commissioner, Deputy
Commissioner, and IRS Executive Committee:
1. The Deputy Commissioner should have the primary
responsibility for ensuring that appropriate actions are taken
to implement the system and to initiate actions based on
information and data provided by the system.
2. The Taxpayer Advocate should be the individual with
primary responsibility for administering the system and for
providing data and appropriate recommendations to the members
of the IRS Executive Committee.
3. The Regional Commissioners and Chief Officers should be
responsible for taking appropriate corrective actions, based on
the data and recommendations received.
4. Data on customer feedback should be maintained on the
Problem Resolution Office Management Information System
(PROMIS) which will require some modifications to handle data
input and storage requirements.
All recommendations have been agreed to and the system is
now operational. Initially, data on both complaints and
compliments from taxpayers is being gathered manually and will
be retained by each office. Following the required
modifications to PROMIS, which are expected to be completed in
January 1997, all data will be input and the first report made
available to the Executive Committee. In addition, coordinators
have been established within each office to ensure data is
properly input and maintained. The first report to the Congress
on customer feedback is due June 30, 1997.
4. Joint Return Study
During a TBOR2 hearing in April 1994, the Taxpayer
Ombudsman indicated that a study was being undertaken to review
the problems being experienced by divorced and separated
taxpayers. This was in response to comments made by the
Chairman of the IRS Oversight Subcommittee, in reference to the
increasing numbers of complaints being received by her office
on this issue.
The task force, which was co-sponsored by the Taxpayer
Ombudsman and the Southwest (now Midstates) Region, completed
their efforts in late 1995 and provided the results of their
study to a new task force formed as a result of pending TBOR2
legislation requiring both the IRS and the GAO to conduct a
study on the issue of joint and several liability. The Taxpayer
Advocate and Chief Taxpayer Services are serving as cosponsors
of the new study. The IRS study group report, which is due to
be issued January 30, 1997, will also include a review of
innocent spouse provisions.
5. Audit Reconsideration Project
In conjunction with our efforts to initiate improvements to
systems which are creating problems for taxpayers, the Western
Region recently completed an advocacy project on audit
reconsiderations which, according to data on FY 1996 casework,
is the single largest source of cases received by PRP.
The project, which is being reviewed by my staff and the
Assistant Commissioner (Examination) has great potential for
reducing both the timeframes for handling audit
reconsiderations as well as the number of cases that need to be
referred and subsequently handled in PRP. A number of
recommendations have been forwarded to the Chief Compliance
Officer for review. Results of this initiative will be reported
on in the FY 1997 Taxpayer Advocate's report.
B. Legislative Recommendations
While I have no specific independent legislation
recommendations to make in this year's report due to time
constraints, there are several legislative proposals being
circulated within the IRS at the time of this report's
publication which I endorse for further study and
consideration.
1. Simplify the Computation and Assessment of the Estimated Tax
Penalty
The current rules regarding penalty for underpayment of
estimated tax under IRC 6654 are extraordinarily complex for
taxpayers and very difficult for the IRS to administer. For
example, in FY 1995 5,619,851 estimated tax penalties were
imposed on individuals. The exceptions to this penalty, for
which many taxpayers qualify, are difficult to compute and are
the source of additional frustration for taxpayers. Especially
complex is the ``annualized method'' of determining if an
exception to the penalty applies. Taxpayers are required to
complete Form 2210 in order to show that they qualify for one
of the exceptions that can lower or eliminate the penalty. Form
2210 is among the most complex and difficult of the tax forms.
The fundamental problem, however, is not with the form. The
problem lies in the complexity of the law. The current list of
suggested legislative proposals being circulated by Legislative
Affairs Division contains two separate proposals in this area.
I support further study of either concept since this is a
difficult area for taxpayers to understand and is a continuing
source of problems in PRP. Another possibility worthy of
consideration is that the penalty be retained for only those
taxpayers who continually underpay estimated tax, giving first-
time ``offenders'' an automatic waiver.
2. Allow an Exception to the Statute of Limitations on Refunds
So That Untimely Requested Overpayments Can Be Credited to
Other Years, in the Discretion of the IRS in Extenuating
Circumstances
The IRS is often put in the difficult position of
explaining to a taxpayer that, while the IRS is seeking tax due
owed from four or more years ago, it cannot refund amounts that
would otherwise legitimately be due from those years. Taxpayers
who file delinquent returns for multiple years often have a
combination of balance due and overpayment returns. Many
Service employees can relate instances of actions taken against
taxpayers who owed taxes for (say) 1990 and 1992 but would have
had a refund (sometimes larger that the combined balance due)
for 1991.
Taxpayers feel it is unfair that IRS will actively pursue a
balance due while, in their view, ignoring the tax that would
have been refunded from 1991. One proposal has been suggested
to allow an exception to the statute of limitations on refunds
when these types of extenuating circumstances exist. This
proposal would allow the offset of overpayments to other tax
liabilities, but not allow the refund of money for years beyond
the current statute of limitations. Obviously, this is an area
that needs to be reviewed carefully since we do not want to be
in a position of rewarding non-filers.
3. Eliminate Failure to Pay Penalty and Increase Interest Rate
on Underpayment to Market Rate
The current failure to pay penalty and the related
application of interest on underpayment is extremely complex
and appears to do little to encourage taxpayers to pay timely.
Charging taxpayers both a failure to pay penalty and interest
on the underpayment is, by itself, unnecessarily complex.
Adding to this complexity are the rules governing the graduated
penalty rates and the application of interest only after the
deficiency assessment is made. I could support a study of a
change in law that would eliminate the failure to pay penalty
and increase the interest rate on underpayment to a level that
would reflect the true time value of funds.
C. The Most Serious Problems Facing Taxpayers
The Taxpayer Bill of Rights 2 legislation has provided the
Taxpayer Advocate's office with an important tool, through the
Advocate's report to Congress, to deal more effectively in the
identification and resolution of continuing problems that
taxpayers are facing with the IRS. In our role as an advocate
for taxpayers, we must not only identify the primary sources of
problems, we must engage the organization in appropriate
corrective actions. In developing this list of the twenty most
serious problems facing taxpayers in their dealings with the
IRS, that thought was foremost n our minds.
An initial source for our listing was the day-to-day
dialogue we have with taxpayers and tax preparers on their most
serious problems with our systems. Although much of this
information is derived from informal discussion, many of the
issues are supported by data from the PRP management
information system (PROMIS). For example, taxpayers and tax
preparers, alike, report a significant number of problems with
IRS penalty administration. As indicated on Chart A (page 7)
Other Penalties and FTD Penalties rank sixth and seventh,
respectively, in the top ten listing for the source of PRP
casework nationally. On the other hand, problems associated
with taxpayer access to IRS toll-free service are reported as a
source of continuing frustration for both taxpayers and
preparers but would not normally be identified as a source for
PRP casework.
Following development of the list, my office requested
feedback from the Regional Commissioners and their staffs as
follows:
what progress had been made in their regions in
addressing the issues outlined;
the extent of the problem and its relative order
of importance; and
whether any other issues had emerged that
warranted inclusion on the list.
As a result of this interaction, my staff developed the
final listing of problems that appears in this report. As
mentioned in the foreword of this report, plans for 1997
include more direct interaction with taxpayers and other key
stakeholders, through focus groups and liaison activities. This
will ensure a more comprehensive analysis of the issues and
will be integrated with the data derived from the PROMIS system
to serve as the primary source for continuing efforts to
improve the performance of IRS systems affecting taxpayers.
The listing of the twenty most serious problems facing
taxpayers in their dealings with the IRS as well as the
Services' progress to date in addressing these issues and our
assessment of what remains to be accomplished is as follows:
1. Complexity of the Tax Law
Responsible IRS Official: Various
Complexity of the tax law is the single most burdensome
aspect of compliance for most taxpayers and is an underlying
cause of many, if not all, of the most serious problems
encountered by taxpayers. While a number of IRS officials have
varying degrees of responsibility for reducing the burden faced
by taxpayers, and are taking appropriate steps , much of the
impetus for complexity is driven by external forces and
continuing changes to the tax law.
While complexity of the tax laws has been identified as the
single most burdensome aspect of compliance for taxpayers, it
also serves, to a great degree, as a contributing factor for
many of the other issues addressed in this report. Obviously,
complexity in and of itself, is not intentional but rather, is
the cumulative effect of numerous tax law changes, each of
which is enacted for a presumably desirable public policy
purpose. The Service is deeply concerned with taxpayer burden
and is strongly committed to reducing the burden associated
with complying with the tax laws, whether it is dealing with
clarification or simplification of notices, publications and
instructions or of the tax laws themselves.
My office has focused on several issues during the past two
years in an efforts to deal with reducing complexity and burden
associated with the tax laws. For example, our efforts on a
Joint Return study, co-sponsored by the Mid-States Region, were
provided to the national IRS task force looking at the same
issue. We intend to engage the field more fully in these
efforts during 1997.
One proposal that I previously made in testimony before the
Sub-Committee for IRS Oversight at a hearing on taxpayer burden
dealt with a methodology to ``score'' all proposed tax
legislation for taxpayer burden, much the same as is now done
for revenue. While an acceptable methodology would have to be
developed to be used in scoring and this would not necessarily
assure decreases in burden, this would ensure that burden is
considered as an integral part of the process.
2. Inability to Readily Access IRS by Telephone
Responsible IRS Official: Chief Taxpayer Service
Taxpayers consistently identify the inability to reach IRS
at its toll-free telephone number as a major problem. The IRS
achieved a level of access during FY 1996 of 46 percent, which
reflects a decline from the 50 percent level achieved during FY
1994.
In FY 1994, the IRS was funded to answer 34.6 million calls
while actual demand was 66.8 million. In FY 1995, 33.6 million
calls were funded, while actual demand rose to 101 million
calls. This resulted in a 33 percent level of access for
callers. (Demand in FY 1995 was unusually high due to actions
taken as part of the IRS Revenue Protection Strategy initiated
that year, which resulted in many refunds being delayed.) For
FY 1996, 38.3 million calls were funded and actual demand
dropped to 97.5 million, resulting in a 46 percent level of
access. Despite the increased number of calls answered, the
high level of demand each year still exceeds the resources
available to answer these calls.
To maximize use of available resources and improve the
level of access to taxpayers, the IRS established an oversight
board in November 1995 to review, administer, and implement
best practices for toll-free sites. The board completed a top-
to-bottom review of toll-free equipment and implemented best
practices nationwide.
The IRS is also improving the clarity of its notices to
reduce the need for taxpayers to contact us. In addition, tax
forms and publications are available on the Internet 24 hours a
day and on CD-ROM and in many public libraries. The IRS
Internet Home Page also provides answers to frequently asked
questions and other tax information 24 hours a day. This past
year, many new services including Tax Topics, scannable
Publications, and Tax Tables were put on-line.
I strongly endorse the efforts being taken to improve
access. In light of current and future budget realities, we see
efforts to reduce demand while improving overall access as
critical initiatives and are working with the Customer Service
organization in the Midstates Region to explore further ways to
reduce avoidable demand. The Service is also committing
additional resources to toll-free service this year.
3. Lack of Clarity and Inappropriate Tone of IRS Communications
with Taxpayers
Responsible IRS Official: Chief Taxpayer Service
IRS notices and correspondence are not always clear and
sometimes contain jargon that is not understood by the average
taxpayer. Frequently, notices do not provide an adequate
explanation of the reason for the communication. In addition,
IRS communications to taxpayers take the same tone and approach
toward taxpayers with spotless compliance histories as toward
those with long histories of intentional noncompliance.
In response to concerns such as these, the IRS has begun a
complete overhaul of its notice system. Efforts are focused in
two primary areas: redesigning current notices and
reengineering the entire notice process.
The Notice Redesign project will improve the
quality, content and format of IRS notices so that taxpayers
can understand and know how to respond to a notice without
having to call the IRS for an explanation.
The Notice Reengineering project is part of a
broader Tax Settlement Reengineering effort aimed at
eliminating duplicate or unnecessary correspondence with
taxpayers, targeting the notice mailouts to the desired
audiences, improving the timing of the notice issuances, and
exploring alternative methods of conveying information to
taxpayers.
My staff is actively involved in notice review and redesign
and will continue to monitor progress inthis area. We see this
as a major step in reducing burden for taxpayers. It also
provides the potential to reduce telephone demand if IRS,
through analysis of incoming notice calls, can improve notices
so taxpayers do not need to call IRS after they receive them.
4. Erroneous IRS Notices
Responsible IRS Official: Chief Taxpayer Service
Information reported to the IRS by external sources on
wages, interest, and other income is not always accurate and
often results in IRS communications with taxpayers which are
unnecessary, inaccurate, and misunderstood.
The majority of payer reporting problems that impact the
notices in the Underreporter Program (URP) most often occur in
business mergers, when both merging entities report the income.
Duplicate reporting also occurs for some businesses when both
the payer and its transmitter file the same data. Other
problems include late filing and/or the non-filing of
correction documents.
National procedures for identifying and reporting incorrect
payer information are used to create a file, which is a
compilation of payer information that has been verified as
``erroneously filed or processed.'' The information is updated
weekly so that erroneous information returns can be identified
and corrected without having to contact taxpayers. For example,
during the processing of tax year 1992 cases (worked primarily
in calendar year 1994, and the last year for which complete
data is available) 20,589 cases were closed without having to
contact taxpayers.
The IRS is revising the regulations that tell payers how to
report business mergers, to clarify which company is
responsible. The IRS office responsible for processing magnetic
media documents conducts annual workshops which teach payers
how to prevent problems and how to properly report each of the
various types of income that is reportable on information
returns. Through these workshops, the IRS has reduced the
number of large volume filers who have problems. However, as
the number of small filers has increased, the number of small
filers who have errors in reporting payer information returns
has grown. The IRS has begun targeting these small businesses
with its workshops in an attempt to reduce errors from this
community.
In addition to the workshops, a telephone Hotline is
operated for payers to get information on how to file. Also,
the IRS publishes the filing requirements each tax year for
payers to follow and conducts public forums for payers to
discuss any potential changes to the reporting forms (e.g., W-
2, 1099).
We strongly endorse the actions being taken and will
continue to monitor progress in this area. This is also an area
in which we will attempt to get more direct input on the
specific nature of the problems being experienced from payors
and taxpayers in order to more specifically target corrective
actions.
5. Difficulty in Understanding Federal Tax Deposit Requirements
Responsible IRS Official: Chief Counsel (primary)
Chief Compliance Officer (secondary)
Federal Tax Deposit rules and related penalties are
extremely complex, resulting in frustration for taxpayers who
attempt to comply with the requirements, and expenditure of
significant resources by IRS in maintaining, correcting, and
adjusting employment tax accounts.
During fiscal year 1993 the IRS issued new Federal tax
deposit regulations intended to simplify the system previously
in place. These regulations were effective with respect to
deposits of Federal employment taxes (including railroad
retirement taxes) attributable to payments made after December
31, 1992, and affect approximately six million employers who
pay employment taxes. The new regulations were designed to
simplify the employment tax deposit system. They are easier to
understand and provide employers with up-front certainty in
determining their deposit obligations. The new system was
designed to reduce burden and compliance cost for employers,
particularly small businesses. In addition, we are currently
moving toward further simplification by phasing in an
electronic funds transfer (EFT) deposit system, and giving
consideration to raising the quarterly threshold requiring
deposits.
The IRS is conducting a comprehensive analysis of the
Business Master File for employers, who had a Form 941 filing
requirement for 1995, to determine the effectiveness of the
change in the regulations, noted above, in reducing their
compliance burden. A second objective of the study is to
identify and address continuing difficulties employers
experience in complying with the deposit requirements.
Participants from several IRS offices will conduct the study,
as well as the Northeast Region PRP office. The Commissioner's
Advisory Group is the external participant in this study. The
results of the study will be available in the spring of 1997.
To specifically address penalty concerns, the study group,
in conjunction with the IRS St. Louis office, conducted a
review of closed PRP cases that addressed federal tax deposit
penalties. The IRS will continue to emphasize the one-stop-
service procedure which is part of CEP and which is designed to
limit the number of problems with tax deposits.
The IRS has also taken steps to help taxpayers cope with
the complexity of federal tax deposit rules. One example was
the combination of employment tax information from three
separate publications (Pub 493, Alternative Tax Withholding
Methods and Tables, Pub 937, Employment Taxes, and Pub 952,
Sick Pay Reporting) into one publication, Pub 15-A, Employer's
Supplemental Tax Guide. In addition, the threshold requirement
for making federal deposits through electronic filing was
revised. An Electronic Federal Tax Payment System (EFTPS) help-
line was set up to assist taxpayers in meeting their filing
requirements.
Problems experienced by specific groups of taxpayers were
also addressed. For example, unemployment compensation
recipients were unable to withhold federal income taxes. As a
result, changes in the law were recommended to allow
unemployment recipients to elect to have their state withhold
federal income tax at a 15 percent rate. Also, the common-law
rules pertaining to employee versus independent contractor were
difficult to apply. The IRS substantially revised the common-
law rules pertaining to employee versus independent contractor.
This was to make the rules simpler and make the criteria for
determining whether a worker is an employee or independent
contractor more concise.
We fully endorse the actions being taken by the Service in
this area. Although taxpayers may find the Federal Tax Deposit
rules somewhat complex, a number of changes have been made to
simplify the process. In addition, the FTD system represents
the major source of government funds, therefore expeditious
receipt of FTD payments by the government is vital. Another
improvement more specifically targeting small business and
supported by my office was an agreement to notify taxpayers in
advance when the frequency of tax deposits change.
6. Compliance Burden on Small Businesses
Responsible IRS Official: Chief Compliance Officer
(primary)
Small Business Liaison (secondary)
Small businesses are heavily burdened in dealing with tax
related issues, including tax withholding and reporting
requirements, and differing filing and definitional
requirements for various types of tax (e.g., FICA, FUTA, and
income taxes).
Education is part of the answer to alleviating the burden
tax law imposes on small business taxpayers and the Service has
many programs geared to providing this education. Because, it
has always been difficult to reach all stakeholders, further
efforts need to be explored to identify ways to ensure
taxpayers have the knowledge they need in order to comply with
the tax regulations.
Small Business Tax Education Program (STEP) is a
cooperative effort with local organizations to provide tax
education to small business owners. The overriding theme is
``making taxes less taxing.'' This up-front tax education
reduced the burden of the small business owners' tax
obligations. Approximately 2,200 educational institutions
(mostly colleges and universities) participated in STEP.
Small business owners and self-employed persons can attend
Small Business Workshops (SBW) to learn about their Federal tax
rights and responsibilities. These workshops provide an
overview of the role of the Internal Revenue Service and the
kinds of tax information available to businesses.
The IRS has many recommendations and initiatives in process
to reduce the burden of small businesses in complying with the
law:
recommending the elimination or modification of
the Look-Back Provision in IRC 460. This is a burden on
taxpayers and IRS, produces nominal income or refunds, and is
costly to administer.
1995-96 Commissioner's Advisory Group recommended
(with the support of the Service) that the FIFO rules for
applying deposits against liabilities be changed for monthly
depositors and that the de minimus threshold for requiring
deposits be increased from $500 to $1000;
considering a Deposit Education Program (DEP)
initiative to provide the one-time retroactive removal of FTD
penalties for certain small businesses who participate in a
training program;
to comply with the mandate of TBOR 2 (Act section
304), the FTD timely and correctly deposit penalties will be
waived for new employers; issuance of a notice to these
taxpayers explaining what they need to do to comply in the
future is under consideration;
IRS will incorporate information in the Electronic
Federal Tax Payment System (EFTPS) information package on the
option of businesses making federal tax deposits more
frequently than that provided by the regulations;
developed a new publication, Publication 583,
Starting a Business and Keeping Records, in an effort to assist
small business people who are starting a business by providing
basic federal tax information for small businesses;
developed a video and written materials to assist
employers and employees in meeting their tip income reporting
requirements; the written material was produced in English and
Spanish, and a Chinese version is under development.
The Service recognizes that small business owners cannot be
expected to comply fully with the tax laws unless they first
understand their tax obligations and then have the tools they
need to satisfy their obligations quickly and cost-effectively.
For that reason, approximately two and a half years ago, the
Commissioner made a commitment that the Service would do what
it could to assist small businesses.
Regulatory Reform--The IRS started by going
directly to small business owners to listen to them. To
participate in this regulatory forum, the IRS established a new
IRS Small Business Affairs Office (SBAO) in March 1994. SBAO
serves as the national contact for small business taxpayers or
their representatives to express concerns regarding issues of
tax administration.
Small Business Town Meetings and White House
Conference on Small Business Meetings--The IRS continued to
seek opportunities for listening to the small business
community. The Commissioner held seven small business town
meetings throughout the nation during the spring and summer of
1995. The IRS also actively participated in the White House
Conference on Small Business's (WHCSB) state, regional and
national meetings in 1994 and 1995.
Tax Information and Assistance--During the summer
of 1995, the IRS joined with the Department of Commerce and
fourteen other government agencies to establish the U.S.
Business Advisor--a one-stop Internet shop that directs small
business owners to government information available on-line,
including the electronic IRS Homepage. For small business
owners seeking specialized tax assistance, the IRS partnered in
the development of the first U.S. General Store for Small
Business opened in Houston, Texas in July 1995. This store,
which fourteen other federal agencies support, provides one-
stop government service to businesses, ranging from assistance
in complying with regulations, to solving tax problems, and
obtaining loans. The IRS continues to work with other federal
agencies.
The recommendation alluded to in the complexity section
seems particularly relevant for small businesses, i.e., if
burden were calculated at the time of enactment of tax
legislation, small business concerns would be specifically
considered at that time. We believe that business requirements
are frequently enacted with a focus on the capabilities of
medium and large businesses when in fact most businesses
affected are very small, and are therefore faced with
additional costs and complexity in complying. My office will
continue to work with both operations and the Office of Small
Business Liaison, as well as with the various Commissioners
liaison groups to stay on top of and deal promptly with the
concerns of small businesses.
7. Problems in the Administration of Penalties
Responsible IRS Official: Chief Compliance Officer
A large number of penalties are imposed and then abated
each year, causing an unnecessary burden on both taxpayers and
IRS.
The Chief Compliance Officer has indicated that it may be
premature to conclude that, because a large number of penalties
are abated each year, an unnecessary burden is being placed on
taxpayers and the IRS. Generally, civil penalty statutes
require that penalties be imposed (for certain infractions of
the law) unless the taxpayer establishes ``reasonable cause.''
In all such instances taxpayers must be contacted, in some
manner, to be provided an opportunity to establish reasonable
cause.
The vast majority of civil penalties are computer assessed.
Computer generated penalties, such as the failure to file and
failure to deposit penalties, are assessed when returns are
processed and notices are generated affording the taxpayer the
opportunity to request abatement for reasonable cause. In the
absence of a reasonable cause determination, the penalty
stands. In the case of information reporting penalties, a
``proposed'' assessment notice is sent, affording taxpayers an
opportunity to establish reasonable cause prior to the penalty
assessment. In either instance, the Service would be remiss if
it did not afford the taxpayer the opportunity to respond to
the penalty assessment. If this opportunity results in the
taxpayers establishing reasonable cause and having the penalty
removed, the Service has reduced at least a portion of
taxpayers' burden attributable to cost.
It is acknowledged that the Service can improve its
processing of penalties to minimize the frequency of erroneous
assessments (resulting in additional abatements) due to such
things as misapplied payments and other systemic errors. Steps
are being taken to improve our penalty management information
system and to better determine the reason penalties are
removed. In 1993 IRS established ``penalty reason codes'' which
break down the reasons, to categories, such as reasonable
cause, taxpayer error, Service error, or Appeals settlement.
These codes were operational in service center processing in
1993 and in examination processing in 1994. In 1996, these
penalty reason codes were refined to provide more meaningful
data.
In 1993 the Service also introduced a cross-functional
Penalty Internal Revenue Manual (PIRM) to be used by all
Service employees who handle penalties. The objective of this
manual was to improve the consistency with which penalties are
addressed. This PIRM is currently available on the Penalty
Bulletin Board and on the CARTS system.
My office believes the data derived from the PROMIS system,
which indicates penalties are a continuing source of taxpayer
and PRP problems, clearly establishes the need for more action
in this area. We have sponsored an advocacy project in the
Northeast Region which will be looking at Federal Tax Deposit
penalties to avoid or minimize instances of non-productive
imposition. We are also working with the Office of Small
Business Liaison to initiate a more comprehensive review of
penalty policies and procedures and hope to report more in this
area in our next report.
8. Lack of Understanding of Taxpayers' Concerns
Responsible IRS Official: Chief Management and
Administration
IRS does not fully understand the concerns taxpayers have
with tax administration and therefore cannot adequately address
them.
The IRS recognizes the importance of identifying taxpayer
concerns and creating strategies to improve our services. To
date, our efforts to explore taxpayer concerns have been
focused on opinion research; since 1989, we have devoted
considerable resources to taxpayer opinion data collection.
Although exploring taxpayer opinions has led to improved
services, we recognize a need to examine concerns through means
other than opinions. We are in the process of expanding our
efforts to include the systematic capturing of taxpayer
complaints. The Taxpayer Advocate's Office is currently
developing a system to track complaints and actions taken to
respond to them. We believe that the analysis of this data will
lead to a better understanding of taxpayer concerns and will
allow us to better meet the needs of our customer.
Even before Executive Order 12862, requiring federal
agencies to survey customers about satisfaction levels with
services, was enacted in September 1993 the IRS was taking
steps to systematically survey taxpayer opinions. Since 1992,
the Service has conducted five customer satisfaction surveys
with individual taxpayers and three with small business
taxpayers. We have also trained employees to moderate
structured focus groups and have sponsored or conducted more
than forty public opinion and customer satisfaction surveys.
The Value Tracking Core Business System was created the to
centralize the collection of qualitative data on taxpayer
satisfaction. Recently, the section tasked with this
responsibility was renamed the Opinion Research Group, and this
group currently resides in the Strategic Planning Division.
One initiative that resulted from opinion research is the
creation of a small business assistance center, established as
a three-year research test in the fall of 1993 in Buffalo, New
York. Since it opened, the Center has provided assistance to
more than 11,000 small business taxpayers and received the
Hammer Award in April 1996 because of their new and innovative
taxpayer services. Currently, an evaluation is being conducted
to measure the Center's impact on compliance. Once the
evaluation is completed, decisions will be made on the
continuation of the Center in Buffalo and on the creation of
centers in other locations.
To follow-up on the results of the 1993 customer
satisfaction surveys, the Opinion Research Group conducted
focus group projects to gather in-depth information on two
issues: the burden of recordkeeping and taxpayers' perceptions
of the fairness and integrity of the IRS.
The Opinion Research Group actively involves IRS executives
in identifying and prioritizing key issues of concern to
taxpayers. The Opinion Research Group also designs surveys for
specific purposes at the request of individual executives. As a
part of a National Performance Review effort during fiscal year
1995, the Opinion Research Group helped develop and conduct the
``Out of Washington'' events to obtain direct feedback from the
public. The Opinion Research Group is currently partnering with
IRS field offices on several data gathering efforts. They also
have conducted focus groups with individual and small business
taxpayers to gather opinion data concerning four processes
identified by the Tax Settlement Reengineering Project.
Following is a list and description of the four processes:
Enable Taxpayers to Fulfill Their Tax Obligations
(the process of proactively educating the general public about
the tax process and motivating taxpayers to fulfill their tax
obligations);
Provide Assistance (the processes used by
taxpayers to voluntarily fulfill their tax obligations); and
Perform IRS Quality Control (the processing and
perfecting of the taxpayers' returns and pipeline documents).
Analysis on the data collected through these focus groups
will assist the reengineering project employees to achieve
their objective of designing, prototyping, and implementing a
tax settlement process that reduces cost, and improves quality
and cycle time.
My office strongly endorse the actions being taken and in
FY 1997 will sponsor focus groups in conjunction with Stretegic
Planning Division on the problems taxpayers experience with
IRS. Information from these groups will be used in developing
our FY 1997 report.
9. Delays by IRS in Compliance Contacts
Responsible IRS Official: Chief Taxpayer Service
Compliance contacts by the IRS, such as notices concerning
discrepancies between income reported on a tax return and that
reported by payers, are routinely initiated from one to two
years after the income was received and/or reported. This
burdens taxpayers with the possible lack of recall and records,
as well as with potential additional penalty and interest
charges.
Over the past few years, the IRS has taken steps to shorten
the time between when income is reported by taxpayers on their
tax returns and when the IRS contacts taxpayers if the
information reported by payers differs. The goal is to reach
taxpayers before they file their next return so that they can
avoid repeating the problem that gave rise to the initial IRS
contact. For example, in calendar year 1995, the elapsed time
was reduced to three months; for tax year 1995 returns, initial
taxpayer contacts began in November 1996. This is accomplished
by extracting tax and information return data in two separate
phases rather than waiting until all returns have been
processed. The IRS is pursuing additional processing and
procedural changes to further reduce the time between the
document matching process and the date underreporter notices
are issued.
My office endorses the actions being taken and has noted
reductions in the elapsed time between the reporting of income
and follow-up actions by the Service
10. Problems in Determining and Maintaining Taxpayers' Current
Addresses
Responsible IRS Official: Chief Taxpayer Service
A December 1994 GAO report, entitled TAX ADMINISTRATION,
Changes Needed to Reduce Volume and Improve Processing of
Undeliverable Mail, recommended that IRS more aggressively
communicate to taxpayers the need to notify IRS when they
change their address and to make the notification process
easier for taxpayers. In addition, IRS sometimes fails to
update its files to reflect the most current taxpayer's address
known to any IRS component, and does not always take adequate
steps to assure that its communications reach both parties to a
joint return when there has been a divorce or separation.
As described in the GAO Report, the IRS estimated that it
had about 15 million pieces of undelivered mail in fiscal year
1992. The three principal causes of this problem were
identified as:
1. Taxpayers move without leaving a forwarding address with
the United States Postal Service (USPS);
2. The USPS may not deliver or forward mail, which is then
returned to the IRS as undeliverable; and,
3. The IRS may incorrectly record taxpayers' addresses in
its files.
The IRS has pursued a number of initiatives to improve the
accuracy of taxpayer address information on file and to reduce
the amount of undelivered mail that is returned to service
centers. For example:
1. Internal Revenue Manual (IRM) procedures have been
revised to require the update of a spouse's address of record
when a taxpayer separates from his or her spouse.
2. IRMs also provide instructions to enter the ``In care
of'' data, if present, when updating taxpayer addresses to IRS
computer files.
3. Oral statements are now accepted to facilitate the
processing of address changes.
4. From July 1995 through September 1996, the IRS
participated in a joint effort with the United States Postal
Service (USPS) to test the Federal Address Change System
(FACS).
The following is a list of ongoing or planned actions that
should reduce the amount of undelivered mail generated by the
IRS and improve the accuracy of taxpayer address information
contained in the Master File.
1. The USPS has required that, by July 1997, all mail
pieces claimed at automation (i.e., discount) postal rates must
have had their addresses validated against the NCOA database
within 6 months of the mailing.
2. The IRS is testing the use of address software to
improve delivery. The software helps ensures the consistency of
city, state, and ZIP code information within an address, and
corrects data transcription errors.
3. Due to the efforts of the Notice Reengineering Team in
FY 1996, the IRS has taken steps to eliminate several high
volume notices that will prevent approximately 18 million
mailings. The elimination of these notices will also reduce
undeliverable mail that would normally result from these
mailings.
This area continues as a concern of my office . Other
related actions are discussed in the section entitled Taxpayer
Advocate Initiatives: Last Known Address (LKA) Study. We plan
to continue discussion with Taxpayer Service to look for means
of improving procedures for this program.
11. Cost to Taxpayers of Electronic Filing
Responsible IRS Official: Chief Taxpayer Service
The cost of electronic filing is a burden to low income
taxpayers who use electronic filing to get quick refunds.
The Service needs to continue to offer low or no-cost
methods of filing electronically to encourage taxpayers to use
this option and has initiated several programs that help
provide relief from this burden. Three of these programs are:
1. TeleFile, which allows taxpayers to file their returns
by telephone using a toll-free number. There is no cost to
taxpayers who use this program. Nationwide expansion of this
program in 1996 resulted in an increase in the number to 2.84
million from over 680,000 in 1995.
2. Tax Counseling for the Elderly (TCE) and Volunteer
Income Tax Assistance (VITA), which provide electronic filing
services. ELF returns filed by VITA sites increased from about
124,400 in 1995 to 226,300 in 1996.
3. Automated Walk-in Assistance and Electronic
Transmission, which provides electronic filing for taxpayers
requesting assistance with return preparation. Taxpayers must
meet certain criteria to use this service. In 1996, about
50,000 electronic returns were processed by IRS walk-in
offices.
My office strongly endorses the comment that IRS needs to
offer low or no-cost methods to encourage the use of electronic
filing so as not to place a burden on taxpayers who use this
service out of proportion to the benefits IRS derives. Employer
or community-sponsored programs provide another option for low
income taxpayers should also be explored. The increased
promotion of Telefile should also result in substantial
increase in receipts over 1996.
12. Problems in the Administration of the Earned Income Tax
Credit
Responsible IRS Official: Chief Compliance Officer
The growing population of taxpayers entitled to the Earned
Income Tax Credit frequently has less than average knowledge of
tax laws and requirements, and need additional assistance in
understanding the complexities of this provision.
The IRS has provided comprehensive support for enabling
qualified taxpayers to obtain the Earned Income Tax Credit
(EITC) and, if they wish, the Advance Earned Income Tax Credit
(AEITC). To accomplish this, the IRS established partnerships
with state and local government agencies and national and local
community service, social welfare, religious, professional,
business, labor and ethnic organizations.
The Service has made significant inroads to educate the
public on the eligibility rules for EITC/AEITC, has made EITC
and AEITC key elements of the VITA and TCE Programs, and
developed special training for more than 80,000 volunteer
assistors to help eligible taxpayers take the credit and apply
for the advance credit. The training has included special video
programs and focused sections in print materials.
During FY 1993 Post-Secondary Understanding Taxes Program
was piloted in 27 educational institutions by 38 instructors
with 768 students. In FY 1994, materials were available
nationwide. Through a tele-marketing project, more than 2,500
sponsors requested the materials during the first year.
Approximately 5,500 educators currently use the resource
package. The program includes significant information dedicated
to EITC and AEITC.
IRS actions taken during FY 1996 and proposed for 1997:
Secured organizational sponsors for special VITA/
EITC assistance sites and coordinated informational efforts
with government and private sector organizations and print and
electronic media.
Entered into partnership with USDA Cooperative
Extension Service to inform potentially qualified individuals
about EITC and AEITC.
Coordinated outreach actions with the Center for
Budget and Policy Priorities that led to grassroots EITC and
AEITC information campaigns by state and local social advocacy
groups throughout the nation.
Secured the cooperation of more than 80 major
organizations to assist with the promotion of EITC/AEITC.
Arranged for distribution of print promotional/
information materials in English and Spanish.
Arranged with state and local governments to
include stuffers in various public assistance mailings, and to
place posters and other promotional materials in public
buildings.
Arranged with major private sector employers and
employer associations to distribute promotional materials. In
July 1996 a task order was awarded under the terms of the
Taxpayer Information and Education Multi-Year Contract (TIR-93-
0059), providing for a rewrite of the current edition of the
Post-Secondary Education Program.
Worked with local school systems, educational
associations, and other organizations to promote awareness
among students' families and other eligibles.
Availability of sufficient funding to produce updated
Volunteer Assistance and Compliance Education materials is
critical. Without these products the instructors who use the
Post-Secondary Understanding package will not receive the most
current tax law; and the volunteers for the VITA and TCE
programs will not receive the necessary training. Every year
the number of individuals who rely on the services of the VITA
and TCE volunteers increases, along with the number of adults
required to file income tax returns for the first time.
My office endorses the stated actions and we are heavily
involved to assure that necessary EIC compliance programs do
not inordinately burden taxpayers and to provide expeditious
release of refunds in case of significant hardship. Issues
relating to EIC are also discussed in the section entitled
Revenue Protection Strategy.
13. Abatement of Interest Due Because of IRS Delays
Responsible IRS Official: Chief Compliance Officer
There is a lack of equity caused by the inability of IRS to
waive or abate interest charges that result because of delays
caused by IRS.
The IRS has been statutorily unable to abate interest in
most cases. The Tax Reform Act of 1986 (Taxpayer Bill of
Rights) introduced IRC Section 6404(e)(1) to allow for an
abatement of interest on deficiencies or payments when the IRS
makes an error of delay in the performance of a ministerial
act. This affects all taxpayers who owe taxes and perceive that
additional interest has accrued due to delays caused by IRS
employees or procedures. Section 301 of TBOR2, passed in July
1996, expanded the scope of IRC Section 6404(e)(1) to provide
that the IRS can abate interest with respect to any
unreasonable error or delay resulting from managerial acts as
well as ministerial acts. In addition, denial of claims for
abatement are now entitled to Tax Court Review.
As a result of TBOR2, IRS has developed a National
Examining Officer's Activity Record (Form 9984) which requires
documentation in the case file of all activities on the case.
In addition, in order to ensure Tax Court deadlines are met,
Formal Interest Abatement Claim Disallowance procedures are
also being developed.
My office will be monitoring the additional authority given
IRS by the recently enacted TBOR2 legislation to assure that
implementation procedures are developed which are consistent
with Congressional intent.
14. Problems in Mailing Forms, ES Vouchers, Etc.
Responsible IRS Official: Chief Taxpayer Service
IRS seems to be experiencing increasing problems in mail
items reaching the intended taxpayers.
This problem may be diminishing in severity since the most
recent IRS Customer Satisfaction Survey (Publication 1866A)
indicated that taxpayers gave IRS its highest rating in the
entire value tracking section when responding to the statement:
``The IRS provides people with the forms and information they
need to complete their tax returns.''
IRS presently mails approximately 160-170 million pieces of
bulk mail each year to addresses that are generally 6 to 9
months old at the time of the mailing and have not been
perfected with current ``state of the art'' address correction
systems. In addition, all the IRS's bulk forms or return
mailings are mailed by third class, which is less expensive
than first class, but does not provide automatic forwarding or
return-to-sender service and may experience potential delays in
delivery.
The IRS has taken numerous steps over the years to improve
its bulk mailing techniques and procedures, has improved the
address software for large volume booklet mailings to move the
products to the closest point of delivery for the first sorting
and handling of the mail, and began using bar codes on all bulk
mailings. In addition, the IRS is pursuing the use of the NCOA
system for all bulk mailouts, is beginning to use software that
performs address standardization routines for mailings to
individual and business addresses, and has developed contract
language stressing technical requirements for bulk mailouts and
vendor responsibilities in meeting contract dates.
Plans for the future include the following initiatives to
refine the IRS contract compliance and mail monitoring
procedures:
1. New mail tracking and monitoring systems put in place by
the USPS and industry will electronically track mail as it
enters and moves through the postal system;
2. The IRS is exploring multi year contracting methods to
ensure a more stable base of experienced, well-qualified
contractors;
3. The IRS is exploring the use of ``on demand'' or ``point
of delivery'' concepts rather than large volume single source
contracts.
4. While bulk forms mailings continue to generally be the
most cost effective method to deliver most forms and
instructions to the widest possible audience, the IRS continues
to explore and expand the use of alternatives.
My office fully endorses the actions being taken.
15. Separate Mailing of Math Error Notices and Effected Refund
Checks
Responsible IRS Official: Chief Taxpayer Service
Several million taxpayers who receive refunds each year
also make mathematical errors in computing the tax on their
returns affecting their refund amounts. Currently, the
explanation of the error and the refund checks are mailed
separately, causing confusion to taxpayers.
Currently, the IRS forwards an indicator, via the refund
magnetic tapes from service centers, to the Financial
Management Service's (FMS) Regional Financial Centers, that a
math error was identified in the original return and that the
refund amount has been corrected. FMS inserts a stuffer with
the affected refund checks advising taxpayers that their
refunds may be for amounts other than what they expected, and
that an explanation for the difference will be sent separately.
The proposal to include a math error notice indicator along
with the refund check tape was scheduled to be addressed as
part of the IRS plan to upgrade its computer systems. However,
due to funding uncertainties, both in the IRS and FMS, this
issue is not being pursued at this time.
My office will continue to work towards a better solution
to this problem which involves two agencies in Treasury.
Taxpayers who believe their refund checks comes from IRS call
the the Service unnecessarily. We believe a comprehensive cost
benefit analysis would be useful to determine the potential to
reduce both taxpayer burden and the cost to the IRS in handling
unnecessary calls.
16. Delays by IRS in Processing Offers in Compromise
Responsible IRS Official: Chief Compliance Officer
The number of offers-in-compromise has increased greatly
because of changes in IRS policy toward their consideration and
acceptance. However, IRS's ability to respond timely to those
submissions has not kept pace.
As a result of the substantial increase in offers in
compromise inventory since the Service implemented the changes
to the offer program in 1992, the IRS has established a new
disposition goal of six months. The IRS recognized that many
offers prior to 1992 were not resolved for long periods of
time. The cumulative disposition rate within 6 months has
ranged from 54 percent in 1993 to 58 percent in July 1996.
A core business group was formed in April 1996 to evaluate
the entire offer process. The group has not completed its task
to date but has made numerous recommendations which should help
to reduce the inventory and allow for a more timely resolution.
Additionally, offers continue to age while they are in the
hands of District Counsel. TBOR2, however, provides that
Counsel now only has to review offers with liabilities which
exceed $50,000. The great majority of offers in the inventory
are for liabilities below $50,000. It is expected that this
change will also decrease the amount of processing time.
My office feels the steps being taken should have a
positive impact on improving the timeliness of offer
processing. We also plan to review the acceptance rate for
offers as well as consistency of processing actions.
17. Burden Caused by Cash Management Practices
Responsible IRS Official: Chief Taxpayer Service
The IRS does not seem to have adequately addressed burdens
that the use of lockbox vendors (i.e., a bank to receive and
quickly process tax payments) cause for taxpayers, such as
separate envelopes for returns and remittances, additional
postal charges, confusion caused taxpayers by changes to
lockbox addresses, and problems associated with lockbox
employee embezzlement.
Since the advent of lockbox processing, procedures have
been in place to safeguard taxpayer payments and to prevent
theft or fraud. Although some instances were reported and
addressed early-on, the IRS is not aware of recent problems
associated with lockbox employee embezzlement. The burden issue
with regard to lockbox occurs when the IRS requires taxpayers
to separately send payments to a lockbox address and tax
returns to an IRS service center. To deal with this issue, tax
year 1996 Form 1040 tax packages will contain a single envelope
with instructions that direct taxpayers to mail returns with
payments to the same address. Two labels will be provided, one
with the lockbox address for returns with payments and the
other with the appropriate IRS service center address for non-
remittance returns.
My office endorses the stated actions being taken. In
addition, we believe when such changes are proposed by the
Treasury Department to save the Department either costs or
interest expense, consideration should be given to the
increased burden on those affected. For example, in this case a
small part of the savings from the expedited cash flow could
have been set aside to offset the possible increased postage
costs for taxpayers.
18. Lack of Acknowledgment of Taxpayers' Submissions and
Payments
Responsible IRS Official: Chief Taxpayer Service
Taxpayers often receive no acknowledgment of receipt when
they submit claims, payments, and responses to IRS
communications, nor information on the eventual disposition of
the matter.
Prior to June 1991, taxpayers were sent an acknowledgment
letter when their correspondence, claim, payment, etc., was
received. However, there was no measurement to ensure that the
IRS response specifically acknowledged everything received or
addressed all issues when closing the case. Since 1991, the IRS
increased its emphasis on improving responsiveness to taxpayer
correspondence, emphasizing closing taxpayer correspondence
within 30 days rather than sending acknowledgment (interim)
letters. During implementation of this practice, a performance
analysis system was installed to monitor the accuracy and
timeliness of responses.
Current criteria do not call for acknowledging incoming
mail (such as ``Enclosed, please find my tax payment . . . '')
that does not require further contact with the taxpayer by the
IRS. However, such acknowledgments will be done if there are
other issues which require action by the IRS when an interim or
final letter is prepared. Recently, some computer-generated
pattern letters were revised to include a paragraph
acknowledging a payment received with the taxpayer's
correspondence.
The IRS continues to explore ways to improve its
responsiveness to taxpayer correspondence. For example, the
acknowledgment paragraph for the taxpayer's correspondence and
payment will be put in all letters as a selective paragraph
instead of leaving it to the IRS employee to manually type.
Correspondex letters are continually revised to make them more
understandable and meaningful to taxpayers.
My office endorses the efforts taken. The additional cost
of further acknowledgment needs to be weighed, in our view,
against the additional costs of non-acknowledgment such as
unnecessary telephone calls. This should be explored as part of
efforts addressed at reducing unnecessary telephone demand.
19. Lack of One-Stop Service
Responsible IRS Official: Chief Taxpayer Service
Despite efforts to address this problem, taxpayers continue
to be frustrated when they must make repeated contacts and deal
with several different IRS employees to resolve separate but
closely related tax issues.
GAO and IRS Internal Audit findings indicate that taxpayers
expect to make one call and talk to one person who will resolve
all of the issues they raise. Customer Service/Taxpayer Service
assistors receive extensive training in most areas of account
resolution, but it is still not possible to expect every
assistor to have the necessary skills to handle all issues all
the time. Sometimes it is necessary for them to transfer the
call to another area for issues not within their realm of
knowledge/authority.
Prior to 1995, one-stop service was measured only for
account calls in the IRS toll-free districts. The rate for
Business Year 1994 was 96.65 percent, compared to 91.32 percent
for 1993. In 1995, the traditional definition and measurement
of one-stop service was replaced with a new measure, Initial
Contact Resolution (ICR), which measures the satisfactory
resolution of all issues resulting from a taxpayer's first
inquiry to the IRS.
ICR became effective March 1995 and now measures all types
of inquiries to the IRS (i.e., telephone, walk-in or
correspondence inquiries). Five different categories make up
this measurement. ICR is being tracked in the first three
categories as follows:
1. The satisfactory conclusion of all issues during a
taxpayer's first inquiry while on-line with the first IRS
representative.
2. The satisfactory conclusion of all issues during a
taxpayer's first inquiry while on-line with more than one IRS
representative. (Due to many types of complex account problems,
it is not feasible to expect that all assistors will have the
answers to each and every issue.)
3. The satisfactory conclusion, off-line (written
referrals, correspondence, messaging) of all issues as a result
of the taxpayer's first inquiry.
Two additional categories are used to measure service but
are not considered as meeting ICR:
4. The satisfactory conclusion of all issues as a result of
or during the taxpayer's subsequent inquiry on the same
issue(s).
5. The inability to provide satisfactory conclusion to the
taxpayer's issues on-line.
The national ICR rate for the 12-month period ending in
August 1996 was 81.3 percent, up from 79 percent in December
1995 (the December figure reflects only an 8-month average).
Specific ``reason codes'' were developed to assist tracking,
determination and identification of the top conditions causing
taxpayers to re-contact the IRS. Trend analysis has been
performed on the data to target the top reasons. This
information allows the IRS to make changes within its control
(i.e., IRM procedures, acceptance of oral testimony). However,
situations such as system limitations (i.e., computer system is
down) also prevent the IRS from achieving 100 percent ICR and
cannot readily be changed at the present.
My office endorses the actions taken as well as those
planned for the future.
20. Inconvenient Times and Locations for Doing Business With
IRS
Responsible IRS Official: Chief Taxpayer Service
Working taxpayers often find it difficult to do business
with IRS during IRS' normal weekday, 8:00 a.m. to 5:00 p.m.
business hours because they are at work themselves during walk-
in hours of operation.
District Directors nationwide were encouraged to evaluate
the effectiveness of walk-in offices and their locations and to
decide how best to provide services based on demographics and
available resources. The Service has also aggressively
publicized alternatives to direct face-to-face IRS assistance,
including the availability of volunteer assistance at
approximately 20,000 VITA and TCE sites nationwide.
Tax forms and publications are available electronically on
the Internet 24 hours a day. In addition, the IRS makes them
available by CD-ROM and in many public libraries. The IRS
Internet Home Page also provides answers to frequently asked
questions and other tax information 24 hours a day. This past
year, many new services including Tax Topics, scannable
Publications, and Tax Tables were also put on-line. Also, the
IRS continues to make its district office toll-free telephone
assistance services available 10 hours each weekday. Answers to
account-related inquiries are available 13 hours per day on the
IRS 1-800-TAX-8815 assistance number.
My office endorses the actions taken and will continue to
advocate that times for access be expanded, within available
resources, to allow taxpayers the option to do business with us
at times more convenient for them.
IV. Appendices
Appendix A: Revenue Protection Strategy
The following is an overview of each of the Taxpayer
Advocate's recommendations regarding the Service's Revenue
Protection Strategy, a program to strengthen the IRS' ability
to detect and prevent fraud. A number of these recommendations
are either being implemented or are planned for implementation
at some time in the future. Some will require additional
discussion prior to a determination of appropriate action.
Assistant Commissioner (Customer Service) Comments:
Legislation has been enacted giving math error authority to the
Internal Revenue Service for missing/invalid Social Security
Numbers for dependent exemptions and Earned Income Tax Credit
for qualifying children. Self employment tax work and dependent
care credit are also impacted. Due to this legislation, there
will be radical changes in the predominant type of work Service
Center Examination does, the volume of work that can be
accomplished, the methods of obtaining that work, and the
procedures that will be implemented for Examination's role in
the RPS for processing year 1997. We will continue to consider
any negative impact to the taxpayer as we go about the primary
objective of Correspondence Examination which is determining
the correct liability using deficiency procedures.
Additionally, we will solicit input from the Advocate's staff
when the 1997 Revenue Protection Strategy Guidelines package
for Service Center Examination is coordinated with the other
National Office functional areas. Comments on the specific
recommendations made are as follows:
1. Revise the Wording on the Acknowledgment and Interim
Letters.
We agree with this recommendation and we are revising the
generated acknowledgment and interim letters used by Service
Center Examination (not just in the Revenue Protection
Strategy). The revisions were made based on input from the
service centers and your staff. At this time, we do not know if
Information Systems (IS) will be able to program the changes
for the start of the 1997 processing year.
2. Revise the CP 19 and CP 20 Notices Initiated by Selection of
a Case Based Upon RPS Criteria.
Revisions to the CP 19 and CP 20 notices have been
requested for 1997 based on input from the service centers and
the Advocate's staff under the assumption that math error
legislation would not be implemented in 1997. If the math error
legislation is implemented in 1997, the CP 19 and CP 20 notices
systemically generated for EITC, dependent exemptions, Self-
Employment Tax and Child Care Credit will cease to exist. Any
Examination letters developed for the programs that will be
worked by Correspondence Examination, under the RPS procedures,
will be developed by the Office of Service Center Examination.
3. Establish an IDRS Control When Correspondence and Refund
Inquiries Are Received in the Unit.
We cannot implement this recommendation. All Service Center
Examination Branches do not have adequate resources (IDRS
terminals and staffing) needed to devote to this
recommendation. Again, if the math error legislation is
implemented in processing year 1997, the Service Center
Examination Branches will be working their RPS cases manually.
Therefore, they should have a better management of their
correspondence since they will control how much work they take
in weekly by what they are able to accomplish. The Office of
Service Center Examination will be more vigilant in assuring
that:
Examination does not receive correspondence/refund
inquiries that does not meet the criteria for routing to
Examination (that was observed at all 10 service centers last
year).
Examination works their correspondence/refund
inquiries timely by insuring more detailed instruction,
monitoring status updates, performing evaluative visits and
monitoring the weekly PRP reports provided by the Advocate's
staff.
4. Establish a Separate Status Code When Additional Information
Is Needed to Determine the Taxpayer's Eligibility.
This problem was observed on our visitations to the service
centers and was cited in our reports; however, we concluded
that a larger problem was that service centers were not
following instructions to put cases in Status 23 because this
would have entailed taking work out of the automated system. If
the math error legislation is implemented in 1997 and a manual
AIMS control process is in effect for our RPS work, we will
consider mandating a second status code in addition to Status
23 for the scenario described in the recommendation. In our RPS
Request for Information Services (RIS) for processing year
1998, we will request a programming change for the automated
system. No additional programming changes will be requested for
1997.
5. Establish a Separate Status Code When a Case is Closed as
Agreed or No Change.
Disposal codes, not status codes, explain how an
Examination case was closed. We don not believe any additional
codes are necessary. There are ``no change'' and ``agreed''
disposal codes.
6. Require that All Centers Use the Same Status Codes and
Organization Codes When Indication Case Actions.
This problem is not limited to RPS Examination work. We
agree with the recommendation to use consistent RPS status
codes Servicewide in light of the fact that account status
information, through universal access, is no longer confined to
a service center and its jurisdictional district office. We
will ensure that 1997 RPS guidelines address this issue.
Organization code information, however, primarily serves as a
tool for Examination to locate work within Examination that is
not limited to service center RPS case processing and has no
bearing on information provided to the taxpayer.
7. Indicate the Date the Acknowledgment Letter and Interim
Letter Is Sent on AIMS or IDRS.
No new AIMS programming requests will be submitted for
processing year 1997, since it is not clear at this time what
the benefits of the recommended change would be to taxpayers or
telephone assistors. Again, the impact of this recommendation
is not limited to Revenue Protection Strategy work. With more
information from the Problem Resolution staff, we will evaluate
a need to request a programming change from AIMS for processing
year 1998. The issue of IDRS control has previously been
addressed in the response to the third recommendation.
8. Issue Clarification for the Handling of Cases Where
Taxpayers Live in the Same Household. Currently, EITC and Head
of Household Filing Status Are Being Denied Automatically in
Some Centers, While Others Are Not.
We will provide more detailed instruction in the Duplicate
Address section of our 1997 RPS Guidelines to address this
problem.
9. Provide a Separate Disposal Code (DC) for Default Cases
(Status 90) DC 10, for Cases With No Response and DC XX, for
Cases Where a Response Was Reviewed But the Information
Provided Was Not Enough to Substantiate the Taxpayer's
Eligibility.
No new programming changes will be requested for processing
year 1997 and again, the recommended change would impact more
than just Service Center Revenue Protection work. We will work
with the Advocate's staff to further define the nature and
extent of this problem, and will consider this programming
recommendation for 1998.
10. Provide a Separate Status or Organization Identifier for
Cases about to Default or an Indicator to Indicate Cases Where
There Is No Response Versus Cases Where There Was a Response
But It Was Not Enough to Validate the Eligibility.
No new programming changes will be submitted for processing
year 1997. We will evaluate this programming change for the
automated system in conjunction wit our Examination plans for
the 1998 Revenue Protection Strategy which have not yet been
determined.
During the Office of SC Examination's 1996 evaluative
visits, it was our observation that the service centers with
the least number of status codes had less labor-intensive
operations than those that defined everything they did with
some type of terminal update action. Those centers with the
fewest status codes were able to locate cases better, move
their inventory faster, use less resources and answer
correspondence and telephone calls more expeditiously. Any
future changes we make in the RPS program for Examination will
consider efficiency along with other factors cited it the
recommendation.
11. Revise Customer Service Time Frames for Initiation of
Refund Inquiries and PRP Case To Coincide with Examination Time
Frames.
We are in the process of evaluating this recommendation but
plan to coordinate and make agreed upon recommendations once
this process has been completed. We will coordinate with
Service Center Examination and update IRM (21) as appropriate
to improve initial contact resolution on refund inquiry cases.
12. Revise Procedures To Include Research of Universal IDRS TO
Answer RPS Calls Routed to Other Call Sites and Input of
History Items When Forms 4442 or 5543 Are Sent.
We currently have general procedures on the use of
universal IDRS in our manual and guidelines but will review the
procedures and guidelines to see if additional instructions are
needed.
13. Revise Procedures To Open an IDRS Control to the Center
When Forms 4442 or 5543 Are Sent.
This recommendation also requires further coordination and
analysis with all organizations involvedin the process. We need
to first ensure monitoring systems will be improved prior to
making any changes.
Taxpayer Advocate's Comments:
During the final quarter of FY 1996, operational functions
that had previously been under the separate jurisdictions of
the Chief Taxpayer Service and Chief Compliance Officer, i.e.,
all operational functions which provide other than face-to-face
taxpayer contact, including Service Center Examination were
combined into one organization, Customer Service, headed by the
Assistant Commissioner (Customer Service). By the end of FY
1996, all of the RPS recommendations contained in my Advocacy
Memorandum addressed to the Chief Compliance Officer and Chief
Taxpayer Service fell within the purview of the newly created
Customer Service organization.
We acknowledge that the Service's newly legislated math
error authority under IRC 6213(g)(2) to make adjustments for
failure to include a correct Taxpayer Identification Number
(TIN) or failure to pay self-employment tax on a return
claiming the Earned Income Tax Credit, the focus of the Revenue
Protection Strategy will shift dramatically during the 1997
filing season. This should greatly reduce the volume of RPS
cases handled through the Examination process. Our
recommendations will still apply, however, to those cases and
other refund freeze cases that will be worked under the
statutory notice of deficiency process.
A number of RPS recommendations were made in order to
provide better information about the status of RPS audits via
existing systems to IRS employees outside the examining office
who respond to taxpayer inquiries. Taxpayers' whose refunds are
frozen because of RPS are far more likely to contact the IRS
than taxpayers involved in routine audits. RPS taxpayers are
generally lower income taxpayers who are anxiously awaiting
issuance of refunds, while taxpayers involved in routine audits
are generally not expecting any payment from the Service. RPS
taxpayers, therefore, are likely to try to contact us determine
what actions are necessary from them to expedite payment from
the IRS. As a result, the systems routinely used in the past
primarily to manage audit inventories have been called upon
under RPS processing to serve an additional purpose of
providing current status information, and they do not
adequately meet that requirement. We will continue our
coordination efforts with all functional areas involved in this
process to improve controls and processing actions.
Establishing appropriate IDRS controls for each case
(recommendation 3) would obviate much of the need for some of
the other recommendations. Most of the RPS cases which became
PRP cases during the 1996 filing season occurred because front
line assistors mistakenly concluded from information available
on existing systems that no response had been received from the
taxpayer, when in fact an incomplete response had been
received. In considering the resource impact of our
recommendations, the resources devoted by the Service to
process the FY 1996 RPS PRP cases should be included in the
calculation. We look forward to continuing to work with the
Customer Service staff to review our differences and to explore
various alternatives to enhance the RPS process.
Appendix B: Last Known Address (LKA) Study
During FY 1994, the Taxpayer Advocate sponsored a cross-
functional analysis of the IRS's efforts to improve the way it
updates and maintains taxpayer address records. Twenty-three
recommendations (ten short-term and thirteen long-term ones)
were made as a result of that study and were approved by the
Deputy Commissioner in August 1994.
In a December 1994 report, entitled TAX ADMINISTRATION,
Changes Needed to Reduce Volume and Improve Processing of
Undeliverable Mail, the General Accounting Office (GAO) reached
the following conclusion:
Although it is unlikely that the problem of undeliverable
mail can be totally eliminated, IRS needs to give undeliverable
mail more attention because it adversely affects operations and
can cause undue burden on taxpayers. Although previous efforts
to deal with this mail were primarily limited to IRS' service
center Collection functions, new efforts are expected to have
Service-wide consequences because IRS agreed in August 1994 to
implement recommendations of the Taxpayer Advocate's study. The
implementation of those recommendations should have significant
impact on reducing IRS' undeliverable mail.
Since the December 1994 GAO report, twelve of the twenty-
three approved recommendations were implemented or were closed
(without being implemented). Actions implemented by the Service
involved simplification and standardization of address
instructions to taxpayers, the implementation of new guidelines
for accepting oral statements during compliance contacts,
clarification of procedures dealing with divorced and separated
taxpayers, and expanded training for employees on change of
address input procedures.
Overall we believe progress has been made in this problem
area. At this time we believe this issue can be closed with the
exception of a few recommendations which are still in progress.
One of those projects involves a test funded by the
Taxpayer Advocate's Office and conducted by the Indiana
District Problem Resolution Office. The test provides for the
direct distribution of the IRS change of address form within
the U.S. Postal Service's Change of Address confirmation letter
and Welcome Kit. On December 12, 1996, I issued an Advocacy
Memorandum to the Chief Taxpayer Service recommending that he
consider implementation of this proposal nationwide. My office
is tracking that recommendation separately in the
Commissioner's Reporting System, and I will report on the Chief
Taxpayer Service's response in my FY 1997 report to Congress.
The second issue provides for the development of a
legislative proposal to define last known address. After review
by Chief Counsel, they agreed to establish a project to define
last known address by regulation in lieu of the legislative
recommendation. At this time we cannot move further until the
Chief Taxpayer Service completes a business case for the time
frames to forth for processing returns and notifications (i.e.,
the numbers of days necessary to process address information
from returns and notification). This item will remain open
pending this response.
To assist the reader, recommendations denoted with an (S)
are considered short-term while those with an (L) are long-term
recommendations.
Recommendations Closed During FY 1995
Between August 1994 and September 1995 seven of the
approved recommendations were implemented, or were closed
without being implemented, as summarized below.
S2. Standardize Address Instruction to Taxpayers
Responsible IRS Official: Chief Taxpayer Service
Implemented
S4. Provide Training on Address Formats for Employees
Responsible IRS Official: Chief Management and
Administration
Implemented
S5. Standardize Procedures for Accepting Oral Statements
During All Compliance Case Contacts
Responsible IRS Official: Chief Compliance Officer
Implemented
S7. Standardize Procedures for Address Changes for Divorced
and Separated Taxpayers
Responsible IRS Official: Chief Taxpayer Service
Implemented
L6. Incorporate Up-Front Quality Address Checks in all
Future Input Systems
Responsible IRS Officials: Chief Taxpayer Service and Chief
Information Officer
Closed:
Recommendation was closed because of Tax Systems
Modernization ``re-scoping.'' Its eventual implementation will
be monitored by the responsible officials.
L7. Implement Standard Address Check Program ``CZALL'' in
all Current Input Systems
Responsible IRS Official: Chief Taxpayer Service
Implemented
L12. Conduct Cost/Benefit Analysis of Processing Addresses
from Extension Requests
Responsible IRS Official: Chief Taxpayer Service
Closed:
The cost/benefit analysis calculated the cost to implement
at about $1 million and 48 FTE. Analysis further revealed that
19 percent of extensions contain practitioners', not
taxpayers', mailing addresses.
Recommendations Closed During FY 1996
At the beginning of FY 1996, sixteen of the twenty-three
recommendations approved in August 1994 had not been
implemented or otherwise closed. A follow-up request was made
on July 9, 1996 to determine the current status. During FY
1996, five more recommendations were implemented or closed, as
summarized below:
S8. Test Distribution of IRS Forms 8822M, Change of Address
Request, at U.S. Post Office
Responsible IRS Official: Chief Taxpayer Service
Taxpayer Advocate's July 1996 Comments: Incomplete
The initial test distribution for Form 8822M was completed
by Indiana PRO in September 1995. Results could not be measured
because the required system was not in place to extract and
analyze necessary baseline data.
Chief Taxpayer Service's Response: Closed
This action involved implementing a test to determine the
effectiveness of including an IRS change of address mailer in
the U.S. Postal Service's (USPS) Change of Address Kit. The
test was conducted by the PRO in Indianapolis, but the absence
of baseline data made results difficult to measure. However,
the process that was tested would not qualify as a means of
meeting the new Address Quality requirements established by the
USPS for pre-sort postal discount rates. Consequently, the
Service is pursuing other options (See comments under
Recommendation L2, below.) to improve the accuracy of IRS
address information.
Taxpayer Advocate's Comments:
Two different change of address form tests conducted by the
Indiana PRO. The first, discussed here under recommendation S8,
involved distribution of IRS change of address forms at
selected Indianapolis post offices, and a comparison of rates
of undeliverable IRS refund checks within those ZIP codes
during the filing season periods preceding and subsequent to
the test distribution. Although the test distribution was
completed by the Indiana PRO, as scheduled, the test results
could not be measured because the needed baseline data was not
provided.
The second test distribution of IRS change of address forms
by the Indiana PRO is discussed below under recommendation S9.
Since the results of that test seem to have far more potential
than that in S8, we consider recommendation S8 as incomplete
but closed.
S9. Test Distribution of Forms 8822 to U.S. Postal Service
Change of Address Customers
Responsible IRS Official: Chief Taxpayer Service
Taxpayer Advocate's July 1996 Comments: Active
Initially, Compliance agreed to conduct this test proposed
by the Cincinnati Service Center (CSC), between April and
August 1995, with an analysis of results completed by February
1996. In March 1995, the Compliance test at CSC was dropped
because of complications with the vendor, and Taxpayer Service
(TPS) Input Processing Division assumed responsibility for this
item. TPS provided an action plan indicating initial testing to
begin at the Philadelphia Service Center (PSC) in May 1995 and
continuing through September, with a report of test results
targeted for October 1995. We understand that the test is still
in progress at PSC.
In addition, a modified version of this test is being
undertaken by the Indiana PRO, distributing, via a USPS
``Welcome Kit'' vendor, modified Forms 8822M that were revised
based on feedback from focus group interviews of postal service
customers. Other than staff time devoted to processing
responses and collecting statistical data, and the cost of
printing the Forms 8822M, the vendor is distributing the
Service's change of address form at no charge. The comparative
data from both of these tests will be useful in assessing their
effectiveness.
Chief Taxpayer Service's Response: Closed
Because of reluctance by the USPS to provide access to its
National Change of Address (NCOA) database for use by IRS in
mailing out Forms 8822 to taxpayers who filed change-of-address
notifications with USPS, another method of testing this concept
was explored. Under this alternative, the USPS mailed letters
on behalf of IRS to individuals who had moved. Taxpayers who
received these letters were asked to send confirmation of their
address changes to IRS (Philadelphia Service Center). These
confirmations included signatures, social security numbers,
telephone numbers, and dates of birth of the people who moved,
and provided a basis for IRS to update its Master Files to
reflect the address changes. The test ran from July 1995
through September 1996. During this period, confirmation was
received on only 25% of the letters sent out by the USPS. The
test was terminated for the following reasons: the USPS was
reluctant to provide IRS with a list of movers who did not
respond to the mailing; other agencies were reluctant to
actively participate in testing and developing the system;
funding was not available to expand the testing area; and, the
USPS determined that this process would not qualify as a means
of meeting the new Address Quality requirements for pre-sort
postal discount rates.
The Problem Resolution Office, Indiana District, conducted
a modified version of this test from May-August 1996, during
which the Postal Service included a modified version of the
Form 8822 in the Movers Kit accompanying the confirmation
letter from USPS. As of August 4, 1996, only about 17-18% of
the recipients sent the confirmation forms to IRS. Also, as in
the Philadelphia test described above, this process will not
qualify as a means of meeting the new Address Quality
requirements for pre-sort postal discount rates.
Consequently, the Service is pursuing other options to
improve the accuracy of IRS address information. (See comments
under Recommendation L2, below.)
Taxpayer Advocate's Comments:
For purposes of this study, I concur with the Chief
Taxpayer Service's response indicating that the original
initiative of his office is closed. Having said that, I believe
the results of the second test mail-out coordinated by the
Indiana PRO with an external vendor proved to be very
successful and at a lower cost than the test conducted by TPS
(12 cents per unit versus 50 cents per unit). While
implementation of this test distribution process may not meet
the USPS' Address Quality requirements, the TPS distribution
process also fails to meet postal requirements. This will need
to be addressed in either case.
The other options, mentioned above by the Chief Taxpayer
Service and discussed under recommendation L2, also need to be
pursued. However, since the eventual implementation of any of
those options is neither assured nor close at hand, I have
recommended that the Chief Taxpayer Service adopt the method
tested by the Indiana PRO.
On December 12, 1996, I issued an Advocacy Memorandum to
the Chief Taxpayer Service recommending that he consider the
vendor's proposal and begin negotiating a contract on behalf of
the IRS. My office is tracking that recommendation separately
in the Commissioner's Reporting System, and I will report on
the Chief Taxpayer Service's response in my FY 1997 report to
Congress.
L4. Standardize Processing of ``In Care of'' Name Lines
Responsible IRS Official: Chief Taxpayer Service
Taxpayer Advocate's July 1996 Comments: Incomplete
Mail label and notice programs were to have been changed to
display ``in care of'' name lines. A March 1995 status report
stated that a position paper was developed and a decision
document signed, but the content of those documents was not
provided. A December 1995 status report stated ``Completed. IRM
procedures have been issued to be effective January 1, 1996.''
Since the status report did not specify the IRM section, we
contacted Taxpayer Service. But, research of the IRM section
cited (i.e., IRM 3(13)50) shows no reference to processing ``in
care of'' name lines.
Chief Taxpayer Service's Response: Closed
The Taxpayer Service organization issued a Production
Evaluation Report to the field instructing them to ensure that
IMF address changes that have ``in care of'' data are properly
input. References on where to enter this data are included in
section 3(13)24.1 of IRM 3(13)20, BMF Account Numbers and in
section 3(13)52.15 of IRM 3(13)50, IMF Account Numbers (1997
version). Procedures have been written and issued to all
service centers.
Taxpayer Advocate's Comments:
I consider this recommendation fully implemented.
L13. Conduct Cost/Benefit Analysis for Processing Addresses
from Electronic Filing (ELF) Forms
Responsible IRS Official: Chief Taxpayer Service
Taxpayer Advocate's July 1996 Comments: Active
In February 1996, Taxpayer Service shared a draft costing
and decision paper proposing that the Form 8453 Document
Locator Number (DLN) and last known address not be posted to
the Master File because of the estimated costs exceed the
expected benefits, and because of ongoing initiatives to
eliminate Form 8453 in favor of a paperless system. No final
decision has been communicated.
Chief Taxpayer Service's Response: Closed
The cost/benefit analysis for processing addresses from ELF
forms has been completed, and on July 10, 1996, Chief Counsel
concurred with our decision not to post address information
from taxpayers' Forms 8453 to the Master File. (See discussion
of Recommendation L5, above.)
Taxpayer Advocate's Comments:
I do not object to the decision reached, and consider
recommendation L13 closed.
Open Recommendations:
As of the end of FY 1996, eleven of the original twenty-
three Last Known Address Study recommendations remain open and
not implemented, as summarized below:
S1. Develop Legislative Proposal to Define Last Known
Address
Responsible IRS Official: Chief Counsel (primary)
Chief Taxpayer Service (secondary)
Taxpayer Advocate's July 1996 Comments: Inactive
No business case has yet been developed by Taxpayer
Service, describing the correct and appropriate time frames for
processing address changes from notifications and from tax
returns. Internal procedures, i.e., Rev. Proc. 90-18, currently
provide for 45 and 90 day processing time frames. The business
case must be made so that Chief Counsel can draft the
legislative proposal. The Taxpayer Service action plan
initially contained a June 1995 target date for completion of
the business case. That was subsequently rescheduled to October
1995 because of delays, then to January 1996.
As an alternative to the legislative proposal, Chief
Counsel has suggested defining last known address by
regulation, but the business case for processing address
changes from notifications and tax returns would still be
required to open a regulation project. (See recommendation L5
below.)
Excerpt from Chief Counsel's Response: In Process
Our action plan on S1 specifically provides that Chief
Counsel will seek Executive Committee clearance (with
coordination through Legislative Affairs) of a legislative
proposal to define last known address after business cases are
established by Collection and Taxpayer Services.
On June 29, 1994, the Taxpayer Advocate requested that a
business case be developed for the time frames set forth for
processing returns and notifications (i.e., the numbers of days
necessary to process address information from returns and
notifications). We have not received this business case.
If a business case for the time frames set forth for
processing returns and notifications is made, we will establish
a regulation project to define last known address by
regulation, in lieu of the legislative recommendation. However,
we believe that the use of third party information required
legislation.
Chief Taxpayer Service's Response: In Process
We are still in the process of completing a business case
to determine the correct and appropriate time frames for
processing address changes from notifications and from tax
returns. My staff is working with the Advocate's staff to
revise a preliminary paper they prepared earlier this year on
this issue.
Taxpayer Advocate's Comments:
This item will remain open until discussions are completed.
S3. Standardize Address Format on Internal Input Documents
Responsible IRS Official: Chief Taxpayer Service
Taxpayer Advocate's July 1996 Comments: Active
Standardized format required on all revisions after June
1996; to be completed by December 1996.
Chief Taxpayer Service's Response: In Process
The National Director, Multimedia Production Division,
issued Publishing Procedure 164, Standardized Taxpayer Address
Format on all Internal Use Forms. This procedure is used by all
printing analysts to ensure the proper address format is used
when revising internal use forms. This is an ongoing process as
forms are submitted by originators for revision and printing,
and has been in effect since May 1995. All forms will be
reviewed for conformance and revised as needed by December
1996.
Taxpayer Advocate's Comments:
I am satisfied with the progress of the implementation of
this recommendation.
S6. Test Effectiveness of Address Change ``Check Box'' on
Form 911, Application for Taxpayer Assistance Order (ATAO)
Responsible IRS Official: Taxpayer Advocate
Taxpayer Advocate's Comment: In Process
Data was gathered on a random sample of more than 350 Forms
911; the results have been tabulated, and analysis of data has
been completed and is being reviewed within my office. The
results will be circulated for comment beginning in January
1997 among appropriate internal stakeholders.
S10. Develop Change of Address Education Campaign Through
Taxpayer Education (TPE) Program
Responsible IRS Official: Chief Compliance Officer
Taxpayer Advocate's Comments:
Some Taxpayer Education materials have been revised to
include Change of Address information; others will be revised
if funding is available. I am satisfied with the progress made
in implementing this recommendation, but still consider it
open.
L1. Develop Servicewide Standard Procedures for Use of
Locator Services
Responsible IRS Official: Chief Compliance Officer
Taxpayer Advocate's July 1996 Comments: Incomplete
Initial action plans called for development of Servicewide
locator procedures by June 1995 and implementation of locator
services units at all service centers by September 1995.
Funding was identified as a critical issue for implementation
of this recommendation. As of November 1995 status report,
Servicewide procedures were to be developed by May 1996;
locator units had been established only in CSC and PSC.
Chief Compliance Officer's Response: In Process
Each year following the development of this recommendation
by the Last Known Address Study Group, funding for multi-
functional locator research was either cut or eliminated. The
Inventory Delivery System (IS), which will operate in each
service center, incorporates several modules such as address
research, telephone number research, and asset research that
will perform functions similar to the locator work envisioned
by the multi-functional locator units under recommendation L1
of the Last Known Address Study. The IS prototype began in July
1996, at the Philadelphia Service Center, and will continue
during FY 1997. We expect the Investment Review Board (IRB) to
make a decision in May 1997, concerning IS roll-outs to the
other centers. If the IRB approves the roll-out, implementation
would occur in FY 1998 (subject to budget limitations).
Taxpayer Advocate's Comments:
I will continue to pursue adoption of this recommendation
because of the potential to reduce taxpayer burden and overall
costs.
L2. Develop Servicewide Procedures for Processing
Undelivered Mail
Responsible IRS Official: Chief Taxpayer Service
Taxpayer Advocate's July 1996 Comments: Inactive
Initial action plans called for a multi-functional effort
to design, develop, test, and implement standard procedures for
Undeliverable Mail System (UMS) to be completed by June 1995. A
March 1995 status report showed all target dates delayed 6
months while a multi-functional group (to meet in June 1995)
reviewed results of different tests underway (e.g., FACS, NCOA)
to reduce undelivered mail volume. No revised action items or
target dates were provided.
Chief Taxpayer Service's Response: In Process
Prior to convening a multi-functional task force to develop
standardized procedures for processing undelivered mail, the
Submission Processing organization decided to participate in
several studies to determine how to reduce the amount of
undelivered mail the Service receives.
As stated in S8 and S9, above, IRS participated in a joint
effort with the U.S. Postal Service (USPS) in 1995 and 1996 to
test the Federal Address Change System (FACS). Under this
system, which was slated to be an inter-agency process and was
to reduce IRS undelivered mail by 30% to 50%, the USPS sent
letters asking for address confirmation to people who had moved
in a given area. About 25% of the population filing change-of-
address forms with the USPS responded to the initial mailing.
The USPS has given an extension to July 1997 for
implementation of its new requirement that all mail pieces
claimed at automation (i.e., discount) rates must have had
their addresses validated against the NCOA within six months of
the mailing. Funds to process the Master File through NCOA are
included in the FY 1997 budget. IRS is also attempting to
acquire the NCOA database and legal authority to update
taxpayers' addresses to help reduce the amount of undelivered
mail we receive.
Additionally, IRS is testing the use of ``address hygiene''
software to purify addresses to improve delivery. The
purification process insures the consistency of city, state,
and Zip code information within an address and, in effect,
corrects any data transcription errors.
Taxpayer Advocate's Comments:
Although Taxpayer Service has asked Chief Counsel to revise
Revenue Procedure 90-18 to allow updating taxpayer addresses
from third party sources, no significant actions have yet been
taken. Taxpayer Service has indicated a need to review the
results of tests to reduce the amount of undeliverable mail
before developing uniform procedures for processing it. We
still view this as an area of concern that needs continued
attention and will continue efforts with TPS to review test
results and to determine appropriate actions.
L3. Develop and Test Change of Address Turnaround Notices
Responsible IRS Official: Chief Taxpayer Service
Taxpayer Advocate's July 1996 Comments: Incomplete
Initial action plan called for the redesign, refinement,
testing, and assessment of effectiveness of turnaround notices
to be completed by September 1995. A March 1995 status report
modified some action items and target dates. A December 1995
status report advised that prototype testing of redesigned
balance due Notices 501, 502, 503, and 504 was to begin January
1996. ``In conjunction with this effort, the ability to include
change of address information on these notices, or whatever
method is feasible, will be determined at the time of
implementation.''
Chief Taxpayer Service's Response: Closed
Testing of the redesigned Notices 501, 502, 503, and 504
has been completed. During the test, the change-of-address
information was added. When the final product was extracted,
the change of address information interfered with the bar code,
which contains coded data about either the taxpayer's address
or enclosed tax data. Because of insufficient space on the
notices, we cannot effectively include change-of-address
information on them.
Taxpayer Advocate's Comments:
The redesigned notices 501, 502, 503, and 504 intentionally
contain far less text and far more white space than the
previous designs, in order to simplify the forms and make them
more easily understood by taxpayers. Despite that worthwhile
goal, I believe that the change-of-address information could be
accommodated on a redesigned form. I will ask that the Chief
Taxpayer Service reconsider that decision and include a member
of my staff in those deliberations. For this reason, I consider
the status of recommendation L3 to remain ``IN PROCESS.''
L5: Revise Revenue Procedure 90-18
Responsible IRS Officials: Chief Counsel (primary)
Chief Taxpayer Service (secondary)
Taxpayer Advocate's July 1996 Comments: Inactive
Chief Counsel is waiting for completion of LKA
recommendations S1 and L13. Other closed LKA recommendations
impact revision of Rev. Proc. 90-18: S5 and L12. Counsel has
developed a draft revision that incorporates S5 actions, and
will incorporate others when completed by Chief Taxpayer
Service.
Chief Counsel's Response: In Process
L5 specifically provides that, after recommendations S1
(Legislative Proposal to define last known address), S5
(Standardize procedures Servicewide for accepting oral
testimony during case contacts), L12 (Process addresses from
applications for extension of time to file), and L13 (Process
addresses from Form 8453, U.S. Individual income Tax
Declaration for Electronic Filing) are implemented, Chief
Counsel will revise Rev. proc. 09-18 C.B. 491, to reflect
changes in law and administrative procedures.
As of this date, only S5 (regarding oral statements during
case contacts) has been implemented. CC:DOM:IT&A opened a
publication project to update Rev. Proc. 90-18 to reflect this
change in the Service's administrative practice which permits
taxpayers to provide oral notification of change to the
taxpayer's address of record for active accounts and address
perfection.
The revision of Rev. Proc. 90-18 to reflect S1 and L13 will
be treated as a separate publication project(s), when and if,
S1 is adopted and/or L13 is implemented. L12 will not be
implemented. Thus, address changes will not be made from
applications for extension of time to file.
We drafted a proposed revenue procedure which permits
taxpayers to provide oral notification of a change to the
taxpayer's address of record. The proposed revenue procedure
provides that oral notice of change of address I accepted only
for active accounts (e.g., a current examination, an account or
adjustment inquiry, an undelivered refund, or current
correspondence from the Service) and address perfection (i.e.,
the correction of misspellings and the addition of house and
apartment numbers).
On July 14, 1995, our office briefed the Associate Chief
Counsel (Domestic) on the proposed revenue procedures. She had
asked that we determine if the Service wants this revenue
procedure published since it is limited only to active accounts
and address perfection. We informed the Commissioner's staff of
the Associate's request. In order to include this publication
project in IT&A's 1997 Business Plan, the Service must
determine whether there is a critical need for this project and
whether oral notification from cold calls (i.e., calls where
the only action requested is a change of address) should be
accepted.
Chief Taxpayer Service's Response: In Process
Chief Counsel was tasked with revising Revenue Procedure
90-18 but was waiting for the Submission Processing
organization to complete recommendations S1 (Complete a
business case to determine the correct and appropriate time
frames for processing address changes from notifications and
from tax returns) and L13 (Conduct Cost/Benefit Analysis of
Processing Addresses from ELF Forms). As stated above, the
business case for Recommendation S1 has not yet been completed;
this will be completed on an expedite basis. However, the cost/
benefit analysis for Recommendation L13 has been completed, and
on July 10, 1996, Chief Counsel concurred with our decision not
to post address information from taxpayers' Forms 8453 to the
Master File. Additionally, the National Director, Multimedia
Production Division, asked Chief Counsel to revise Revenue
Procedure 90-18 to allow IRS to update taxpayer addresses using
third party sources.
Taxpayer Advocate's Comments:
See my comments under recommendations S1 and L13 above.
Expand Standard Address Check Program CZALL to Validate Foreign
Addresses
Responsible IRS Officials: Chief Taxpayer Service (primary)
Chief Compliance Officer (secondary)
Taxpayer Advocate's July 1996 Comments: Inactive
An initial action plan called for development of RIS by
August 1995 and implementation by July 1996. A November 1995
status report stated Taxpayer Service is waiting for ``a
detailed list of the specific items required and wanted by
International and upon receipt a RIS will be prepared to write
the suggested International CZALL program.''
Chief Taxpayer Service's and Chief Compliance Officer's
Response: In Process
Customer Service will coordinate with the Assistant
Commissioner (International) to develop a detailed list of
requirements for validating foreign addresses. Due to current
budget considerations and reduced funding for TSM, the
feasibility to expand the current address field to properly
validate foreign addresses must be coordinated with the
Information Systems staff. Customer Service will provide your
office with a report containing the decision on this proposal
shortly.
Text of Customer Service's Report:
CZALL currently has in place a format routine that allows
for the proper formatting for a foreign address. This format
routine is also used for domestic addresses. When entering a
foreign address into the system, the street address, foreign
city, province or country must be in the proper fields before
we make an update to the master file. If this data is not in
the proper fields, the system immediately rejects the input
data, and the system informs the operator of an incorrect
format error.
Due to current budget limitations and reduced funding for
Tax Systems Modernization, it is not in the best interest of
the Service to continue this initiative to create foreign
country codes. Foreign country codes are ``nice to have''
features for our systems; however, it will not increase the
ability to get the mail to the correct street address
(Domestically or Internationally).
Taxpayer Advocate's Comments:
While the current address check program, CZALL, will allow
the input of a foreign address, it does not validate foreign
addresses. Instead, proper formatting of foreign addresses,
including the input of the required period (.) in the state
field, suppresses the CZALL routine that would otherwise reject
the foreign address as if it were an invalid domestic address.
The intent of recommendation L8 is to expand the use of
CZALL to validate foreign addresses, through the use of tables
of valid names or abbreviations of foreign countries,
provinces, cities, and postal codes, much like the tables of
valid state abbreviations, city names, and their related ZIP
codes currently used with the program. Implementation of this
recommendation would go far toward addressing the problem of
foreign mail that is undelivered because of misspelled or
improperly formatted city, province, and country names and
abbreviations, and incorrect postal codes.
While budget limitations may be a valid reason for not
implementing this recommendation, no information was provided
in the EOCSO's report about the estimated costs of developing
and maintaining such tables, nor was a comparison provided of
those costs versus the costs in lost revenue to the government
and in additional processing for Service because of
undeliverable foreign mail. I still consider the status of this
recommendations to remain ``IN PROCESS.''
L9. Improve and Expand the Use of Job Aid, Document 7475,
State Abbreviations, Major City Codes, and Address
Abbreviations
Responsible IRS Official: Chief Taxpayer Service
Taxpayer Advocate's July 1996 Comments: Inactive
Taxpayer Service status report stated Doc. 7475 was revised
but our review shows that foreign country names and address
field lengths were not included as recommended.
Chief Taxpayer Service's Response: Closed
Document 7475 was revised in June 1995 and again in
September 1996. Additional domestic ZIP code and major city
code data was included. We expanded the use of this job aid by
providing for its distribution through the three Centralized
Inventory Distribution (CID) sites. The document is also
available at the ten service centers. Page 31 of Document 7475
(Rev. 9/96) contains an acceptable address format for foreign
addresses that our current ADP system can handle.
Taxpayer Advocate's Comments:
The text appearing on page 31 of the September 1996
revision of Document 7475 referenced by the Chief Taxpayer
Service above is as follows:
Foreign Addresses
The street address in foreign addresses on IMF accounts is
input on Name Line 2. On BMF accounts, the street address in
foreign addresses is input in the field designated for foreign
addresses.
Input the foreign city, province or country and foreign
postal code in the street address field.
Input foreign country in the city field. This must not be
abbreviated.
Input a period (.) in the state code field.
Taxpayer Service considers this recommendation closed,
although foreign country names and address field lengths were
not included in the revised job aid as recommended. While there
may be valid reasons for not implementing this part of the
recommendation, we need to follow up with Taxpayer Service to
review those issues. I still consider the status of
recommendation L9 to remain ``IN PROCESS.''
L10. Create One Uniform Entity Address Document/Handbook
Responsible IRS Official: Chief Taxpayer Service
Taxpayer Advocate's July 1996 Comments: Incomplete
The LKA study group considered alternatives for revising
existing IRMs to make them consistent or for creating a multi-
functional entity address handbook. Based on internal
stakeholder input, the latter approach was agreed upon and
approved. Initial action plans called for completion of the
handbook by January 1996. A December 1995 status report from
Taxpayer Service states: ``After stakeholder meetings, it was
decided that a uniform document/handbook was not necessary nor
preferred by customers. Action Plan Completed.''
Chief Taxpayer Service's Response: In Process
The EOSCO will shortly provide your office with a report
containing his decision and rationale regarding the
implementation of this proposal.
Text of the Executive Officer for Customer Service Operations'
Report:
We conducted a feasibility analysis and our analysis
indicates that the implementation of this recommendation would
not be beneficial to all areas of the Internal Revenue Service.
Our analysis indicated a consolidated Entity document/handbook
will not meet the needs of internal customers because entity
information is necessary in many Internal Revenue Manuals
(IRMs). However, we have consolidated entity address
information into one handbook for the Customer Service
Operations.
Customer Service Operations Division recently completed the
creation of several new Chapters of IRM (21)00. Two of the new
common chapters of this handbook for the Customer Service
Operations are entitled ``Entity Changes'' and ``Business
Master File Tax Issues.'' This IRM consolidates entity
information.
We conclude that Recommendation L-10 is not beneficial for
all areas of the IRS and should only be implemented as stated
for Customer Service Operations.
Taxpayer Advocate's Comments:
While the new Customer Service Operations IRM chapters
cited above contain some of the information recommended for
inclusion in the multi-functional handbook (e.g., guidelines
for accepting oral statements of changes of address,
instructions for updating addresses on joint accounts of
divorced and separated taxpayers, etc.), they do not contain
all of the recommended information.
The purpose of the recommendation was to ensure that
consistent and uniform address format instructions are provided
to all IRS personnel, not just those in the Customer Service
organization. Customer Service's rationale for concluding that
creation of a multi-functional entity address handbook ``is not
beneficial for all areas of the IRS'' is not made clear in his
report, and details of the ``feasibility analysis'' conducted
by his office have not been reviewed by my office. I still
consider the status of recommendation L10 to remain ``IN
PROCESS.''
L11. Ensure Implementation of Last Known Address Study
Recommendations
Responsible IRS Official: Taxpayer Advocate
Taxpayer Advocate's July 1996 Comments: In Process
After August 1994 approval by the Deputy Commissioner,
progress of implementation was tracked by the Taxpayer Advocate
via the Commissioner's Tracking System (administrative
predecessor to the TBOR2-mandated Commissioner's Reporting
System) and monitored by a series of status requests from
responsible executives and status reports to the Executive
Committee. In July 1996, in anticipation of the enactment of
TBOR2, the Taxpayer Advocate orally requested status reports on
each recommendation, and began tracking them in the
Commissioner's Tracking System, to be reported on until closure
or implementation in the Taxpayer Advocate's annual report to
Congress.
Taxpayer Advocate's Response:
All open LKA recommendations have been entered into the
``Commissioner's Reporting System'' and will be monitored and
reported on until closed in the Taxpayer Advocate's Annual
Reports to Congress.
Questions on the Taxpayer Advocate's 1996 Report on the Twenty Most
Serious Problems Facing Taxpayers From Representative Coyne to Lee
Monks
1. Complexity of the tax law.
The Report lists tax law complexity as the single most
burdensome aspect of compliance for most taxpayers. It does not
specify what specific tax provisions are particularly complex,
nor which specific tax provision should be simplified.
What specific tax provisions should the Congress simplify to
make taxpayers' compliance with the tax laws easier?
Examples of provisions that Congress could simplify are:
Employee independent contractor-the IRS needs the
ability to apply clear and uniform standards.
Taxability of Social Security Benefits--requires a
complex computation to determine the taxability, again is
targeted to a segment of the populations that may require
assistance in computing.
Depreciation--Laws on depreciation are complex and
continually changing so that taxpayers find it difficult to
determine the correct computation.
Alternative Minimum Tax--Complex only applies to a
limited number of taxpayers
In your Report, you suggest that all new tax legislation should
be ``scored for taxpayer burden'' similar to that done for
revenue. What would this accomplish within the IRS and
Treasury?
This would assure that complexity is focused on
whenever legislation is considered.
Scoring legislation for taxpayer burden in itself
may not do anything unless it causes Congress to pass laws with
low scores.
2. Inability to readily access irs by telephone.
The Report states that, in fiscal year 1996, less than half
of the taxpayers calling the IRS's toll-free number got through
(i.e.,100 million calls made; 40 million answered).
As the Taxpayer Advocate, what percentage of calls do you think
the IRS should answer?
While the Service should strive for nothing less
than 100%, the Taxpayer Advocate believes that the IRS could
develop reasonable customer service standards that are
comparable to those used in private industry (airlines, credit
card companies, etc.).
What percentage of taxpayers' calls are currently being
answered?
According to Customer Service's snapshot report,
the IRS level of access for Fiscal Year (FY) 1997 was 67%.
In recent years, the IRS has only been funded to answer 30-40
million calls. Should this amount be doubled for fiscal year
1998?
The IRS' Strategic Plan through FY 2002 states
that we will provide an 80% level of access for taxpayers
telephoning the IRS. Funding for toll-free could be increased.
However, a long-term solution to this problem lies in reducing
the demand for toll-free service by reducing the causes of
taxpayer calls. Many taxpayer contacts are due to such factors
as the significant number of incorrect or incomplete notices
and misapplied payments. While there may be no ``quick and easy
fix'' for these problems, the Taxpayer Advocate would rather
increase funding aimed at correcting those problems rather than
simply placing more employees on the phones. This is not to say
that additional phone and walk-in access is not needed. A
significant portion of any new funding should be devoted to
training so that those employees who are put on the front lines
have the knowledge and the tools to properly assist the public.
3. Lack of clarity and inappropriate tone of irs communications with
taxpayers.
The Report only generally discusses the need for clearer/
friendlier notices.
What specific notices do you consider particularly confusing
and/or unnecessarily nasty?
Generally erroneous computer generated notices are
a problem.
Why is it that the IRS can't seem to develop and use clear
notices?
Outside stakeholders have stated the following concerning IRS
notices:
Verbal and written communications contain jargon
not easily understood by the average taxpayer.
Frequently, notices do not provide an adequate
explanation of the reason for the communication.
IRS communications take the same tone and approach
toward complying taxpayers as those toward taxpayers with a
background or history of noncompliance.
The subject matter is complex because of the
complex law.
A recent Association of Certified Public Accountant (AICPA)
survey found that IRS notices do not adequately explain the
``basis for tax adjustments, penalties and interest.'' Do you
agree?
While there may be some notices that do not
adequately explain the basis for tax adjustments, penalties and
interest, many IRS notices do clearly and adequately explain
these. In fact some of these notices, such as the CP 2000 are
often criticized due to their length because of the effort to
fully explain all aspects of the notice.
Could your office undertake to fix the content of taxpayer
notices?
Notices are constantly reviewed and revised. We
believe it should be the responsibility of the initiator (the
office with program responsibility) to produce an acceptable
product. We can provide input to the process but our
involvement should not go beyond that point. Additionally, to
``fix'' a notice one must have a complete understanding of the
programs and their problems. It is also important to note that
depending on who is consulted (an individual taxpayer a
corporate taxpayer, a practitioner, Certified Public Accountant
(CPA), attorney) the perception of a notice varies. A ``fix''
for one group could result in a problem for another. The IRS
must balance this when revising notices. Also the current
ability to fix notices is partially limited by current computer
systems.
4. Erroneous irs notices.
The Report states that the IRS's communications with
taxpayers are often inaccurate and unnecessary.
Which IRS notices are the most problematic?
Math Error notices are often problematic because
frequently the description of the error does not give the
taxpayer sufficient information to identify the error. This, in
turn may generate a telephone call requesting an explanation.
What kind of errors does the IRS make in its notices?
The IRS sometimes sends Erroneous Notices to
taxpayers because of programming errors. For instance earlier
this year, the IRS sent notices to Schedule H filers who no
longer were required to file forms 940 nor 942. Another example
is apparently conflicting information such as the current CP
523. This notice tells the taxpayer that they defaulted their
installment agreement and they must pay the outstanding payment
to reinstate the agreement. It also lists Appeal rights and the
complete balance owed on a tear-off section of the notice.
Taxpayers do not understand the desired action: pay the entire
balance or the installment payment. Also, recently a computer
programming problem sent unnecessary yearly reminder notices to
a certain class of taxpayers whose accounts were in 'Currently
Uncollectible Status'. Other erroneous notices may be generated
because of the lag in computer time for a transaction or
adjustment to post to the Masterfile. Some erroneous notices
are generated as the result of incorrect actions taken by IRS
employees.
About how many erroneous notices does the IRS mail out each
year?
There are no available figures for the numbers of
erroneous notices sent to taxpayers each year. However, many of
our Problem Resolution Program (PRP) cases and contacts from
both tax practitioners and Congressional offices are based, at
least in part, on an incorrect or misleading notice received by
a taxpayer.
5. Difficulty in understanding Federal tax deposit requirements.
In what ways are the Federal tax deposit rules difficult for
taxpayers?
The complexity of determining what category their
payroll falls into (Look Back Rule) and the deposit
requirements sometimes discourage small business taxpayers from
hiring employees.
Are the deposit time rules too difficult, and/or the forms
required to accompany the deposits too complex?
The deposit rules seem difficult and confusing.
Also the dollar amounts for the monthly and semi weekly deposit
requirements may be too low. We are in the process of reviewing
whether an increase in amounts for both periods will simplify
the process for some taxpayers. However, we should note that
deposit rule changes in recent years have materially reduced
the number of PRP cases in this area.
Electronic Federal Tax Payment System (EFTPS)
should eliminate many of the problems that the taxpayers had
with the FTD forms; The FTD forms tended to be susceptible to
taxpayer error because of the format (e.g., placement of the
type of form and tax period etc.)
6. Compliance burden of small businesses.
What percentage of your cases involve small business versus
individual taxpayer problems?
The Taxpayer Advocate's management information
system does not capture the size of the business when
identifying the type of case according to problem description.
However, about one quarter of our cases are businesses and we
believe that most of these are small businesses.
What is your office's priority in assisting small businesses?
The Taxpayers Advocates office has been working
with the Small Business Affairs Office within IRS to ensure
that cases that are identified by the 10 Small Business
Fairness Boards as meeting PRP criteria will be handled within
the Problem Resolution Program.
As the result of recent focus group interviews,
sponsored by the Taxpayer Advocate, with small business
taxpayers we have identified some education needs of these
taxpayers and will be providing feedback to the IRS Taxpayer
Education program.
7. Problems in the administration of penalties.
About six years ago, the oversight Subcommittee developed,
and the Congress enacted into law, legislation which simplified
and rationalized the various tax penalties applicable to
individuals. The Report makes two legislative recommendations
in the penalty area: (1) to simplify the computation and
assessment of the ``estimated tax penalties,'' and (2) to
eliminate the ``failure to pay penalty.''
Which tax penalties cause taxpayers the most trouble?
The FTD penalty (failure to deposit/late deposit)
and the estimated tax penalty (for failure to pay sufficient
tax) are in our estimation the two penalties that cause the
greatest problems for taxpayers. There are 6.4 million
quarterly Form 941 filers, with over 25 million returns a year
(and chances for error). Due to notices that are generic in
nature and errors by both the Service and taxpayers in the
application of payment, it is often difficult for taxpayers
(and the Service) to determine which payments are causing a
problem. The burden caused by the estimated tax penalty is due,
in large measure, to the complexity in computing several of the
exceptions to this penalty.
Is the problem that the penalties are unfair?
The problem with most penalties is not that the
penalties are ``unfair,'' but that they are very complex and
that the abatement of those penalties is complicated and
inconsistent. One area in which a penalty could be administered
more consistently is the tolerances for application of the
estimated tax penalty. While IRS applies a tolerance (i.e., the
amount below which a penalty would not be asserted) in
assessing a penalty, no tolerance amount is published for
taxpayers who ``self-assess'' penalties (estimated tax
penalties for individuals) and computes their penalty on Form
2210, as they are asked to do. This leads to the inequitable
treatment of the taxpayers who comply, while giving a benefit
to many taxpayers who do not. Also, previous compliance history
is rarely taken into account in the application of many
penalties on individual taxpayers. While ``first time
offenders'' are often given consideration in the abatement of
certain penalties (primarily in the employment tax area), very
few individual taxpayers receive this consideration because
Congress has not provided a reasonable cause exception.
Is the problem that penalty notices are confusing and not
adequately explained by IRS?
Penalties are sometimes poorly explained by IRS
notices or not explained at all. Often, if a taxpayer contacts
the Service seeking information about a penalty, they will be
provided a very good explanation. An example of this is the
PINEX (Penalty and Interest Notice Explanation) notices, sent
to taxpayers who request a clarification of their federal tax
deposit application and/or penalties. I believe that taxpayers
should not be required to ask for an explanation of a penalty.
Clear explanations should be provided to taxpayers when a
penalty or tax change is proposed.
How should the ``estimated tax penalties'' be simplified?
The problem is not so much the estimated tax
penalty, but the system for figuring an exception to the
penalty. One possible solution would be to eliminate the
penalty entirely and charge market rate interest on all
underpayments. However, this is a two-edged sword, since some
of the complexity is of benefit to some taxpayers. Another
simplifying option is to apply a flat percentage of the
underpayment rather than computing the penalty quarter by
quarter. I will propose to the Commissioner that taxpayers who
``self-assess'' should be given the same tolerance amount as is
applied to penalties assessed by the Service. No Form 2210
should be required, and no penalty assessed, for underpayments
below a certain amount.
Why do you recommend that the ``failure to pay penalty'' be
eliminated?
Rather than completely eliminate the penalty, the
penalty should be reduced if that taxpayer agrees to an
installment agreement and remains current for a specified
period or until the balance due, with interest, is paid in
full. Additionally, the complexity of assessing (and sometimes
abating) this penalty could be eliminated by simply charging a
flat rate of interest, which, in theory, require a taxpayer to
pay the same amount.
8. Lack of understanding of taxpayers' concerns.
The Report states that the IRS does not fully understand
taxpayers' concerns with regard to tax administration. Since
1992, the IRS has conducted five customer satisfaction surveys
regarding individual taxpayers.
What were the results of the IRS's five customer satisfaction
surveys?
Summarize the findings of these surveys:
--These respondents expect to be treated professionally,
fairly, and reasonably. There is a prevailing mistrust among
respondents that a government bureaucracy is able to provide
this.
--They recognize that the time required to resolve problems
varies. They expect a realistic estimate and to be notified of
unforseen delays.
--They also recognize that the frequency of periodic
updates varies with the complexity and seriousness of the
problem. They expect individual need to be considered.
--Because of their distrust of bureaucracy, they expect all
communications and actions to be backed up in writing.
--They expect that once resolution is reached, it will be
effected Servicewide.
--They expect that penalties and interest will stop
accruing, and that communication from other IRS functions will
cease while the problem is being resolved in PRP.
--They expect to deal with a single contact person who is
competent and will thoroughly analyze the problem. In order to
do this, (they believe) the person must have access to all
files, records, and information that have been previously
generated regarding the problem.''
What is it that IRS employees fail to understand about
taxpayers' concerns?
The Restructuring Commission's Report states:
``Both internal and external forces foster an environment in
which employees value rules over outcomes and do little to
encourage the use of judgement in handling taxpayer problems.''
The IRS response to the Commission field hearing
findings re: customer service stated: ``Even when the taxpayer
responds timely . . . there is no certainty the IRS is aware of
the contact . . . there is no one caseworker assigned to most
IRS notices. When names and numbers of IRS personnel are given,
the person may not be reached. This further frustrates and
angers taxpayers.''
Previously IRS did not do a good job of conveying
taxpayer's concerns to all employees. We are a segmented
organization in some areas and employees working in some of our
functions are not as sensitive to taxpayer concerns as other
employees.
9. Delays by IRS in compliance contacts.
The Report discusses how the IRS does not contact taxpayers
about problems on their returns (e.g., unreported income or
overstated deductions) for one to two years after their returns
have been filed.
Why is it important that the IRS contact a taxpayer about an
error or discrepancy on their tax return the same year the
return is filed.
Taxpayers will tend to remember the background of
the information that is not claimed on a return and are usually
able to document a legitimate deduction or credit on the most
recent return the same year as the return is filed. A year or
two later the this information may not be clear or available.
Taxpayers may not be reachable after a period of
time because of relocation, death or business failure.
Any additional tax owed as the result of these
compliance programs will accumulate penalties and interest on
the underpayment until it is paid.
What interest rate do taxpayers have to pay in each year the
IRS delays in contacting them about problems on their tax
returns?
Internal Revenue Code (IRC) Section 6621 states
the rate of interest on underpayments of tax shall be the sum
of:
--The Federal short-term rate determined for the first
month of a quarter plus 3 percentage points.
This rate is subject to change on a quarterly basis;
therefore in the case of individual income tax interest will be
assessed and accrue on an underpayment from the due date of the
return to the date paid. The interest will be computed at the
quarterly rate for each quarter that a balance is owed.
Interest will also be compounded daily pursuant to IRC 6622.
10. Problems in determining and maintaining taxpayers' current
addresses.
The Report discusses how taxpayers often never get IRS
audit or tax delinquency notices, and only later find out that
a lien has been filed on their property or that a levy has been
filed on their wages by the IRS.
If taxpayers notify the IRS that they have moved, can they be
assured that all future IRS contacts will come to their new
addresses?
If a taxpayer formally (i.e. use the designated
form) notifies IRS that they have moved, they should receive
all future IRS contacts and mailings at their new address.
Why it that some IRS divisions and offices will have a
taxpayer's correct address and other will not?
Functions within IRS that deal with only one
aspect of an account may not have the information in their
files updated when the masterfile computer system is updated.
If the employee working the case is not aware of the address
change, information may be sent to the taxpayer's old address.
This can also work in reverse. When the taxpayer informs the
IRS employee working the case of an address change (and the
employee uses the new address only for the case-related
correspondence and does not enter the change into the
computer), future notices and mailing may go to the incorrect
address. Again this is partly the result of IRS's antiquated
computer systems.
If an IRS letter is returned to the IRS by the post office as
``undeliverable,'' what happens?
Undeliverable mail is treated differently
depending on the type of mailing. Letters are usually returned
to the function that is attempting to contact the taxpayer
where further address research is performed. Certain notices
that are sent certified, such as a Statutory Notice of
Deficiency, are attached to the taxpayer's original return if
the Service is unable to ascertain a new address after further
research. The the IRS searches for a new address for account
related notices. However, informational notices will simply be
destroyed.
Will the post office forward IRS mail to a taxpayer's new
address?
Generally, account-related correspondence, which
is mailed first class, will be forwarded if the taxpayer has
left a forwarding address with the Post Office. Tax Return
Packages are not forwarded because they are mailed using
``bulk'' rates and ``forwarding'' service (at extra cost) has
been found to be costly.
11. Cost of taxpayers of electronic filing.
In 1993, the Taxpayer Advocate reported that ``low-income
taxpayers incur disproportionally higher costs in using
electronic filing to get quick refunds.'' In raising the issue
with the Commissioner as an ``ethical concern,'' the Taxpayer
Advocate advised the Oversight Subcommittee that the IRS would
offer free access to electronic filing for low-income
taxpayers, as resources permitted.
The 1996 Report states again that the cost of electronic
filing is an unfair burden to low-income taxpayers. Further, it
states that the IRS processed about 50,000 electronically-filed
returns, free-of-charge, in IRS walk-in offices.
In which IRS offices can taxpayers currently get free
electronic-filing of their returns?
It is our understanding that free electronic
filing is available in some IRS local offices, but that due to
budget constraints, many other offices do not offer this
service. Also, the Service is offering free electronic filing
through the Volunteer Income Tax Assistance (VITA) program. The
Taxpayer Advocate's office does not currently have a list of
the specific local offices or VITA sites in which free
electronic filing will be available for the coming filing
season.
Overall, what percentage (or number) of electronically-filed
returns involve the earned income tax credit (EITC)?
Of the approximately 19 million electronically
filed returns, about 4 million (or about 21 percent) claim the
EITC.
Is $25-$35 the typical charge for filing a return
electronically, including an EITC return?
The price range for filing returns electronically
varies greatly. Some Electronic Return Originators (EROs)
provide electronic filing for free to individuals who have
their returns prepared by the ERO. Others charge nominal fees
for the same service. On-line providers offer free fill-in
software and charge $4.95 for electronic filing. Other
practitioners will file a self-prepared return electronically
for additional costs.
To what extent have you been successful in utilizing private
sector efforts to provide free electronic filing of returns
(e.g., H&R Block has advertised free electronic filing in
various markets)?
H&R Block is not the only tax preparation firm to
offer free electronic filing. In addition to office
preparation, several firms are offering free on-line filing for
the 1998 filing season. Also, some software preparation
companies have partnered with transmission service providers to
offer a product which allows a taxpayer to file an electronic
return at the same cost as a paper one.
Specifically, how should the IRS follow up on your
recommendation that the IRS ``offer low or no-cost methods to
encourage the use of electronic filing'' (e.g., a tax credit
for electronic filing or more free electronic-filing sites at
IRS offices)?
My office supports a number of the Service
initiatives to encourage electronic filing. The Service is
increasing access to free electronic filing at a greater number
of walk-in and VITA sites. The Electronic Tax Administration
(ETA) Request for Proposal (RFP) contains a number of
alternatives that would enhance the use of electronic filing.
The TeleFile program allows taxpayers to file simple returns
using a touch-tone telephone. TeleFile holds the promise of
simplifying filing for a large number of taxpayers and should
be aggressively pursued by IRS. However, my office has
expressed serious reservations about the lack of tax forms, the
tax tables, the Earned Income Tax Credit (EITC) tables, or
complete instructions in the TeleFile package that is mailed to
taxpayers. Currently, TeleFile simplifies filing for those
taxpayers who are willing and able to use it, while adding
complexity for the majority of those sent these packages who
end-up filing on paper.
With the ``refund anticipation loan'' (RAL) program, a bank
files a taxpayer's return electronically and gives the taxpayer
the refund amount `` on the spot'' as a loan. The loan is paid
off several day/weeks later upon direct deposit of the refund
check to the bank by IRS electronic fund transfer. What percent
the RAL participants are low-income taxpayers, about 95%? What
is a typical charge for a RAL, about $75? What effective annual
interest rate are RAL participants paying in their loans,
between 100%-300%? (e.g.,$75 charge for a $500 refund)
My office has no specific figures on the
percentage of Refund Anticipation Loan (RAL) participants that
are low income filers or the typical fees or effective interest
rates. However, many low income taxpayers are paying what
appear to be excessive charges. Even if the number of taxpayers
paying these large fees were to be small, my office is
concerned about the potential inequity. It appears to many
taxpayers that the Service, which is not a party to the loan,
is sanctioning this financial transaction. Unfortunately, these
taxpayers look to IRS for relief if there is a problem. If
nothing else, the Service could require stricter ``truth in
lending'' rules to help taxpayers avoid the most expensive
RALs. The Service has put forth certain rules mandating that
these be referred to as ``loans,'' instead of accelerated
refunds, which could eliminate some of the confusion in the
minds of taxpayers.
12. Problems in the administration of the earned income tax credit.
In 1993 and 1996, the Taxpayer Advocate reported that (1)
low-income taxpayers need additional assistance in claiming and
understanding the complexities of the earned income tax credit
(EITC), and (2) the IRS has an obligation to ensure that
taxpayers eligible for the credit are made aware of it and
receive it. While the IRS's educational outreach efforts and
the volunteer income tax assistance (VITA) program serve the
low-income community to some degree, the Advocate is concerned
that the IRS is not doing enough. Also, the IRS's annual ``most
common error'' study continues to show ``EITC errors due to
complexity'' as the most common mistake made by both taxpayers
and tax preparers.
Do you believe that the IRS should be available to directly
assist low-income taxpayers in preparing their tax returns, as
was done in the 1970's in IRS district offices throughout the
country?
Yes, the Taxpayer Advocate believes that the IRS
should directly assist low-income taxpayers.
Is the IRS spending enough from the ``volunteer income tax
assistant'' VITA program to assist low-income taxpayers? How
much of the $3.9 million in VITA program funds is used to help
low-income taxpayers? Is this an appropriate level in
comparison to the separate $4.3 million spent on the volunteer
Tax Council for the Elderly (TCE) program, targeted to provide
``tax counseling for the elderly''?
The IRS does a good job paying for programs like
VITA and TCE, but we believe that as long as there are
taxpayers who have questions or are unduly burdened in
complying, we are not doing enough.
While about 18 million taxpayers claimed the earned income tax
credit (EITC) during the 1995 filing season, how many
additional families and individuals do you estimate were
eligible for the EITC but failed to claim it?
Approximately 2 million taxpayers may have been
eligible for the EITC for the 1995 filing season. The IRS
issued about 2 million notices to taxpayers who did not claim
EITC but who may have been eligible. These taxpayers were then
required to respond to the IRS notice to receive the credit.
What percentage (or number) of EITC returns are prepared each
year by professional return preparers, about 60%?
The IRS does not capture this data for EITC
filers. However, according to the Submission Processing Branch
35.04% of total returns expecting a refund are prepared by
preparers.
Generally, how much does a paid preparer charge for preparation
of an EITC return, about $50?
The Taxpayer Advocate's office does not have any
reliable figures on this.
Generally, how much does it cost a taxpayer to have an EITC
return electronically filed, about $25?
While our office does not have any reliable
figures on this, it is our understanding that the average
charge for filing a return electronically has decreased in
recent years, although it varies a great deal. The typical tax
return preparer may provide this service for $25 or under.
Does the IRS provide the EITC to eligible families and
individuals even if they do not claim the EITC on their return?
If so, how does this process work?
The IRS sends taxpayers a CP 09 (for taxpayers
with qualifying dependents) or a CP 27 (for taxpayers without
qualifying dependents) to inform taxpayers that they may be
eligible for EITC. The taxpayer must then respond with certain
information to be granted the credit.
Does the IRS provide the EITC to eligible families and
individuals in cases where an employer sends the IRS wage
income information (on Form W-2) showing EITC-eligible amounts,
but the family or individual has not filed a tax return?
Because the the IRS does not have all of the
necessary information (i.e. qualifying child information) to
make the determination as to whether the taxayer is entitled to
the EITC, the taxpayer must file a return claiming the EITC.
(Even if the return is selected for inclusion in the Automated
Substitute for Return (ASFR) program.)
Have you reviewed the EITC form and instructions? If so, how
could they be simplified and made easier to understand?
Yes we have looked at the forms and instructions.
The Taxpayer Advocate will pursue several recommendations with
the Tax Forms and Publications Division for the Tax Year 1998
forms and publications. Recommendations include combining
dependent and EITC information on the tax return and
simplifying the Publication 596.
Have you reviewed the substance of the EITC tax provisions? If
so, how could it be simplified--both made easier to administer
for the IRS, and made easier to apply for taxpayers?
Many excess EITC claims do not result from fraud
or intentional or willful disregard of regulation but from
incomprehension. The law is too complex. The dependency and
income tests could be based on amounts already shown on the tax
return. Also, recently passed legislation adds another level of
complexity. We may include recommendations for simplification
in the Taxpayer Advocate's December report to Congress.
13. Abatement of interest due because of IRS delays.
The Report discusses how Taxpayer Bill of Rights 2 provides
for abatement of interest when an unreasonable error or delay
is caused by an IRS employee. This provision was a result of
the Taxpayer Advocate's 1993 recommendation for such
legislation.
What are some examples of when a taxpayer should be able to
have interest charges abated?
Interest attributable to an unreasonable error or
delay by an IRS employee in performing a ministerial or
managerial act:
Interest charges may be abated under ``Managerial
Act'' when an IRS manager makes a personnel decision during the
processing of a taxpayers case which delays the processing of
that case. For example: a Revenue Agent is sent to extended
training or has extended sick leave and the agent's supervisor
decides not to reassign the agent's cases.
Interest charges may be abated under ``Managerial
Act'' when a delay in the processing of a case is caused by the
loss of records. For example: a delay in issuing a Notice of
Deficiency, after the issues are discussed with the taxpayer,
caused by a clerical employee misplacing the taxpayer's case
file.
Interest charges may be abated under ``Ministerial
Act'' when a procedural or a mechanical act causes a delay in
processing the taxpayer's case. for example, a delay in
transferring a taxpayer's examination from one jurisdiction to
another after both the taxpayer and the IRS agreed to the
transfer.
How will your office insure that interest is abated for a
taxpayer when the problem was due to ``unreasonable IRS error
or delay,'' rather than the taxpayer's fault?
Our PRP caseworkers receive training in tax law
changes at the same time as the front line telephone and walk-
in employees. Since we work closely with the taxpayer, on a one
on one basis, PRP caseworkers can identify and alert taxpayers
to an interest abatement situations. Also, cases are referred
to the PRP program where the sole issue is interest abatement
either under ministerial or managerial act.
My staff has been involved with Counsel and the
functions to ensure that the Temporary Regulations are clear as
to the scope of the Taxpayer Bill of Rights 2(TBOR2) provisions
of IRC 6404(e)(1). We reviewed the functional manual
instructions to ensure that proper guidance was given to field
employees regarding the procedures to follow when interest
abatement is requested and that any relevant notices and
publications were revised accordingly.
In order to have interest abated due to ``IRS error or delay,''
does a taxpayer have to apply for such relief, or will IRS
employees be empowered to offer abatement relief to taxpayers?
There is a Revenue Procedure that gives guidance
on how to apply for relief under the abatement of interest
provisions. However, there is nothing in the Temporary
Regulations, Revenue Procedure or the Internal Revenue Manuals
that prohibits us from abating interest under these provisions
absent a request from the taxpayer. The Customer Service Manual
states ``All IRS employees are responsible for identifying
delays due to ministerial acts on work in progress.''
Also, the Advocate recommends in his Report that
legislation be enacted to provide relief to taxpayers in
claiming refunds--even after the 3-year statute of limitations
for refund claims has expired--in extenuating situations.
What are problems are created for taxpayers by having refund
claims expire after 3 years, and allowing IRS to assess taxes
for up to 10 years?
Payments made prior to the due date of a return
are only available for refund or credit to another liability if
a return or claim is filed within three years of the due date
of the return or two years from when the tax is paid.
Therefore, a taxpayer may have a substantial amount of money
that is not available to be refunded or offset to another
liability yet we are actively pursuing collection for another
tax period.
Should the 3-year statute of limitations for refund claims be
extended for all taxpayers?
We are in the process of researching this issue
for a possible Legislative Proposal for our FY 1997 report.
While we feel it is only fair to allow prepaid credits for
taxpayers who do not file within the 3 year statute of
limitations to offset to other liabilities which we have ten
years from the assessment date to collect, we are concerned
that refunding money to delinquent filers may encourage further
delays in filing. At a minimum, IRS needs to do a better job of
advising taxpayers of this 3 year statute. Most taxpayers may
not be aware of this law.
What types of ``extenuating situations'' do taxpayers have
which merit refund claim relief?
Illness of the Taxpayer, illness and/or death of a
member of the taxpayers family, a traumatic experience such as
a fire or a natural disaster, divorce, and theft of records are
some examples of ``extenuating circumstances'' that taxpayers
may use to request refund claim relief.
14. Problems in mailing forms, estimated tax vouchers, etc.
The Report states that the IRS sends about 160 million
pieces of bulk mail each year to taxpayers, usually by bulk
rate (third class) mail. This process does not provide for the
automatic forwarding of mail to a new address or any return-to-
sender service.
Are the addresses the IRS uses for routine mailings (e.g.,
estimated tax return vouchers, tax forms) the most updated
addresses available anywhere in the IRS system, or do bulk-rate
mailing addresses come out of a separate, outdated data base?
Most tax forms mailing is accomplished using the
``Masterfile'' address, which may or may not be the most
current address available to the Service. While there is no
separate database for these mailings, the Masterfile address
can only be updated in certain ways (clearly the Service needs
to be sensitive to making incorrect address changes) and may
not reflect a new address that at taxpayer includes with
correspondence or gives to a collection or examination division
employee working a current case. Mailing bulk-rate does not
provide for forwarding of the tax packages without an added
``forwarding requested'' expense.
Which types of IRS mailings, tax forms, or payment vouchers are
most likely not to reach the intended taxpayers?
The ``bulk-mailings'' (tax form packages, etc.)
are probably the least likely to reach taxpayers--especially
those who have moved. However, these are not necessarily the
mailings that cause the greatest problems for taxpayers. A
significant number of cases in the Problem Resolution Program
are there, in large measure, due to problems taxpayers
experienced receiving account related notices and
correspondence.
With the extremely large number of forms, notices,
and correspondence that the Service mails to taxpayers every
year, some problems are inevitable. While progress has been
made in this area in recent years, the Taxpayer Advocate
maintains that more improvement is needed.
15. Separate mailing of math error notices and effected refund checks.
The Report implies that IRS continues to send refund
checks, which have been reduced by the IRS due to mathematical
error, separately from the IRS's explanation of why the refund
amount was reduced. Taxpayers become quite upset when they
receive smaller refund checks than they expected, and don't get
explanations at the same time.
About how many complaints does your office get each year from
taxpayers concerning refund checks which have been reduced
without explanations?
We don't have any record of numbers of complaints
but the problem is widely acknowledged.
Isn't there a plan for the Treasury Financial Management
Service to insert, in a reduced refund check, a stuffer
notifying the taxpayer that an explanation for the reduced
refund amount is forthcoming?
Yes, but this still does not tell the taxpayer why
the change happened when they receive the check.
16. Delays by IRS in processing offers in compromise.
The Report discusses taxpayers' efforts to negotiate
reduced tax payments through the offer-in-compromise program of
the IRS's Office of Chief Counsel. One complaint about the
program is that the IRS's Office of Chief Counsel does not
resolve the cases (i.e., accept or reject their offers) for
significantly long periods of time.
How long should it take for an average offer-in-compromise to
be accepted or rejected by the IRS?
The average offer should be accepted or rejected
within six months of the date the waiver of the statute of
limitation contained in the offer agreement (Form 656) is
signed by the Service. This six month period includes review by
the Office of Chief Counsel for the required cases. However,
with the increase in the statutory review criteria, a very
small percentage of offers in compromise now require al legal
opinion. According to the Offer in Compromise statistical
information for FY 97 cases, 64% of all offers were completed
within the 6 months period. Additionally, the Office of Chief
Counsel does not accept or reject offers in compromise, but
provides an opinion regarding the legal sufficiency of those
offers involving liabilities of $50,000 or more.
It is in the best interest of the taxpayer and the
Service for the Revenue Officer to investigate these cases
thoroughly to ensure that taxpayers do not have sufficient
assets to pay the complete balance owed and the taxpayer can
remain compliant for 5 years after the offer is accepted.
Revenue Officers must pursue these investigations while
remaining current with their other cases. Any shortening of the
processing time for these cases will probably require
additional resources which are not planned at this time.
17. Burden caused by cash management practices.
The Report describes how the IRS, in order to provide for
the most prompt deposit of tax payments, has various systems
for having tax payments deposited directly into financial
institution ``lock boxes,'' rather than having the payments
sent to the various IRS service centers. Sometimes taxpayers
are confused about having their tax forms sent to one IRS
address and their tax payments to another.
For individual taxpayers, what is the major confusion they face
in dealing with IRS ``lock boxes''?
Adding a new payment form (Form 1040V), which has
its own set of instructions, increases the burden on taxpayers
who must pay with their return. It also adds one more item to
the tax package for all taxpayers, even those who may be
receiving a refund. This adds one more area of complexity for
all taxpayers. While it may be argued that this constitutes a
small added burden, it is the dozens of small items that have
been added in recent years that together are significantly
increasing the burden of filing a tax return. Also, the Service
did not have well-established processes in place to work with
third party vendors to resolve lockbox and electronic payment
problems.
Will taxpayers be punished by the IRS if they erroneously send
tax payments to an IRS service center or district office,
rather than to the correct IRS ``lock boxes'' financial
institution?
At the present time, it is our understanding that
there are no penalties or ``punishment'' for individual
taxpayers who erroneously send a tax payment to a service
center or district office rather than to the designated lockbox
financial institution.
18. Lack of acknowledgment of taxpayers' submissions and payments.
The Report discusses why taxpayers become frustrated when
they send money or answer questions as a result of IRS notices,
and the IRS never acknowledges or confirms the taxpayers'
responses. For example, if the IRS sends a taxpayer a notice
making adjustments to his or her tax return (thus, demanding an
explanation of the discrepancy or payment of additional tax),
the IRS never lets the taxpayer know whether the explanation is
acceptable and/or the tax payment has been received, or most
importantly, that the case is closed.
What types of responses do taxpayers deserve from the IRS after
they have sent the IRS tax payments the IRS has demanded, or
after they have supplied the IRS with the information
requested?
Taxpayers deserve a response or acknowledgment
that tells them that they do, or do not, need to take further
action to resolve an open issue with IRS. Currently, taxpayers
are often left waiting and wondering if their problem is
resolved or if IRS will contact them seeking further
information or payment.
What specific recommendations does your office have to deal
with this fundamental customer service problem?
The Service should acknowledge all payments,
including those sent with returns and acknowledging the closing
of a case or completion of any action. Taxpayers who are being
audited generally receive a ``no-change'' letter if there case
is closed without additional tax due. Taxpayers who have other
dealings with IRS, such as service center account inquires and
math-error notices, have the right to the same courtesy.
Providing this type of notification to taxpayers would have the
added benefit of reducing the telephone calls and written
correspondence that the Service receives from taxpayers asking
about the status of their case or payment. This should be done
even if it goes against the effort to reduce IRS notices.
19. Lack of non-stop service.
The Report outlines how taxpayers often need to talk to
three or four different IRS employees to get a relatively
simple tax problem resolved.
Are there any IRS offices where a taxpayer can get a
satisfactory conclusion of a tax problem during the taxpayer's
first contact/inquiry of the IRS?
Often the Service can resolve a taxpayer's problem
during the first contact. Many issues are within the power and
ability of the toll-free (or walk-in) assistors to resolve.
Unfortunately, many issues involve greater research capability
or more recent data than can be quickly accessed by most
Service employees. Many local IRS offices have undertaken
initiatives to improve their customer service. For example the
Northern California District Compliance functions initiated a
system in which local Examination and Collection groups work
together to expedite processing cross-functional issues. The
Rocky Mountain District Customer Service Site hired additional
assistors and initiated several training efforts to ensure that
all employees have a comprehensive knowledge of Integrated Data
Retrieval System (IDRS).
What specific recommendation does your office have for handling
taxpayer inquiries, similar to those available to customers
making inquiries of their credit card company, insurance
company, or bank?
Solutions to the lack of one-stop service lie in
systems redesign and modernization. Comparisons with credit
card and insurance companies are difficult because tax accounts
are often far more complex than anything those private company
customer service functions are required to deal with. However,
the Taxpayer Advocate recognizes two necessities to enhance the
Service's ability to provide one-stop service:
The Service needs to provide updated account
information as close to ``real-time'' as possible to employees.
The Taxpayer Advocate is aware that this involves significant
funding and modernization issues, and
The employees provided this enhanced service
capability need to receive significantly more training in all
phases of Service operation. While making every employee an
``expert'' in all areas of tax law and account activity, is not
possible, every assistor should have the knowledge to address
most issues.
20. Inconvenient times and locations for doing business with IRS
The Report states that working taxpayers often find it
difficult to do business with the IRS during the hours IRS
offices are open (i.e., generally 8:00 a.m. to 5:00 p.m.). It
is a particular problem for those needing to go to IRS offices
during the regular workday. The Taxpayer Advocate recommends
that IRS office and telephone hours be expanded.
Should IRS offices be open earlier in the morning or later in
the evening?
Yes, IRS offices be open outside normal business
hours.
What hours and days are a particular problem for taxpayers?
It may not be convenient for our customers to
visit IRS offices, access the toll-free systems, or take off
from work for Examination appointments. This is a regular
complaint from taxpayers and practitioners. Greater flexibility
in setting tours of duty would help avoid overtime costs. The
IRS would need to address union concerns, and issues relating
to additional costs for security, heating, ventilation, air
conditioning, and staffing.
Should the IRS staff its offices more like the U.S. Customs
Service (i.e., Customs officials work when flights and
shipments arrive, both early in the morning and late at night)?
IRS offices should be open so that most Americans
can access the assistance they need. Wal-Mart and Sears are
open convenient hours because they want your business. IRS is
not faced with either the competition or the desire to
``please'' customers. However, the Taxpayer Advocate maintains
that the Service has a duty to serve the public. This would
entail, at the very least, being open some evenings and
Saturdays. During filing season, hours should be extend to
include Sundays. Also during filing season, toll-free service
should be provided 24-hours a day.
According to the Report on the IRS: Reinvention,
Recourse, Rights, Reform:
1. Provide Better Telephone Service
--Increase Hours: To make service more convenient, the IRS
will, by January 1, 1998, expand telephone service to 6 days a
week, 16 hours a day. By January 1, 1999, the IRS will expand
telephone service to 7 days a week 24-hours a day. Currently, a
caller can get their questions answered by an IRS telephone
representative only 5 days a week, 12 hours a day. Expanding
phone service will be achieved by putting more of the current
work force on the phones during peak calling periods, using a
new national call-routing system to route calls to the next
available customer service representative, and forwarding calls
to employees in other time zones during late night hours.
2. Expand Customized Services
--In 1999, the IRS will begin using new call-routing
technology to provide service that is geared to specific
customer needs, such as: the sale of a house, retirement, or
job change, and multi-lingual service. The IRS will also
provide a nationwide hotline for tax preparers.
3. Make It Easier To Get Answers
--Expand Office Hours: Beginning in 1998, the IRS will open
district offices on Saturdays during the busiest weekends of
the filing season.
--Open More Convenient Locations: Beginning in 1999, the
IRS will open additional temporary community-based locations
during peak season for publications and forms, such as banks,
libraries or shopping malls. The IRS will expand the telephone
information system so that people can find out when and where
they can get help.
Chairman Johnson. Thank you, Mr. Monks. I appreciated your
testimony and your updating us on what you are doing and some
of the systems reforms that you have adopted to develop better
data.
One of the things that has always interested me is that it
should take a change in the law to get the data that, frankly,
you would think a department would need anyway, but I know with
the many responsibilities of the IRS it does sometimes take a
law to focus that and I am impressed with the progress that you
have made in the area of data collection.
However, the goal of the legislation, the Taxpayer Bill of
Rights legislation, was to have you come forward with the 20
problems and recommendations for their solution, and while I am
pleased to see the variety of things that you have done that
are certainly an improvement in the system and your clear focus
on taxpayer problems, I would like you to be more specific on
problems and solutions, and if you could go through that, I
think the idea of a score burden is a good one, but many of the
items that are on this list were on the list in 1993 so they
are not unfamiliar to you.
Mr. Monks. Right.
Chairman Johnson. I would like you also to go through some
of your recommendations to address the problems of complexity
and administrative issues that you bring up in your list of 20.
So if you could be a little more specific, I would appreciate
it, if you could go through the list.
Mr. Monks. Yes. Do you want me to respond to each of the
areas or do you want to address specific questions to each of
the areas or how would you prefer?
Chairman Johnson. I would like to go through each of the
areas to some extent. My vision of this hearing was basically
that, and one of the problems for this Subcommittee has been
that we do not get specific information about specific problems
and we do not have the opportunity to determine whether there
is an administrative solution or whether we would need to
legislate.
So we do need the more specific information as well as the
very valuable general information that you gave us in your
opening statement, so if you would just proceed down the list
and give us some idea of your thoughts as to solutions.
Mr. Monks. Yes, if I could, I would like to differentiate
somewhat between the two sections in the report. One section
deals with the 20 most serious problems that are facing
taxpayers. This information was derived primarily from
anecdotal input received from taxpayers and input from our
Regional Problem Resolution Offices and also our District
Problem Resolution Officers. This information was shared with
the IRS Executive Committee and Regional Commissioners that
have responsibility for the functional systems and we have
asked them to provide an update on where they are at in terms
of dealing with each of these areas.
One of the problems that I have as a Problem Resolution
organization within the Service is that we have a relatively
limited amount of staffing, although I believe our staffing is
at an appropriate level. Our primary focus in the past year and
since the time that the TBOR2 legislation was passed has been
to work with the taxpayers to fix their immediate problems, and
in some cases, that task has been so overwhelming that that
eats a lot of our available time that we might spend on
analysis of the problem areas. So I wanted to just provide that
focus.
Chairman Johnson. I do appreciate that, Mr. Monks. I do
want to add, though, that in 1993, one of your predecessors
provided the Subcommittee with a list of the 20 most serious
problems facing the taxpayers----
Mr. Monks. And I agree.
Chairman Johnson [continuing]. And that list is very close
to the list that has come forward. So I do not think that
developing the list was really the problem, and so I am
interested in what you are thinking about solutions.
Mr. Monks. Yes. And I wanted to move to the other element
now, and the other element is the listing of the top 10 areas
for PRP casework. That is where our primary focus has been
because that is more than anecdotal information. That is
information from our own Management Information System that
indicates that these are areas that taxpayers are coming to the
Problem Resolution Program with that are actual systemic
problems that they are experiencing with the IRS. This is
information that we derive directly from our Management
Information System and these are the areas that we have been
focusing our primary attention to during the past year, up
until the time the legislation was passed.
So what we have been trying to focus on since I have been
the Taxpayer Advocate or Ombudsman and Advocate is to look at
these areas that we know we can quantify the specific number of
problems that taxpayers have had in dealing with the IRS, try
to identify those that are causing the most problems, and to
create what we call advocacy projects out in the field offices
where they are more familiar with the specific problems that
taxpayers are having.
For example, a task group that we initiated dealing with
joint and several liability, the joint return issue, was
conducted in the old Southwest Region, now the Mid-States
Region, and provided the impetus for the Service's task force,
the larger Service's task force in that area.
The issue of audit reconsiderations has been worked as a
project, because as you can see, that is the number one source
of PRP casework within PRP and we have made a number of
recommendations in that area for the Service to give
consideration to in terms of improving that process and,
hopefully, eliminating taxpayer cases that are finding their
way into PRP.
And again, we have projects that have been initiated as a
result of the report and my report back to the Executive
Committee on this top 10 area of sources of taxpayer problems
coming into PRP that have already been initiated by the
Service.
Now, we do not have completed projects in most of these
areas but we expect to. We are monitoring the activities and
will be following up with the Regional Commissioners to look
into each of these areas and, hopefully, will be able to
provide more of what you are looking for in the next report to
the Congress. Now, I do not mean that as an excuse or anything,
but legislation was passed somewhat late in the year, and
granted, while these other problems have been known to us and
are continuing problems, most of our focus has been in this
area as opposed to the other because some of the others are not
necessarily areas that I have control over to be able to
influence to the degree that I would like to.
Chairman Johnson. I do appreciate that, and the strength of
your opening statement was setting out how the Department is
trying to operate in a way that refocuses it on taxpayers'
problems and solutions and this list of 10, I think, will
provide the fodder for a year from now when you are before us
with the specific problems and specific recommendations.
But since your 20 problems, for the most part, were things
that had been identified since 1993, I would hope that you
would have some specific solutions for us to recommend. Even in
the first item, complexity, I appreciate the fact that your
suggestion of scoring burden, and I think that is a very
interesting one and I would like to have your input about how
we would structure that, on what basis, what factors would we
take into account if we wrote a law in that regard.
But on the other hand, can you tell us the three laws that
are the most complex and cause the most problems and how we can
fix them?
Mr. Monks. Let me----
Chairman Johnson. Or what parts of them are complex?
Mr. Monks. Let me tackle complexity. One of the things that
we have heard from both individual taxpayers and from small
business taxpayers as we have done focus groups with taxpayers
is that we should leave the Code alone. By continually changing
the Code every year, by striving to provide benefits to one
group, we sometimes unintentionally penalize other groups.
So for those taxpayers that would like to be able to use
their tax return, for example, as a guide in preparing their
subsequent years' tax returns, they cannot do that because
there are so many changes to the Code. We go through this
process every year where the forms are changing and so on. That
adds complexity for millions and millions of taxpayers,
obviously.
Another specific example that we have and that we have
discussed and are looking at in Problem Resolution are the
rules for earned income tax credit and dependents. We have
slightly different rules for taxpayers that want to claim the
earned income credit and claim the dependency exemptions and
that causes confusion. Should not those be somewhat more of the
same or identical for taxpayer? They are different. It causes
confusion, causes questions, and so on.
So there are a couple of specific examples that we have
looked at. We have a number of projects that are looking at
this right now. We are looking at complexity of forms. We have
a task group working within the IRS and my staff is working
with that group. We have made a number of recommendations in
terms of improving wording on forms that would make it easier
for taxpayers to understand. That is a continuing project.
Another thing that we have done as a result of the recent
legislation on math error and individual taxpayer
identification numbers is to work with the functional areas to
ensure that as new processes are developed if taxpayer cases
arise that are inadvertently caught up in these areas, that
they are handled expeditiously and we can remove as much burden
from the process as possible.
When you look at some of the new legislation that has been
enacted, and frankly, it is enacted for very good reasons, some
of the items that I reviewed this year were very complex and
are going to be difficult for many people to understand. It
does not mean that it is inappropriate legislation. It is
certainly appropriate. But the rules for the adoption credit,
for example, are very complex and we need to look at how we
might be able to simplify the instructions that will be going
out to taxpayers so that they can understand who can claim that
credit and what it takes to claim that credit, but that is an
area that we----
Chairman Johnson. Just if I may, hopefully, when this
process gets going, you would be able to report to us at this
point what are the complexities of that that are going to be
very difficult to implement so that we have a chance to
simplify them before we get too far into that process.
Number 12 of your 20 problems is the earned income tax
credit, EITC, and you note that it is so complicated that the
very people who need to use it have less than average knowledge
of the tax laws and need additional assistance in understanding
the complexities of this provision, but you have had
considerable experience with that now. Are there specific
provisions of that that you would recommend that we repeal?
I do not want you to feel inhibited about criticizing the
job we did in writing the Tax Code. Frankly, you know what a
sort of sausage-making operation it is. The reason we asked for
these reports to come from you and not go through the IRS
Commissioner, not go through the Secretary of the Treasury is
because we wanted to get the straight and raw, and if you do
not feel free to say, listen, the way you wrote this is going
to make it practically impossible for us to administer and this
is what people out there in the real world are faced with and
you could dump this section of it or simplify that, then this
project will fail.
Mr. Monks. No. I certainly understand----
Chairman Johnson. So to have the list of 20 and have
complexity cited but no guidance how to deal with it is really
just simply missing the point. This Subcommittee is going to be
focusing on small business simplification, so I hope that at a
later date you will be able to come back with what you meant by
complexity beyond the fact that it helps small business if
there is no change. I understand they feel that way now, but we
need to move back the other way before we stop making change.
At least, that is my interest.
But a number of the things you point out here about the
explanation of why your numbers were wrong and you are getting
a smaller tax return and the check being in the same envelope
rather than a separate envelope so the taxpayer gets it, that
is a problem. That has been on the list since 1993. I want you
to be recommending a solution.
Now, if there are no solutions, if you have no more detail
on solutions than you recommended in your opening statement,
you might as well say so rather than go through the 20 items,
but I would have to tell you that is not what I expected. As
much as I commend you on your effort to move the Department in
a new direction, we needed concrete recommendations and I would
rather have had you say, I could not get to 20, I did not have
time, but here are 10, than just to outline problems, most of
which have been known, and not recommend any solutions
specifically.
Mr. Monks. No, and I appreciate your comments. Frankly, you
are right on target in that particular area because most of
our--again, as I pointed out, most of our efforts with
certainly our field staff and even our staff in headquarters
has been caught up in the process of trying to work with
taxpayers who are having immediate problems and trying to solve
those immediate problems and we have not been able to devote
the attention to looking at the variety of issues that are
negatively impacting on taxpayers, such as the 20 most
significant items affecting taxpayers and even the top 10
sources of PRP casework.
We have, I think, renewed our efforts to enhance our
advocacy program by enlisting the efforts of our regional
offices. I have a relatively small staff in Washington and we
can do, and I hate to use this as an excuse, but we have limits
with what we can do with the resources that we have. But we do
have the availability of the resources from the Regional
Commissioners, the District Directors, and so on to be able to
ask them to look at the most troublesome areas in their
specific region, to be able to look at some actual casework and
develop the underlying causes or the root causes of these
problems and come in and help us with the development of
specific recommendations that can be more helpful to this
Subcommittee.
I view this first report to the Congress as a tip of the
iceberg type thing. It is the first report out of the box and
we had a lot to do in a relatively short time to try to pull
the report together and to demonstrate what we had done up to
this point.
Mr. Collins. Madam Chairman.
Mr. Monks. I agree with you. We have not made the progress
that I would like to have seen us made, but I would expect that
subsequent reports, as a result of the activity that we have
already initiated and have underway at this point in time, will
be much more fruitful in the near future.
Chairman Johnson. I thank you, and I am going to give my
other colleagues a chance, but I would want to put on the
record that I hope the lack of specific recommendations is not
the result of concern with what the agency will think.
Mr. Monks. No, it is not.
Chairman Johnson. We specifically had you report directly
to us. What you report may not be doable and they may say,
well, this will interact with that and we cannot do it, and we
may say, it is complex and we like it that way and we will not
do it. But if we do not get it out there, no one is
accountable. We are not accountable for some of the bad
legislating we do and you are not accountable for telling us,
and in the end, we get a bad product out there that is almost
impossible to administer.
So I do consider this the first time around and the tip of
the iceberg, but I would have to say, while it sets out 20
problems, it does not set out any solutions and any material to
which we can say, this is administrative and they ought to do
this and this is legislative and we had better get ourselves
together and do that. It does give us some general guidance and
we will use that.
With that, I will yield to my Ranking Member, Mr. Coyne.
Mr. Coyne. Thank you, Madam Chairwoman, and thank you for
your testimony, Mr. Monks.
Mr. Kleczka, did you have a question?
Mr. Kleczka. Thank you, Madam Chairman.
Mr. Monks, you indicated twice the size of your staff.
Could you relate to the Subcommittee how large or how small
your Washington staff is?
Mr. Monks. I have 21 people in Washington, DC, Tom and
myself in the front office with a couple of secretaries that
handle incoming calls from taxpayers and----
Mr. Kleczka. I just wanted to know the total number.
Thanks.
Mr. Coyne. Mr. Monks, one of the complaints that many of us
receive is the inconvenient times and locations for doing
business with the IRS and my question is, is it your judgment
that the IRS offices ought to be open earlier and later for the
convenience of people who work, say, from 8 in the morning
until 5 at night and who therefore cannot visit the IRS during
those hours?
Mr. Monks. I think, certainly, that would be helpful for
taxpayers. I think one of the issues that we are dealing with
there, of course, is one of resources and when do we get our
primary traffic. Obviously, one of the things that is looked at
in both our walk-in offices and our toll-free services is when
the highest volume occurs and trying to staff the offices
accordingly. Toll-free service is available from 8 until 5 and
for the notice-type calls, it is available until 9 in the
evening. Obviously, the automated systems are open 24 hours a
day.
We are trying to look at ways that we can enhance that
availability of service to taxpayers, particularly those that
work during the day and just cannot break free to contact the
IRS. So that is a concern.
Mr. Coyne. So the fact that that has not happened yet is a
direct result of the lack of resources to do it?
Mr. Monks. Certainly, part of that is a resource issue.
Certainly, one of the focuses this year, because of the
problems with toll-free access, has been to put more resources
into toll free and I think that effort has proved to be
successful. Obviously, when you have a number of priorities,
you have to make decisions as to where you spend your resources
and our primary effort this year, at least in customer service,
has been to enhance the level of access on the telephones.
Mr. Coyne. What would be a good response percentage for
you? What do you think you ought to be able to respond to? What
percentage of calls do you think the IRS ought to be able to
respond to?
Mr. Monks. Well, ideally, we would respond to 100 percent,
but that would be certainly a significant resource problem. I
would say that we ought to be striving in the areas of 80- to
85-percent level of access for taxpayers. That is a goal we
used to hit several years back on a fairly consistent level and
I think that that ought to be our target effort, somewhere in
that arena, because I think at that if you go beyond that
point, you are beginning to perhaps spend resources
inefficiently that could be used for other programs.
Mr. Coyne. What is the current percentage? What are you
responding to now?
Mr. Monks. This filing period, we are achieving a 68-
percent level of access and that compares to a 48.6-percent
level of access last year. So we are up substantially. It is
still not where it needs to be, obviously, but it is up
substantially. It has been a concern and one that we put a lot
of resources into and we have paid a lot of attention to it.
We are also looking--in fact, we have a task force in
Problem Resolution that is cosponsored by our Mid-States Region
looking at how we might be able to improve access by trying to
reduce demand, unnecessary demand that is coming in as a result
of perhaps taxpayers not getting their information from other
sources, such as the tax package and so on. We are looking at a
number of areas to try to enhance that service.
Mr. Coyne. You touched on your work with the EITC problem
that exists, and that in 1995, there were 18 million taxpayers
who filed for the EITC. How many additional families and
individuals do you estimate are eligible for EITC but failed to
file for it?
Mr. Monks. That is a difficult question to respond to
because if they did not include it on their form, it is
difficult for us to determine whether or not they are entitled
or would be entitled to it if they did not claim it. We do try
to identify in the Service those returns that come in where it
appears that the taxpayer may be entitled to a credit. We send
them a notice advising them of that and ask them to provide
some additional information that would validate whether or not
they are entitled to the credit, but I could not give you a
number.
Mr. Coyne. So you have no figure on that?
Mr. Monks. No, I do not.
Mr. Coyne. Does the IRS provide the EITC to eligible
families and individuals in cases where an employer sends the
IRS wage information, a W-2 form, showing EITC eligible amounts
but the family or individual does not file? Do you give that
taxpayer the credit for it?
Mr. Monks. No, we do not. They have to file a tax return in
order to get the credit. It could very well be that if some
information identified that a taxpayer was eligible, we might
send them a notice saying it appears that they are eligible for
the credit, but we would not automatically give them the credit
without their filing for it.
Mr. Coyne. If you do get the W-2, though, do you notify
them that they are eligible?
Mr. Monks. No, I do not believe so. I believe it would take
the filing of a return. The W-2 in and of itself would not
necessarily indicate that they were eligible for the credit.
There might be some extenuating circumstances that would make
them ineligible for the credit. The return would have to be
filed and then that, in turn, would generate a notice if the
taxpayer appeared to be eligible for the credit.
Mr. Coyne. In your report, have you done anything to
recommend changes in the EITC form to make it easier for people
eligible for the EITC to file for it?
Mr. Monks. That is another area that we have asked a
specific task group to look at. The Western Region is currently
looking at the earned income tax credit process. They, of
course, have had significant experience with that as a result
of some of the revenue protection issues which surfaced out in
the Western region initially. They have probably the highest
experience with that particular problem in terms of cases that
have come into Problem Resolution. So they are working a
project and we expect that project to be completed in the very
near future and to be able to have some specific information in
that area.
Mr. Coyne. Thank you.
Chairman Johnson. Mr. Portman.
Mr. Portman. Madam Chair, Mr. Ramstad has to go participate
in a debate on the floor of the House, so I am going to yield
to him and I think he is yielding back to me.
Mr. Ramstad. Thank you, Madam Chair, and I thank my friend
from Ohio for yielding.
Mr. Monks, you mentioned in your testimony, and I am
quoting now, ``We should leave the Code alone,'' and you drew
that conclusion, you said, based on a focus group meeting. Was
this focus group one held here in Washington, people from the
District, or inside the beltway?
Mr. Monks. We did a series of focus groups in 1993 that
went out across the country. I cannot remember all the sites,
but I believe San Francisco, Atlanta, and a couple of other
locations, where we talked to individual taxpayers. One of the
things that we wanted to find out in that series of focus
groups was about the service that they received from problem
resolution and we also touched on a number of other issues.
That is one of the issues that they raised, that they felt that
the complexity was enhanced to a great degree by the continuing
numbers of changes to the Code.
Mr. Ramstad. Certainly, with all respect, I would welcome
you to come to Minnesota because I have yet to find a
constituent who believes that the current Code is either simple
enough or fair. Ten thousand pages of rules and regulations
last year, and according to the report I read, it took the
taxpayers of our country 5.1 billion hours to comply at the
cost to our gross domestic product of $300 billion. I certainly
would welcome you, because in 7 years of representing the good
people of Minnesota's Third District, I have not found one who
believes the Code should be left alone, that it should not be
made less complex and more simple.
Mr. Monks. Mr. Ramstad, I did misspeak on that. What they
were talking about was not necessarily the Code and I did
misspeak. It is the return itself that I was alluding to and I
misspoke on that. The basic tax return changes as a result of
changes to the Code, and----
Mr. Ramstad. Oh, I see. OK.
Mr. Monks. That was the issue I was alluding to.
Mr. Ramstad. I am relieved to hear that because I was
incredulous at your remark, which I wrote down verbatim, ``We
should leave the Code alone.'' I do not think too many people
in this Congress reflective of their constituencies would agree
with that----
Mr. Monks. And I would agree, also.
Mr. Ramstad [continuing]. Because the thrust of tax reform
is obviously to make the Code less complex, more simple, and
easier to comply on the part of the taxpayers.
Let me just ask you another question, if I may, based on
the large number of people in my district back in Minnesota who
are upset with the failure, really, of the IRS to implement
interest netting on overpayments and underpayments. I am sure
you are familiar with the issue. It has never made any sense to
me nor to the people I work for back home why a taxpayer should
be forced to pay a higher rate of interest when he or she has
an underpayment situation than the IRS pays in overpayment
situations. It seems to me a blatant and unfair double standard
to have those two different rates.
In spite of congressional instructions to implement
interest netting, the IRS has, to my knowledge, failed to do
this. Have you looked into this, and if so, could you tell us
why?
Mr. Monks. We are looking into this issue, and, in fact, we
have recently put together a simplification group within the
IRS and we are looking at issues of this very nature. This
could very well be one of the recommendations that comes out of
the group, to make the rates the same. I think, currently, the
rate that taxpayers would pay the IRS on a deficiency is 9
percent, whereas the rate that they would receive from the IRS
on a refund, if it was appropriate, is 8 percent. This is an
area that is being looked at and we think that a recommendation
will come out of this effort to make that more equitable.
Mr. Ramstad. I appreciate your emphasis there and I truly
hope it is one of those recommendations. Actually, I think the
disparity is even greater, but nonetheless, I am pleased to
hear you say it is a priority and I look forward to discussing
it with you further and to making that change, because it is
not fair that the taxpayers have to pay a higher rate of
interest than the IRS pays them in an overpayment situation.
I will yield back, and again, I thank the gentleman for
yielding.
Chairman Johnson. Thank you.
I am going to recognize Mr. Kleczka next.
Mr. Kleczka. Thank you, Madam Chair.
Mr. Monk, I think you responded to Mr. Coyne relative to
the office hours. Is there any pilot project started around the
country where either during tax season we open the office on
Saturday until noon, or 1 night a week the office would be
open, say, until 9 to convenience tax filers who happen to work
so they can pay their taxes?
Mr. Monks. I believe that there are. I do not have specific
information on which offices may be providing that type of
service, but it did come to my attention that there were some
specific offices that were experimenting with extended hours on
either Friday or providing some Saturday service.
Mr. Kleczka. OK. How widespread is the lockbox approach? Is
that in all the various areas of the country? I am not
associated with it in Milwaukee yet.
Mr. Monks. A lockbox is a process where taxpayers forward
their returns and the payment on the returns directly to a
banking institution that, in effect, makes the deposit
immediately so that the Treasury of the United States----
Mr. Kleczka. How widespread is the practice?
Mr. Monks. It is all across the country. This is a standard
process.
Mr. Kleczka. OK. And the last question I have is, in regard
to the refund anticipation loan program, as you looked into
that, have you found some widespread abuses where either the
bank or the filing company charges a relatively high percentage
of the refund in order to give the immediate refund to the tax
filer?
Mr. Monks. This has been an area of concern, I think, for
some time, particularly for low-income taxpayers that seemingly
have a need to have their refund relatively quickly and that go
to various institutions that charge a high rate for the service
to----
Mr. Kleczka. Do you have any examples of how high the rate
can be?
Mr. Monks. Not specifically, but I think that depends upon
the particular market area, but there are some companies that
provide, in effect, the whole package without differentiating
between the rate for the filing of the return and the rate for
electronic filing. I have read some stories that indicate some
rates charged in various locations are fairly significant in
terms of what you would view as an interest charge, of that
nature, but I do not have any specific examples.
Mr. Kleczka. So we have no example of what the interest
rate could be?
Mr. Monks. No.
Mr. Kleczka. Ten percent? Twenty percent? You have no idea
whatsoever?
Mr. Monks. If you were to compute that on an annual basis,
I think it could work out to substantially higher than that.
Mr. Kleczka. Like?
Mr. Monks. I would say in the neighborhood of perhaps 30
percent.
Mr. Kleczka. Do you think legislation is needed in this
area to curtail some of those practices?
Mr. Monks. I think legislation might be appropriate.
Mr. Kleczka. To do what, limit the interest rate charge or
limit the practice altogether?
Mr. Monks. Well, it is not necessarily an interest rate, of
course.
Mr. Kleczka. Well, how do we determine that?
Mr. Monks. It is a fee-for-services, and to some degree,
the fee depends upon what the market will bear. Frankly, it
surprises me that taxpayers sometimes will pay the charges that
are charged for this particular service, but they do. I do not
know if that is an area that should be regulated or not, but I
think that we should work within the IRS to provide additional
options for taxpayers, perhaps for free electronic filing, free
service so that the taxpayers can get their refunds
expeditiously, and make that available to them and known to
them.
I think we should work with Volunteer Income Tax
Assistance, VITA, sites to provide the capability for those
VITA sites to file returns electronically so that taxpayers can
have an option. That way, if they choose to, they can go to the
VITA site and get the service there. If they choose to, they
can go to a company and get a refund anticipation loan, RAL.
I think it is one of our responsibilities, certainly as an
Advocate, to at least advocate for providing some options to
taxpayers that might give them some other choices.
Mr. Kleczka. Thank you very much.
Chairman Johnson. I have to say, Mr. Monks, you have been
in this job for 3 years. Many of the things on your list are
identical to things on a list 3 years ago and my colleague just
asked you about locations of business, opening hours. Number 20
on your list is, of the problems faced, it says inconvenient
times and locations of doing business with the IRS. Working
taxpayers often find it difficult to do business with the IRS
during the IRS normal work day, from 8 to 5.
Now, this is an old recommendation. Why are you not here
today giving us some guidance on we need a law that allows flex
time, or what do you need? We all understand the constraints,
but this Subcommittee was a very tough ally of the IRS in the
last Congress to get more money into your budget. But you
specific this as one of the problem. It is a pretty simple
problem. It has been around a long time. It was on preceding
lists when you were there and yet you have no recommendation.
The same with cash management practices, number 17. Burden
caused by cash management practices. The IRS practice of using
lockbox vendors and separate envelopes for returns and
remittances causes confusion among taxpayers. Now, it does seem
to me that you might have come with some recommendation about
that. That does not seem so difficult or you would have said,
it is a problem and it cannot be solved for the following
reasons.
You know, we were looking to this hearing to develop the
substance for another taxpayer bill that would help you and
help us and there are two simple things my colleague just asked
about on your list, could have been addressed and were not, and
that disappoints me.
Mr. Monks. If I could respond to a couple of those items,
certainly on the inconvenient times, some of these problems
have been longstanding and are being dealt with and I tried to
in the Advocate's Report to the Congress to provide some
examples of where service was being improved. Hours have been
extended, certainly for toll-free services, and we have
experimented with longer office hours in specific locations.
Obviously, resources is a continuing problem. The IRS
budget has gone down each year, or at least remained constant,
but did take a decrease for a couple of years and is
substantially lower now than it has been in the past, certainly
in terms of 1997 dollars.
We have made an effort to improve access to taxpayers on
toll free and are also trying to retain our walk-in program at
at least the same level that we have in past years. This is a
challenge for us. Obviously, I do not have all of the answers
but I think we have made some strides in this particular area.
Our office hours are improved.
Chairman Johnson. I just make the point that we, really, we
are looking for more specific recommendations and I hope in the
future they will be more concrete and specific. Do you need
authority for people to work different hours depending on the
demand in certain areas, that kind of thing.
Anyway, let me yield to my colleague, Mr. Portman.
Mr. Portman. Thank you, Madam Chair.
I have so many questions, I do not know where to begin.
First of all, I thank your office for working with this
National Commission to restructure the IRS. As you know, we
have about 5 months left before issuing our final report. Mr.
Coyne is also on that Commission with me and at our hearing
about 2 months ago, your Problem Resolution Officers
participated and gave us some very helpful input.
Not to pile on here, but I think what you are hearing is
``where is the beef?'' This report is fine in terms of
identifying problems. That is what we are experts at. It is the
people who are politicians, public officials like ourselves who
love to talk about the problems at the IRS and we are very good
at it. What we need you to do is to tell us how to solve some
of these problems, and I think you are in a unique position.
Number one, you have the knowledge. You are working on
these problems every day. Your PROs, I see, I think, five of
them here in the front row, can tell you what is going on out
in the field. You know, you, frankly, are not buffeted by the
political winds that we are, so you have the ability, I think,
to play a unique role here and to really help taxpayers.
If you do not have the time to do it, you do not have the
budget to do it--incidentally, the IRS budget has not decreased
over the last decade. It consistently went up. Last year, yes,
there was some reduction, particularly in the area of
modernization after $4 billion was spent on the computerization
project which apparently is not working well. That is
understandable, and this Subcommittee did stand up for you and
did try to give you the resources you needed, but you have to
reallocate those resources to help taxpayers in a way that I
think you uniquely can do, which is to give us constructive
solutions, not just list the problems for us. Again, that is
what we are very good at.
Let me just focus on a couple, if I could. First of all, I
am sorry you reversed your position on responding to my friend,
Mr. Ramstad's question on change. If change is a major problem,
tell us that. Do not back away and say, ``That is not what I
meant. I think you guys can go ahead and change the Code all
you want.''
One of the problems is complexity. Another problem is we
keep changing the Code so much. You should be an advocate for
us not changing the Code so much. Surely, we need to simplify
the Code, but once we do that, we have to stop changing it so
often. I think that is what I would say if I were in your
position, because, certainly, that is what I have heard over
the last 7 months continually and I hear that even from my
constituents, as do the other Members around this panel today.
So I guess my suggestion, respectfully, is that you be more
aggressive, that you really take on the role of an advocate. I
believe you testified earlier that you ran this report by the
regional heads, and so on. I do not know if that was the intent
of the legislation. I did not draft it with Mrs. Johnson
particularly, but I think folks on this panel would like you to
report directly to us, and not necessarily to vet it through
the management structure. I think you need to give it to us
straight as to what the real problems are and what the
constructive solutions are.
With regard to your burden scoring, I am very interested in
that. Give us some suggestions. We are working on two or three
ways with the Commission, in which you could essentially put
the same National Taxpayers Union type scoring on legislation
as it works its way through on the complexity side. What are
the burdens to the taxpayer and to the IRS? Therefore, what are
the costs to the system of legislation being proposed? We need
your help on that.
Second, you should be recommending that the IRS be involved
in drafting legislation. You all should be at the table, not
necessarily you, Mr. Monks, but maybe some people in the
program areas that are affected by new legislation. That is
partly our role to try to make that happen more, but also, you
need to be an advocate out there to tell us how you can be more
effective in drafting this legislation so it is not so complex
for the taxpayers and for the IRS.
With regard to phones, I have to respectfully disagree with
you on that. The figures I have from GAO show that for fiscal
year 1996, 20.56 percent of the calls got through--20.56
percent of taxpayer calls went through. Now, I know there are
different formulas being used here to come up with different
figures. They factor in abandonments. They factor in busy
signals, which I think is appropriate. Apparently, in your
numbers, you factor in calls where someone is asked to hold,
and there may be some discrepancy there. But I do not think the
figure is 46 percent for last year. I do not know if it is 80
or 85 percent this year. I think it is more like 20 percent.
Again, not to focus on a problem so much, but at least we
have to understand what the problem is in order to come up with
a constructive solution. I agree, more resources should
probably be devoted to phones, but let us be sure that it works
and that it works consistently with the other modernization
efforts around the system.
Finally, with regard to the Taxpayer Advocates around the
country, I think Field Resolution Officers should properly
report to you, and I have changed my mind on that. I think they
should report to the District Officers, to the managers out in
the field. Initially, I thought they should report to you
because their allegiance should be to you. I do not see heads
shaking one way or the other here. I am sure we will hear later
from your representatives.
But I do feel strongly that if you are going to have
Taxpayer Advocates that actually have an opportunity to
represent the taxpayer, their stature needs to be improved.
Specifically, what do you think of giving them the same stature
as their peers heading other functional divisions in the
district offices, in the regional offices, in the service
centers?
I was in the Cincinnati Service Center all day yesterday.
It seems to me that it is very difficult for them to progress
in their careers right now because the only way they can
progress is to get into the functional areas. So how are they
going to be able to go up against the people in the functional
areas if they cannot have that same status, and I think that is
a legitimate concern. What do you think about that? What is
your recommendation?
Mr. Monks. And I agree that that is a concern. We are
looking----
Mr. Portman. Do you agree that it ought to be changed?
Mr. Monks. We are looking at the grade level issue right
now. I have had a discussion with the Deputy Commissioner about
this issue. We are working with the personnel function to
properly classify the grade level of the position and one of
the things that we are looking at is to what degree are they
participating in our advocacy initiatives, because, again, we
have two roles in PRP, two missions, so to speak, and one is to
fix the taxpayer's problem but the other one is to advocate for
the taxpayers by improving the processes.
So we are looking at the possibility of enhancing the
advocacy challenge of that position and using that as a grade-
enhancing item that would possibly result in more equity in
that area. I think that that is something that we will have a
response on relatively quickly.
Mr. Portman. Have you made a recommendation to the
Commissioner to enhance the rank of the Problem Resolution
Officers?
Mr. Monks. I have talked specifically with the Deputy
Commissioner about this issue and I want to be able to get the
leg work done specifically before I go back in with a final
recommendation.
Mr. Portman. Sorry I spoke so much and did not give you
more of a chance. Obviously, I have a lot to say. I would also
like to hear more from you. I look forward to continuing to
work with you as the Commission completes its work.
Thank you, Madam Chair.
Chairman Johnson. Thank you.
Mrs. Thurman.
Mrs. Thurman. Thank you, Madam Chairman.
Mr. Monks, this is my first time on this Subcommittee and
my first time dealing with this issue, so you will have to bear
with me, but it is not the first time I have dealt with
constituents who have to deal with the IRS. That, I think, all
of us have in common up here.
What I hear some Members saying is that, while you are
trying to be the taxpayer's advocate, we are trying to be your
advocate in helping you in your report to implement some of
these programs that you see as your top 20 list, and I think
that is important for you to remember.
So if we seem frustrated, I think we are frustrated because
for us to do that, we need to understand what our role is in
any one of these issues, whether it be something that we need
to bring to the attention of your superiors that nothing is
happening and this is a result of 3 years or this is something
that needs to be done as the result of legislation.
So I think that if you take it from that, that we are just
as frustrated as you are and in 3 years, if we see the same
things, you can understand that we are not going very far.
The other thing I will say is that since I have now been
appointed to this Subcommittee and particularly to the
Oversight, it is amazing how quickly that gets around in a
rumor in your district; and all of a sudden you start getting a
lot more inquiries and a lot more phone calls about these
particular issues.
One that really came to mind and one that was brought to me
just recently, and quite frankly, I do not think I recognize
that, but then I should not say this, but I have not had to be
audited, so I do not know that I understood totally what some
of them were talking about when they told me on this issue of
when they are going through an audit and all of a sudden, 3
years down the road, they may still be in the middle of an
audit and they are continuing to have to pay penalties or
interest and so on and so forth.
Can you tell me what is going on with that, because I think
that is a very serious issue. That is money that would be
spent, in some cases for small businesses, to be able to
expand, or for more employment or whatever, and I read in here
that there are some things you are trying to do or that you
were given some authorization last year or in 1993 for some
abatement of this. What is going on in that area?
Mr. Monks. And you are talking about the ability to abate
interest on a case that perhaps has gone on for too long?
Mrs. Thurman. It is really caused by IRS.
Mr. Monks. Of course, TBOR2 addressed that, I thought, very
effectively.
Mrs. Thurman. Right.
Mr. Monks. It does allow the IRS the capability to abate
interest where a case has drug on and is--I think the wording
in the legislation is due to management error and that could be
construed as a case that perhaps has been transferred from one
agent to another and has gone on for an inordinant amount of
time, far longer than a normal audit. The IRS would have the
capability to abate interest in those particular situations,
and this, of course, has been legislated as part of TBOR2.
Mrs. Thurman. How do they go about doing that? Is that
initiated through them or is that initiated by IRS?
Mr. Monks. The procedures have not been fully developed
yet. This becomes effective with the tax year beginning after
the date of enactment, so we have a little bit of time to work
on them. We are working within the IRS with Legislative
Affairs, with Examination, and other functional areas that are
involved in this process to develop the actual procedures that
will be utilized for that purpose.
But I think it could be initiated by either the taxpayer at
the taxpayer's request, or where IRS recognized that a serious
problem took place, they could actually initiate that action.
We will be working with the groups that are looking at this
issue very closely to ensure that this particular element of
TBOR2 is enacted appropriately.
Mrs. Thurman. And that goes into effect, you said, this
year?
Mr. Monks. With the first tax year after the date of
enactment, which was July 30, so I think it would begin with
tax years beginning August 1.
Mrs. Thurman. So those rules and regulations for that
should actually be coming out so that those that are getting
ready to go April 15----
Mr. Monks. Very soon.
Mrs. Thurman. We can expect that?
Mr. Monks. Very soon.
Mrs. Thurman. The mailing issue, as people move around,
evidently, there have been some problems in determining and
maintaining taxpayers' current addresses. Where are we on that
issue at this time?
Mr. Monks. That was a study, and, in fact, many of the
recommendations from that study were a direct result of an
effort that we initiated in the headquarters office. One of my
employees took the lead in working that issue. I worked with
that group very closely.
We have initiated a number of actions. We are still in the
process of trying to identify the appropriate means for
taxpayers to notify us of their official address. Currently, a
form--I cannot remember the number, 8822--is required, or the
IRS will pick up the correct address from the filing of a new
return.
Mrs. Thurman. What happens if something is undeliverable
and it comes back to you? What then happens?
Mr. Monks. We do research, depending upon what the type of
undeliverable mail it was. We do research on a number of
sources to try to identify the taxpayer's current address so
that we can get that address corrected and mail to the
taxpayer.
Mrs. Thurman. Mr. Monks, I have lots of other questions,
but hopefully, in our next panel we will get some better ideas
of some of the issues that are dealt with on an everyday basis
and maybe some recommendations, as well, and we look forward to
that. Thank you.
Chairman Johnson. Thank you.
Congresswoman Dunn.
Ms. Dunn. Thank you, Madam Chairman, and welcome, Mr.
Monks. This is a very short period of time to ask questions of
you, I appreciate, and I know that you have worked very hard at
your job, but I find myself often the translator of IRS policy
and, embarrassingly sometimes, also of congressional statute
about the IRS. The statute is our fault and we can get at it
with the proper recommendations, but policy or regulation out
of the IRS concerns me a bit.
Where I have heard you say that last year, you were able to
accept inquiries over the phone from 46 percent of the folks
who would like to have talked to you over the phone, and I hear
from my constituents that often that line is busy and it is
difficult and you have to be on hold, all those things that are
tough for people, I guess what concerns me more is what I would
see as a policy or an administrative responsibility there that
seems to be lacking.
What I do hear from my constituents is that when they do
get through, often, the answers are incorrect, in error, and
that bothers me a lot.
As I was going over your summary of the problems, which I
think is an excellent summary and certainly reflects what I am
hearing out there and I am very glad you worked through the
regional folks to get this summary, I wonder if there is not a
more scientific process you could use in addition to their
firsthand information, I am bothered by a number of areas where
I think there can be greater accountability from your point of
view on the administrative level.
For example, number 3, the lack of clarity and
inappropriate tone of IRS communications with taxpayers. Number
4, the erroneous IRS notices. Number 7, the problems in the
administration of tax penalties. Number 8, the lack of
understanding of taxpayers' concerns.
Have you looked into ways, Mr. Monks, where we can, through
the IRS, achieve greater accountability in the areas that I
have just mentioned, for example, greater training, greater
familiarity with what is already a complicated set of rules and
regulations, that would assist you in producing a more
effective output once people do get in contact with your folks?
What is the answer to that problem, I guess is what I am
asking.
Mr. Monks. That is a complex question. One thing I did want
to also address was the quality of the input, so to speak, in
the report. I did indicate that one of the things that we plan
to do are to conduct some focus groups this year with taxpayers
to get more specific information from them on what things are
most serious to them. In reality, our list of serious problems
stems from our perception and from anecdotal information that
we have received from taxpayers and from our own staff. We want
to conduct these focus groups to get a better picture from
their perspective. What do they see as the most significant
issues?
Then we are also going to be dealing with the practitioner
community to get from their perspective what the most serious
problems are and, hopefully, be able to go in with a multi-
faceted approach on where the problems are. Obviously, that is
going to identify a significant number and we will deal with as
many of those as we can.
Accountability is a critical area. We are accountable for
providing good service to the public on the telephones and we
are also accountable for providing quality answers. We have a
very significant quality review program that tries to monitor
the quality of our responses to taxpayers and I think the
quality rate is somewhere above 90 percent at this point in
time, at least according to the statistics that are kept in
that particular area.
Is that an acceptable level? I am not sure. We need to be
accountable. We need to provide the best service that we can to
the public and this is an area that we do continue to look at.
In the area of clarity of notices and communications, my
office works with notice clarity and works with other
functional activities to look at specific notices that are
planned to be issued, to make a determination if they are
appropriately worded, do they provide the right tone to the
taxpayer. Obviously, we are dealing with compliance issues and,
to some degree, the tone has to catch the taxpayer's attention.
There are other notices where we have made recommendations for
improving the tone or at least the clarity of the notice so
that taxpayers can understand those notices easier.
Some of the notices that we have had problems with are, for
example, adjustment notices that do not necessarily fully
describe the extent of the problem, so in effect--we
automatically create the need for a taxpayer to call us. We
recognize that that is a problem because we send a notice out
that does not fully describe the situation. The first thing
that is going to happen is a telephone call and that
exacerbates the problem on toll free. So we do have to look at
that area very carefully to try to depict the problem for the
taxpayer more effectively.
I do not know if that fully responded to your issue or not,
if you could----
Ms. Dunn. I think it is an answer. I just think that if you
have been doing all those things and you still have these
problems among your top problems, you had better start thinking
about doing something else. I do not know if it is sensitivity
training or what it is, but certainly learning the Code would
be the first thing that we could expect from the folks who work
for the IRS.
Madam Chairman, may I ask one more question? My time has
run out.
Chairman Johnson. If it is brief.
Ms. Dunn. Yes. Let me ask a really brief one. The recent
McGill case, the old gentleman, a year or so ago was when I
first learned about it, 93 years old. He wrote a check to the
IRS for $7,000 when his bill had been $700. Later, he died.
Four years later, he died and his daughter in looking through
his bills found the error. The Supreme Court decided after the
IRS decided, everybody, that it should not be money refunded to
him and the Supreme Court a week or so ago decided that that
was the proper decision.
What do you think is the answer to that kind of a problem?
They call it equitable tolling. You apparently do not have
flexibility to refund $6,300 to a senile man whose daughter
proved to you that it was an overpayment. How are we going to
handle situations like that?
Mr. Monks. I read about that particular case and that was
one that, frankly, I have to say, bothered me somewhat,
certainly from a Taxpayer Advocate's perspective. I had not
heard of that case before or cases of that nature.
Obviously, the statute had expired and the law precluded a
refund from being issued. I would want to go back and look at
the process that took place on a situation like that, because
normally, if a payment went into an account, after a certain
period of time, that should be identified and a refund issued.
Obviously, if a return had been prepared, a zero-balance return
or a balance due return, the balance of the money would have
been refunded to the taxpayer at that point in time. Since one
was not filed, the money just went into a holding status.
What I would like to do is to identify the reasons that
that did not become apparent to us before the statute expired,
because it is my feeling that that money should have been
refunded in a timely manner to the taxpayer once it became
clear that there was no liability.
Ms. Dunn. I agree with you, and I am glad to hear your
point of view on that. I wish you would let me know what you
find and certainly that should be one where your flexibility to
allow you to make a decision that I think is more in line with
real life. Thank you.
Chairman Johnson. We certainly would look forward to that
report. I think that is exactly the kind of responsive
relationship that we want to have with you.
Mr. Hulshof.
Mr. Hulshof. Thanks, Madam Chair.
Mr. Monks, following up on Ms. Dunn's situation, would a
legislative enactment specifically allowing the statute of
limitations to extend that period of time, would that cure the
problem?
Mr. Monks. Yes, it could.
Mr. Hulshof. Do you make that recommendation? I think in
your report, allowing an exception to the statute of
limitations on refunds so that untimely requested overpayments
can be credited, would that type of situation Ms. Dunn has
mentioned, would that come within that legislative
recommendation?
Mr. Monks. I am not sure if that particular situation would
fall into that recommendation. I would have to look at the
circumstances behind that a little bit more. This is speaking
more to the issue that came up when we were implementing our
non-filer program, and it came to our attention that taxpayers
were coming in to file past-due returns and on certain returns,
they owed money. Obviously, we were going to assess the tax on
those returns as appropriate.
On other returns, they were actually due refunds and why
they did not file a return is beyond me, but the statute had
tolled on those returns and we were unable to refund that money
or even offset--and this is basically where we are coming from
on this recommendation, is that we ought to be able to allow
it, to the extent possible, to be able to offset against a
balance due.
I would not necessarily be in favor of refunding money in
that particular situation because the taxpayer had the
opportunity to file a return and chose not to, but on a refund
return where a balance due return was filed at the same time,
it would seem that it would be appropriate to at least be able
to offset that prospective refund against that balance due and
that is what recommendation 2 is speaking of.
Mr. Hulshof. Mr. Monks, let me ask you about a note that I
jotted down during your oral testimony, and I think you said
that 70 percent of the individual taxpayers in the country use
the standard deduction, is that right?
Mr. Monks. That is correct.
Mr. Hulshof. Therefore, 30 percent were using the itemized
deduction. Is it your belief that more individual taxpayers
would use the itemized deduction method if the Code were
simpler or if the forms perhaps not so onerous?
Mr. Monks. I think that that is a very distinct
possibility, because while 70 percent do use the standard
deduction, it is very possible that the reason more people do
not itemize is because of the complexity and the lack of
understanding of what it is going to take to be able to claim a
certain deduction, so they choose not to because it is easier.
In many cases, of course, the Tax Code has eliminated some
of the deductions that can be claimed and so when it is very,
very close, taxpayers choose just to take the standard
deduction rather than to go through the trouble of filing extra
forms and add complexity to their return. But it is conceivable
that more taxpayers would choose to itemize if it were easier
to do so.
Mr. Hulshof. Let me follow up on your testimony about focus
groups, and I think you said back in 1993, there was a series
of focus groups. Is that the last time that focus groups have
been used?
Mr. Monks. That is the last time we have used focus groups
in Problem Resolution, and at the time, what we were trying to
do was to validate whether our criteria for casework was
appropriate, what taxpayers thought about the service that they
received from PRP, and what we could do to be of more
assistance. This next series of focus groups that will be
conducted this year will be the first time since then for
Problem Resolution specifically.
Mr. Hulshof. Would you think that more frequent use of
focus groups would be a benefit?
Mr. Monks. I do. Yes, I do. In fact, I think with the
advent of this report, certainly, I recognize the need to
gather more input in terms of trying to determine what the
taxpayer's perspective was on the most significant problems
that they were facing. Absolutely.
Mr. Hulshof. In your top 20 list, you talk about the cost
to taxpayers of electronic filing and indicate that the cost of
electronic filing is actually a burden to those low-income
taxpayers that are trying to get their quick refunds, is that
right?
Mr. Monks. Yes.
Mr. Hulshof. You also mentioned, or at least it is
mentioned in the report, that the automated walk-in assistance
was available, I think, to about 50,000 taxpayers but that
certain criteria was necessary to use that service. Can you
recall off the top of your head what some of those criteria
would be?
Mr. Monks. No, I am sorry, I cannot. I apologize.
Mr. Hulshof. You mention as a recommendation that there
might be some community-sponsored programs that might be an
option for low-income taxpayers. Would you describe what you
mean by community-sponsored programs? It sounds like a great
idea, but I am not familiar with that and perhaps you can
enlighten me.
Mr. Monks. Right. In my former position, I was District
Director for Arkansas and I was very active in promoting what
we call a Volunteer Income Tax Assistance Program in that
particular area. We tried to enhance the program because we
recognized that the service that we were able to offer in our
offices sometimes was perhaps only 1 or 2 days a week and there
was a need for continuing service, so we did support the growth
of the VITA program throughout the State and got a lot of
service from our VITA volunteers who work throughout the filing
period to assist taxpayers both with their questions and with
their return preparation.
We also had VITA programs with military sites, community
interest groups, and we even went to private business to try to
encourage the use of electronic filing in their offices for the
employees. So that is what I meant by community-based type
programs.
Mr. Hulshof. Thank you, Mr. Monks.
Thank you, Madam Chairman.
Chairman Johnson. Mr. English.
Mr. English. Thank you, Madam Chair.
Mr. Monks, I want to focus on a couple of specific areas of
your report and seek perhaps some elaboration. One of your
missions, I believe, is to work with small businesses who are
facing particularly high compliance costs in the current tax
system. I am wondering, how often does your office assist small
businesses? Can you quantify that in any way?
Mr. Monks. I am not sure what the total is, but I would say
that the majority of the taxpayers we deal with are individual
taxpayers and it would be somewhere in the neighborhood of 25
to 35 percent of the time we would be dealing with those
involved with small businesses.
Mr. English. Thank you. Could you provide the Subcommittee
with a more detailed breakout on that point?
Mr. Monks. I will try to do that. We generally track the
issues by type of problem that the taxpayers are experiencing,
but we will look to see if we can do that and I will provide
that.
Mr. English. When dealing with small business, do you focus
on administrative and procedural issues or do you also get into
structural issues in tax compliance with the Code itself?
Mr. Monks. Primarily, administrative and procedural issues.
Mr. English. I wonder, has your office sought to quantify
the burden for small business of compliance, for example, with
the alternative minimum tax, AMT? Do you have many AMT
compliance cases coming through your office, requesting your
help?
Mr. Monks. No, we do not. That is not a major problem that
taxpayers are coming, at least to our offices, with. I think
they are dealing primarily with the examination function or
other functions within the Service, but that has not been a
high-volume area for us.
Mr. English. You may have a different mix of people coming
through your office than I have coming through my office, but
we have run into an unusually high number of small businesses
that have a terrible compliance problem with the AMT, having to
maintain what amounts to an entirely separate set of books,
depending upon their profitability, and particularly for small
businesses, it is an enormous cost. I would encourage you to
focus on that compliance side and perhaps, if available, give
us a little more information.
The other area I wanted to inquire about has to do with the
earned income tax credit, which is both a critical program for
the working poor to participate in the work force and also as a
program significantly hit with very high fraud and inaccuracy
rates.
Now, as part of your taxpayer compliance effort, obviously,
you do not focus as much on the fraud end, but I wonder, can
you quantify whether your efforts have been helpful in
improving the earned income tax credit accuracy rate?
Mr. Monks. Let me just comment on the 1995 filing period,
which was probably the hallmark of the IRS fraud efforts to
detect and slow down refunds so that they could look at the
returns and determine whether the credits claimed were
appropriate.
There were procedures implemented, obviously, at the
beginning of that filing period that caused certain returns to
be screened into this review. We knew that this was going to
have a significant impact on the Problem Resolution Program,
and, in fact, our level of casework went up substantially that
filing period and for the months afterward.
We normally handle somewhere in the neighborhood of 30,000
to 34,000 applications for Taxpayer Assistance Orders in a
year. That year, we handled almost 60,000 applications for
Taxpayer Assistance Orders and over, I think it was 60 percent
of those--67 percent involved refunds that were slowed down as
a result of the review of earned income tax credit. These were
taxpayers that were inadvertently caught up in that process,
filing for a legitimate credit, but met the screening criteria
and so the returns were slowed down.
The Problem Resolution Officers in the field were
inundated. The service centers were inundated. We worked to
expedite those refunds once we validated that the credits were
due and we made a number of recommendations, and those are
outlined in the report, that were adopted by the Service, and
as a result, the screening criteria were changed. This was not
just the result of our efforts because the functional areas
also made some recommendations, as well. The 1996 filing season
was probably one of the smoothest ones on record in terms of
these kinds of----
Mr. English. Very good, Mr. Monks.
With regard to some of the partnerships that you have
outlined in your report to expand outreach to potential earned
income tax credit recipients, I wonder, and Madam Chairman, if
I can just take another quick moment, if you could elaborate a
little more on your claims that the IRS has secured the
cooperation of more than 80 major organizations to assist with
the promotion of the earned income tax credit, that you have
partnered with State and local governments to include stuffers
in various public assistance mailings, and that you have worked
with local school systems, education associations, and other
similar organizations to get out information on earned income
tax credit eligibility.
In your view, were these IRS outreach efforts successful,
and may I ask, can you describe them, even in writing, if it is
more appropriate, to this Subcommittee in a little more detail
exactly how you developed these partnerships?
Mr. Monks. Yes. The responses in that particular section of
the report actually came from the Chief Compliance Officer as
to the actions that were taken by the organization to enhance
the understanding and awareness of the earned income tax
credit. I think it has been a successful effort, one that I was
involved with when I was Director of the Arkansas District, but
I would be more than happy to provide additional information to
you in that area.
Mr. English. I would welcome that. Thank you very much.
Mr. Monks. Mr. English, if I also could, I know of your
interest in small business. I wanted to let you know that I and
the Small Business Liaison for the IRS met recently with the
Small Business Fairness Boards that were recently initiated by
Small Business Administration, SBA. We addressed a group of
about 40 of those members of the ten Fairness Boards across the
country to let them know what kind of services were available,
if their small business taxpayers had problems with the IRS. We
have designated each of our Regional Taxpayer Advocates as the
contact point for small business, the Fairness Boards, to deal
with on problems directly associated with small business.
Mr. English. Thank you, Mr. Monks.
Thank you, Madam Chair.
Chairman Johnson. Thank you very much, Mr. Monks.
Before we go on to the next panel, I just want to point out
some of the simpler recommendations in your 20 that it would be
useful to have your guidance on. They are the kind of thing
that are particularly annoying to people.
For instance, the number of computer-generated penalties
that are generated every year and then abated, how can we do
something about that?
Taxpayers not getting notices of discrepancies between the
income reported on the tax return for 1 to 2 years. We really
have to have a more responsive system than that.
How can we help you deal with the costs of electronic
filing at a time when we want to encourage people to file
electronically--at least, that is my understanding of the
former Commissioner's goal and of the agency's goal. Why is it
so costly? What would it take for the IRS to offer people that
technology? What incentives would it take? What would be
involved in employers offering this service to their employees?
So that kind of thing, we could legislate on in the near
future.
This issue of taxpayers getting no response from the IRS,
it is like a black hole. Well, you cannot write everybody back
and say, we are glad to have received something from you, but
if you are not going to make their payment in the sort of
normal, timely fashion, why, every one of us have casework
projects, and, of course, it is much smaller, but if you do not
hear from my office for a month, you get a letter saying, I am
sorry, we cannot respond to you yet. We have not heard from the
Immigration Service.
It seems to me that at 6 months or 8 months or sometime,
there ought to be a tickler file that says, we are working on
your case and this is the problem. If we could get the
information from you, you would hear from us, or whatever. I
think for constituents to simply get no communication, not to
ever know what happened is really not an acceptable system.
I will not go through more of the details but I would say
that you will be back to us in June, on June 30, 1997, to
report on another requirement of the Taxpayer Bill of Rights
and that is how the agency is going to in the future deal with
agents who treat members of the public poorly or abusively. I
was surprised after we passed the Taxpayer Bill of Rights to
know that you had no system of actually tracking how many
complaints there were about any agent. I am pleased you are
getting started on implementing that.
But know that when you come back, please, we want a very
much more specific report. We want to know how you are going to
know how many complaints there were against someone, what steps
do you take to find out whether the complaint was valid or not,
what steps do you take to assure--and in hearings last year, we
had absolutely outrageous stories of IRS employees telling
people that we know that is a safe harbor there, take us to
court, I mean, when the safe harbor was there and this person
met the safe harbor criteria and there was sort of this high-
handed area of, if you do not like it, take us to court. We are
having a lot of this problem in some of the gray areas like
independent contractors and stuff like that.
We want a substantive response here. This is very, very
important. To have had no ability at all in the past to know
who is arrogant with the public and who is not means that all
IRS employees get painted with the brush of the actions of what
are, I believe, a very few. I just call that report to your
attention.
Thank you for being with us. I congratulate you on some of
the progress that you have made. I do remind you that the
Congress cannot act without focus and we do call on you to be
part of a more focused approach to taxpayer service, working
with us to both change the law and support you in
administrative change. Thank you very much, and I will welcome
the next panel. Thank you, Mr. Monks.
Mr. Monks. Thank you.
Chairman Johnson. The next panel, we are very, very pleased
to have. You are the people out there on the frontline. You
deal with this all the time and I want you to know that I
really regret statements that have been made in the past that
tend to paint all IRS employees with the brush of the problems
that have developed in the computer modernization program.
It has certainly been my experience, working with people
like Mr. Romano from the Hartford Office, and I welcome you
here and am delighted that you were able to come, that the IRS
has a lot of very fine people working for it who are
knowledgeable and who really care whether the public gets the
service they desire.
Often, your job is not made easier by our propensity to
pass extremely complex law for arcane and sometimes political
reasons. So the problems that you are having are, in part,
problems that we create, and one of the reasons this
Subcommittee created the mechanism we have created is to allow
a far more straightforward dialog. So do not worry about either
insulting us or complaining that actually we might have been
wiser, because one of the things we have to do a better job of
in Congress is going back and fixing those things that happened
sometimes at midnight, sometimes at 3 a.m., and result in an
almost unadministerable Code provision. So we want to know from
you what your experience is, and we thank you all very much for
being here.
Let me start on my left. Mr. Romano.
STATEMENT OF FRAN ROMANO, DISTRICT TAXPAYER ADVOCATE,
CONNECTICUT/RHODE ISLAND DISTRICT, INTERNAL REVENUE SERVICE,
HARTFORD, CONNECTICUT
Mr. Romano. Thank you, Madam Chairman.
Madam Chairman and distinguished Members of the
Subcommittee, I appreciate the opportunity to be here today to
give you a local perspective of an Advocate from the
Connecticut/Rhode Island District and to hopefully take you
through the process and explain what it is we do at the local
level to take a taxpayer through the process of providing
relief.
One of our most critical responsibilities as outlined in
the Taxpayer Advocate's report is for us to process form 911,
Application for Taxpayer Assistance Order. These cases are
usually very sensitive, as you know, and we are dealing with
taxpayers who are angry, and frustrated. Many times, they have
exhausted all of their administrative remedies and they come to
us seeking assistance. These cases usually involve an
enforcement action when we have either attached a bank account,
a wage levy that is attached to their pay, and it is their only
source of income, their only remaining source of funds.
In addition, we get taxpayers who are asking us to expedite
the processing of a claim or a refund return because they are
undergoing some financial hardship and they need to have the
funds in order to alleviate that hardship.
I have to point out, though, that not all Application for
Taxpayer Assistance Orders are filed by taxpayers who have a
hardship. In many cases, we find that some taxpayers will use
the form to stall collection action or they will use the form
even though they have not cooperated through the entire
administrative process that has been available to them.
Regardless of the issue, when a form 911, Application for
Taxpayer Assistance Order, comes into my office, either I,
myself, or a member of my staff that same day or the next day
acknowledge receipt of the form to the taxpayer. We then
contact the employee and the frontline manager involved and
discuss the facts and circumstances of the case and see if we
can come to some type of resolution. If we cannot at that
level, we raise it to the next level of management, all the way
up to the Division Chief level, if necessary.
I have found, in my experience, that it is rarely necessary
to raise it to that level, that reversing an action or
negotiating some other type of alternative means of resolution
for the taxpayer can be worked out at a lower level of
management within the Service. I have to say that for this
reason, the number of actual Taxpayer Assistance Orders, are
low and I have never had to issue one in my district.
Once we determine a hardship exists, we make sure that
there is no enforcement action taken on the taxpayer, while we
are negotiating for the taxpayer. Thus, no subsequent
enforcement action takes place. We are usually able to make
that type of determination very quickly and many times
alleviate the hardship and then we go on to resolve the
remaining part of the problem.
As I stated before, many of the collection-type taxpayer
assistance applications have to do with releasing a wage levy
or a bank levy and those are usually resolved very quickly. We
can get to the functional management, get the levy released,
and place the taxpayer into some type of alternative
arrangement, such as a payment agreement.
Not everything is that simple, however. The Service has a
program called the Substitute For Return Program, which we call
the SFR. Many times, for taxpayers who have been nonfilers, the
Service will take the wage information and payer information
that we have and prepare returns on behalf of the taxpayer. The
taxpayer goes through an entire administrative process and the
tax is legally assessed.
Regardless of that, the taxpayers do not agree with the tax
that has been assessed legally and they many times get referred
to our program for us to correct those situations. These
usually involve several years and the enormity of the tax
situation is something they cannot deal with. We are usually
able to get corrected returns from the taxpayers, get the tax
assessments corrected, and then set them up in an installment
agreement, if that is appropriate.
What comes into play here many times, is the issue that was
raised before about the statute for claiming a refund on an old
tax year. Many times, these taxpayers are faced with a
situation where they do not file these returns timely. They
perceive the fact that they cannot get the refund, nor can they
apply the refund years toward the balance due returns, as very
unfair and even punitive, the way the system is currently set
up. So I think this is an area--in the Advocate's Report, where
there is a legislative proposal to deal with this type of
issue. I think this is something that needs to be considered.
There are also situations where a taxpayer may file an
assistance order, as I pointed out before, and may not be
deserving of relief, based on the facts and circumstances of
the case. We are charged with making it clear to the taxpayer
that in this situation, we are not going to be able to provide
relief. We are sensitive to the plight of everyone who comes to
us. We do listen to them. We are out there trying to do our
best for them, but there are some situations where we cannot
provide relief for whatever reason.
I just want to make the point at the end that with all the
things we deal with, the technological advances, the changes in
the law, and the reorganization within the IRS, I believe more
than ever, there is a need for the taxpayers to have a place to
go where they can get face-to-face help. None of us like
dealing with a bureaucracy where we are always dialing phone
numbers and talking to machines. So we really perform an
important task and I think we have been very successful, the
way the current structure is, in making some changes. Thank
you.
[The prepared statement follows:]
Statement of Fran Romano, District Taxpayer Advocate, Connecticut/Rhode
Island District, Internal Revenue Service, Hartford, Connecticut
I appreciate the opportunity to be here today as the
Taxpayer Advocate for the Connecticut/Rhode Island District of
the Internal Revenue Service. I would like to take this
opportunity to provide the committee with the perspective of a
local Advocate along with a synopsis of the types of inquiries
I receive and how the process of providing assistance and
relief to taxpayers transpires in the District Office. I have
been involved in the Problem Resolution Program since 1983 as a
Caseworker, Group Manager, Assistant Problem Resolution Officer
and Problem Resolution Officer (Now Taxpayer Advocate).
I would like to preface my remarks by noting that, due to
Code Section 6103, restriction on disclosure, the examples I
will discuss are some of the general scenarios that I may face
on any given day and do not reflect the individual
circumstances of any particular taxpayer. I would also like to
point out that becoming involved with Individual Taxpayer
problems is only part of what an Advocate is responsible for in
the District Office. Participating in Regional and Local
Advocacy Projects, acting as a contact point for the
practitioner community to raise critical issues, and monitoring
the newly instituted Customer Feedback System are also
important aspects of our positions. I am currently involved in
our Northeast Regional Project to study Federal Tax Deposit
penalties, one of the top five most serious problems
highlighted in the Advocate's report. As an Advocate, I am
continually trying to place myself mentally in the position of
a taxpayer having to deal with the IRS, and trying to gauge how
the IRS actions would affect me. Advocacy projects and becoming
involved at the front end of policy implementation is as
important as assisting the individual taxpayers who come to us
for help.
The Taxpayer Advocate's report outlined the major issues
that were the source of Problem Resolution casework in both the
Service Centers and District Offices. I would agree that these
are the major issues at the District level in Connecticut/Rhode
Island although not in the same order. Audit Reconsiderations
are a good example. These were the number one source, by volume
of casework, in FY96 nationwide. In our District, these were
the fourth highest volume.
There are a variety of reasons why these cases end up in
the Problem Resolution Program. Taxpayers may have failed to
submit information requested by the IRS, during the original
audit, to verify their returns. The documents provided may have
been incomplete. The Service may not have received
correspondence or it may not have been received timely. In some
cases, the Service may have misplaced the taxpayer's
documentation or failed to associate it with the taxpayer's
file. Whatever the case, many of these inquiries end up in the
Problem Resolution Program. When accepted into the program, the
taxpayer is given the opportunity to submit documentation to
verify the item in question. If the taxpayer responds with the
necessary documentation, we adjust the assessment to reflect
the correct tax. If the taxpayer fails to respond we close the
case and the original assessment stands.
One of our most critical responsibilities is to handle Form
911, Application for Taxpayer Assistance Order (ATAO). These
cases are usually very sensitive and are submitted by taxpayers
who are many times angry, distraught, very emotional and
frustrated with the enormity of the situation. Almost all of
these taxpayers have gone through either the examination or
collection process or both. They have usually exhausted all of
their administrative remedies and reach out to us for
assistance. I must add that there are some who use this
procedure to delay collection activity and have not cooperated
throughout the entire administrative procedure available to
them.
ATAOs are usually filed due to an enforcement action or
proposed enforcement that the taxpayer believes is causing
hardship. Applications are also filed by taxpayers who are
seeking to expedite the processing of claims and refund returns
to relieve some financial hardship they may be undergoing.
Regardless of the issue, either I, or a member of my immediate
staff, will contact the taxpayer within two days and
acknowledge receipt of their application.
We first determine if a hardship situation exists and, if
so, put a hold on any imminent enforcement action pending a
decision on whether relief will be provided. Our next action is
to contact the employee and the front line manager on behalf of
the taxpayer to discuss the facts and circumstances of the case
and determine if relief is warranted. If no agreement is
reached, the next level of management is consulted and, if
necessary, a discussion of the case is held with the Chief of
the Division involved.
It has been my experience during the years I have been
involved with this process that it is rarely necessary to raise
these issues to the Division Chief level. I have found
management in all functions willing to revisit issues. Many
times, reversing actions or using alternatives will not put the
government's interest at risk and is in the best interest of
the taxpayer and the government. It is incumbent upon me as the
Taxpayer Advocate to build a credible relationship with our
District Collection and Exam Managers so that when I bring a
case to their attention, they can be assured it is one that
deserves consideration. I realize that there may be instances
when a Chief may disagree with the relief that should be
provided; thus far I have not been presented with this
situation. It has not been necessary to use my authority to
issue a Taxpayer Assistance Order in the years I have been in
this position.
During FY96, in the Connecticut/Rhode Island District,
65.6% of those cases where hardship was found to exist resulted
in relief provided to taxpayers. For those who were not
provided relief 6 % were due to the law preventing change. I
will address this issue later in this testimony.
I offer the following examples where we have provided
relief to taxpayers. Many times, taxpayers will write or walk
into my office and request relief from a wage or bank levy (
attachment of funds) because it has attached their only means
of support. These levies can be the result of a breakdown in
communications by the service or the taxpayer, inaction by the
taxpayer, or a combination of both. In most of these instances,
we can provide relief and allow the taxpayer some type of
alternative arrangement such as an Installment Agreement. These
cases are not complex and are quickly resolved. However, they
provide good examples of how someone who gets caught up in the
system can get relief and continue to meet their tax
obligation.
Unfortunately, not all situations which come across my desk
are this simple and easily resolved. An example would be
taxpayers who have been assessed through the Service's
Substitute for Return Program (SFR). These are people who have
not, for whatever reason, filed returns for several years. The
tax liabilities through SFR are sometimes extremely large and
taxpayers' financial position is such that they are unable to
pay the tax, interest and penalties associated with these tax
years. Many times, these taxpayers are referred to Problem
Resolution since they disagree with the tax legally assessed by
the Service in the absence of their original returns. Usually,
we can obtain correct returns from the taxpayer and expedite
the adjustments to reflect the correct tax. If there is a
remaining balance, we instruct them as to payment alternatives.
I do not want to paint a picture that everyone who seeks
assistance through my office and files an Application for
Taxpayer Assistance Order is deserving or receives the relief
requested. Providing assistance and relief to taxpayers through
this procedure becomes a delicate balancing act. As the
Taxpayer's Advocate I must keep in mind what is fair for all
taxpayers. There are times when, in the interest of fair and
consistent treatment, I do not provide the relief requested. An
example would be when a taxpayer requests adjustments to an
Installment Agreement to allow expenses which are beyond the
guidelines set in the service's allowable expense criteria.
Another situation, which is not uncommon, is businesses
requesting relief from enforcement action to collect payroll
taxes. Many times these taxpayers are repeat delinquents and
have been given several opportunities to comply with the tax
laws. While I am sensitive to their economic position and will
ensure that all alternatives are explored, it would be unfair
to allow them to use withholding taxes to remain in business,
while the vast majority of taxpayers comply.
There are also instances when we are unable to provide
relief to taxpayers due to the law preventing us from taking an
action. An example is a taxpayer who may have undergone some
event in his or her life that has contributed to not filing
returns for several years. Taxpayers in this position will file
all prior returns, some of which are refund returns. Others may
have a balance due. If the statutory period for claiming a
refund has passed it is difficult to explain why the Service
cannot allow the credit, while at the same time the Service is
requesting they pay additional amounts to cover the balance
due. This issue is addressed in the Advocate's Report on
Legislative Proposals. If this provision were adopted in some
format, it would provide us the authority to assist taxpayers
who are trying to comply but are faced with liabilities that
are overwhelming. I believe this will help change the public
perception that the tax system is unfair, and even excessively
punitive, on this issue. The recent provisions of TBOR II,
specifically those allowing us to provide relief in certain
situations regarding liens and levied property, will assist us
in aiding taxpayers. The broadening of interest abatement
authority to include managerial acts should also help us to
provide relief to taxpayers when the amount of interest they
are assessed is excessive through no fault of their own. This
is an area that taxpayers view as extremely unfair.
One final issue I would like to address is the cost to
taxpayers for electronic filing and the need for assistance
with the preparation of tax returns. This year, the
Connecticut/Rhode Island District is offering walk in
assistance at least one day a week in each of our offices.
Electronic filing is offered free to those who have all the
necessary information when they come into the office. In
addition, there are slightly over 200 Tax Counseling for The
Elderly (TCE) sites and 75 Volunteer Income Tax Assistance
(VITA) sites located throughout the two states. Hopefully, this
will assist in making the 1996 Filing Season a better
experience for Connecticut/ Rhode Island Taxpayers.
I truly believe that as the Internal Revenue Service
continues to administer the tax system, and strives to do so
more efficiently, the Taxpayer Advocates at all levels will
play an important role. Technological advancements, tax law
changes and recent reorganization efforts within the Internal
Revenue Service make it more important than ever that the
taxpayer have a place to turn within the system for help. As
Advocates, we need the continued support of all IRS executives
at all levels. I believe that maintaining a line of authority
with the District Director facilitates accomplishing many of
our goals . Placing the Advocate's position as an Independent
Office may make the effectiveness of his role more difficult to
achieve, especially to future Advocates. Having said that, I
also would like to point out that ensuring the Advocate's
position is placed at a grade level that legitimizes the
authority and responsibility that go with the job is necessary
to ensure a respectable peer level and independence of the
Advocate. I believe we play an important role in enhancing the
confidence and credibility of the organization with the
taxpaying public. I believe I speak for all when I say we are
committed to listening to taxpayers' individual and collective
issues and ensuring that each individual receives the
courteous, professional, fair and consistent treatment to which
they are entitled.
Chairman Johnson. Thank you very much.
Mr. George.
STATEMENT OF TOM GEORGE, DISTRICT TAXPAYER ADVOCATE, SOUTH
TEXAS DISTRICT, INTERNAL REVENUE SERVICE, AUSTIN, TEXAS
Mr. George. Madam Chairwoman and distinguished Members of
the Subcommittee, I appreciate the opportunity to be here today
to discuss with you the Problem Resolution Program and the role
of the District Taxpayer Advocate.
For the past 7 years, I have served as a Taxpayer Advocate,
formerly entitled the Problem Resolution Officer, for the South
Texas District, and that was formerly called the Austin
District. Prior to this assignment, I was a Revenue Officer
assigned with the difficult and sometimes complex
responsibility of collecting delinquent taxes and returns from
both individual taxpayers as well as businesses. I have had the
opportunity to serve on a number of national and regional task
groups, including an advocacy project which looked at tax
issues that affect divorced and separated taxpayers.
In my role as a District Taxpayer Advocate, I am
responsible to ensure that taxpayers' rights are protected,
serve as an advocate for the taxpayer within the Internal
Revenue Service, and represent their many needs and interests.
To assist me in this role, the Taxpayer Bill of Rights was
enacted in 1988 and expanded by the Taxpayer Bill of Rights 2
in 1996.
The Subcommittee has asked me to focus on the provisions of
the bill that authorizes the Taxpayer Advocate or his or her
representative to issue a Taxpayer Assistance Order when a
taxpayer is suffering or about to suffer a significant hardship
as a result of the administration of the tax law. The taxpayer
or his or her representative can ask for a Taxpayer Assistance
Order by letter, by phone, or by completion of the form 911,
Application for Taxpayer Assistance Order, ATAO.
In addition, Internal Revenue Service employees are
responsible for identifying situations that warrant the
immediate intervention of the Advocate or the Taxpayer
Advocate, and during the review of the application and
hardship, all enforcement actions are suspended.
I would like to share with you a couple of scenarios in
which it was necessary for me to invoke the ATAO authority.
Both of these examples involve cases that occurred prior to the
Taxpayer Bill of Rights 2.
The first scenario concerns the filing of a Federal tax
lien on real property. The scenario also involves three
different parties. Because of the complexity of this issue, I
would like to read verbatim the background that created the
issuing of the order.
Our taxpayers, the taxpayers referred to my office,
purchased a parcel of land from a local home developer the
first part of 1986 and had built a home on that property the
same year. The warranty deed was properly recorded in the
county where the property was located at the time of the
purchase. The developer purchased the land from the original
owner in 1994, 2 years prior to our taxpayers purchasing that
property. However, the developer inadvertently filed the
original warranty deed in an adjacent county instead of the
county where the property was physically located.
In 1993, the original owner accrued Federal tax liabilities
and a Federal tax lien was filed. The Federal tax lien attached
to all real property and the rights to property owned by the
original owner, including our taxpayers' property. The
taxpayers owed no Federal taxes and they were in full
compliance with all Federal filing requirements. They were
unaware that a Federal tax lien had been filed on their
property until they attempted to sell it in the fall of 1995.
They applied for a Certificate of Discharge of Property
from Federal Tax Lien and that request was denied. The Service
maintained that the original deed was not properly filed and
that our taxpayers did not have clear title prior to the filing
of the Federal tax lien against the original owner in 1993.
The title company involved in the original transaction was
no longer in business. The underwriter never issued the title
insurance policy because it went into receivership.
Our taxpayers were referred to me for assistance. At that
time, they knew nothing about the Problem Resolution Officer or
the role of the Problem Resolution Program at all. Hearing the
circumstances surrounding their unique situation, I initiated
an ATAO on their behalf. After additional research was
completed, I concluded that the government could assert
legitimate legal theories to support the lien but the equities
would not favor the Service. A Taxpayer Assistance Order was
issued to relieve the hardship and a Certificate of Discharge
was issued to the taxpayers.
The second scenario, and I know I am limited with time,
involved a business. The first scenario involved an individual
taxpayer. The second one involved a seizure of a business that
had been what we refer to as continuing accruing trust fund
taxes. After investigation, the taxpayer came to me. I
researched his inquiry and discovered that the taxpayer had
also accrued the same type of taxes in another State prior to
moving to the State of Texas.
The taxpayer had also made an attempt to contact the
Service over a period of about 4 months to request an
installment agreement so that he could satisfy those back
taxes. The first contact that he received was with our
Collection Division when a revenue officer knocked on the
business door asking for full pay. The taxpayer was unable to
full pay the account and filed an Application to Relieve
Hardship on those grounds.
The compliance check also conducted by the revenue officer
revealed that the taxpayer had failed to pay employment taxes
in another business. Because the taxpayer was considered a
repeat delinquent taxpayer, the Service denied the request for
a short-term installment agreement. This company had a number
of employees. They did have cash flow problems. They were
having problems with costs of starting up a new business. But
one thing that was in their favor was that they had struggled
for a year and finally landed a very large purchase order from
a major company in Texas.
After reviewing the circumstances surrounding that case, I
determined that because of the number of employees affected,
because of the likelihood of them being able to get back into
compliance, I authorized a short-term installment agreement.
The taxpayer full paid the account within about 60 days.
In closing, I would like to emphasize, this program has
been highly successful in helping taxpayers. The majority of
hardship applications received in PRP are resolved
administratively by the Advocate. Rarely is there a need to
invoke the ATAO authority, but we will invoke it when it is
necessary, and in the two examples that I gave you here this
afternoon, I felt it was necessary.
This concludes my opening statement. I would be happy to
address any questions you may have at this time.
[The prepared statement follows:]
Statement of Tom George, District Taxpayer Advocate, South Texas
District, Internal Revenue Service, Austin, Texas
I appreciate the opportunity to be here today to discuss
the Problem Resolution Program and the role of the District
Taxpayer Advocate. For the past seven years, I have served as
the Taxpayer Advocate, formerly titled the Problem Resolution
Officer, for the South Texas District. Prior to this
assignment, I was a revenue officer assigned with the difficult
and sometimes complex responsibility of collecting delinquent
taxes and returns from both individual taxpayers and
businesses. I have had the opportunity to serve on a number of
national and regional task groups including an advocacy project
which looked at tax issues that affect divorced or separated
taxpayers.
In my role as the District Taxpayer Advocate, I am
responsible to ensure that taxpayer rights are protected, serve
as an advocate for the taxpayer within the Internal Revenue
Service, and represent their interests and concerns. To assist
me in my role as an advocate, the Taxpayer Bill of Rights was
enacted in 1988 and expanded by the Taxpayer Bill of Rights II
in 1996.
The Committee Staff has asked me to focus on the provision
of the Bill that authorizes the Taxpayer Advocate or his/her
designee to issue a Taxpayer Assistance Order (TAO) when a
taxpayer is suffering, or is about to suffer, a significant
hardship as a result of the administration of the tax law. The
taxpayer or his/her representative can ask for a TAO by letter,
phone, or by completion of the Form 911, ``Application for
Taxpayer Assistance Order'' (ATAO). In addition, Internal
Revenue Service employees are responsible for identifying
situations that warrant the immediate intervention of the
Taxpayer Advocate. During the review of the application and
hardship by the Advocate, all enforcement actions are
suspended.
I would like to share with you a couple of scenarios in
which it was necessary for me to enforce, that although most
TAOs are resolved informally, there are occasions when it
becomes necessary to invoke the TAO authority we have been
provided. Both of these examples involved cases that occurred
prior to the enactment of TBOR II.
The first scenario concerns the filing of a Notice of
Federal Tax Lien (NFTL) on real property. The scenario involves
three different parties. Our taxpayers, the taxpayers referred
to my office, purchased a parcel of land from a local home
developer the first part of 1986 and had a home built on the
property the same year. A Warranty Deed was properly recorded
in the county where the property was located at the time of
purchase. The developer purchased the land from the original
owner in 1984. However, the developer inadvertently filed the
original Warranty Deed in an adjacent county instead of the
county where the property was located. In 1993, the original
owner accrued Federal tax liabilities and a NFTL was filed. The
NFTL attached to all real property and rights to property owned
by the original owner, including our taxpayers' property. Our
taxpayers owed no Federal taxes and were in full compliance
with all Federal filing requirements. They were unaware that a
NFTL had attached to their property until they attempted to
sell the home in the fall of 1995. They applied for a
Certificate of Discharge of Property from Federal Tax Lien,
which was denied. The Service maintained that the original Deed
was not properly filed and our taxpayers did not have clear
title prior to the filing of the tax lien against the original
owner in the spring of 1993. The title company involved in the
original transaction was no longer in business, and the
underwriter never issued the title insurance policy because
they went into receivership. They were referred to me for
assistance. Hearing the circumstances surrounding their unique
situation, I initiated an ATAO on their behalf. After
additional research was completed, I concluded that the
government could assert legitimate legal theories to support
the lien but the equities would not favor the Service. A
Taxpayer Assistance Order was issued to relieve the hardship,
and a Certificate of Discharge was issued to our taxpayers.
The second scenario concerns delinquent employment taxes
and the seizure of the business assets. The business had
pyramided unpaid employment taxes in excess of $100,000.00 and
was having cash flow problems along with start-up costs. The
company employed a large number of employees and had just
received a large purchase order from a major company. In an
attempt to bring the company into compliance, they hired an
accountant to run the day-to-day operation of the company. The
taxpayer had attempted to contact the Service and request an
installment agreement (IA) and pay the delinquent employment
taxes over a twelve month period. The taxpayer did not receive
a response from the IRS until he was contacted by our
Collection Division approximately four months later. Once
contacted by a revenue officer, the taxpayer attempted to
negotiate an installment agreement for six months. As a matter
of procedure a compliance check of the taxpayer's filing
requirements was completed. The compliance check revealed the
taxpayer had failed to pay employment tax for another business
he owned out of state prior to moving to Austin. Because the
taxpayer was considered a repeat delinquent taxpayer and
currently pyramiding trust fund taxes, the Service denied the
request for an IA based on current collection procedures
outlined in the Internal Revenue Manual (IRM). The taxpayer was
advised to full pay or the business would be seized. Since the
taxpayer was unable to satisfy the liability, the assets were
seized and the company closed. The taxpayer filed an ATAO with
my office. After reviewing the application and based on the
description of the significant hardship, the number of affected
employees, and the fact the company had just received a large
purchase order, I issued a TAO to release the seizure and allow
a short installment agreement. The company full paid the
liability in less than sixty days.
In closing, I would like to emphasize that I believe this
program has been highly successful in helping taxpayers. As I
mentioned, the majority of the hardship applications received
in PRP are resolved administratively at the local level by the
district advocate and the functional area. Rarely is there a
need to invoke the TAO authority. But on the limited occasion,
it does become necessary, we can and do take the appropriate
action.
This concludes my prepared comments. I would be happy to
address any questions you may have.
Chairman Johnson. Thank you very much, Mr. George.
Mr. George is from Texas and Mr. Romito is from Pittsburgh,
Pennsylvania. Welcome, Mr. Romito.
STATEMENT OF LOUIS ROMITO, ASSOCIATE TAXPAYER ADVOCATE,
PENNSYLVANIA DISTRICT-PITTSBURGH, INTERNAL REVENUE SERVICE,
PITTSBURGH, PENNSYLVANIA
Mr. Romito. Thank you. Madam Chairman and distinguished
Members of the Subcommittee, I appreciate the opportunity to be
here today to talk to you about the operations of a field-level
Taxpayer Advocate. As was noted, I am the Associate Taxpayer
Advocate for the Pennsylvania District located in the
Pittsburgh office. I have been the Taxpayer Advocate in
Pittsburgh for the past 8 years.
As Mr. Monks noted in his program overview and his report,
we have increased our emphasis on the application of process
analysis techniques for the long-term resolution of taxpayer
problems, but we still need to solve the short-term problems
and in doing so, we encounter situations that exemplify the
continuing spirit and commitment of the Problem Resolution
Program.
Foremost among those situations are those involving
requests for relief from hardship. The numbers of these
requests are relatively small in relation to our overall case
inventory, yet they have the most immediate impact on the
taxpayer.
Although regular Problem Resolution cases are worked in the
function that has the responsibility for the issue that is
involved, these special hardship requests are worked in my
office by my analysts or myself and we have encountered suicide
threats, physical threats, and emotional grief. But
fortunately, we have been able to provide relief in over 60
percent of those cases that are qualified for consideration.
The current top 20 systemic problems facing taxpayers are
addressed in Mr. Monks' report, also. The resolution of these
problems will measurably reduce the direct burden that the
Service has placed on the taxpayer. However, there are other
organizational areas of concern that can be addressed through
advocacy-based actions that will indirectly reduce taxpayer
burden and provide improved service to the taxpayer. Perhaps
they reflect concerns unique to a discontinued district.
Nevertheless, as an advocate for the taxpayer, they are
suggestions that I feel I have a responsibility to pursue.
For instance, because of our restructuring, the concept of
centralization of operations in the remaining headquarters
cities seems to have been adopted as a policy. If the Service
must centralize operations, the operations should be
centralized in those locations that can best carry out the
mission, irrespective of whether that location is a
headquarters city. Our computer and our telecommunication
capabilities transcend geographic considerations.
There are also a number of computer-related needs at the
field office level. The Advocates need to have all PRP
technicians work their cases on a computer, online. We need to
have our remote offices on the PRP case network so that
referred cases can be transferred electronically in order to
meet our cycle time objectives.
We need to have computer networks that stay up, and when
they go down, we need to have help near at hand to get them
back up again. Help desks hundreds of miles away are only a
partial solution and outsourcing to contractors who will have
response time allowances, who will need extensive training and
monitoring, and who will be another source of security and
confidentiality concerns is, in this instance, not the answer.
As the report notes under Communication, the understanding
of our role as an advocate for the taxpayer requires continued
education of executives, managers, and employees. Much of the
complaint activity that we get results from our frontline
contact employees forgetting a basic concept--to treat a
taxpayer as they would want to be treated if the roles were
reversed. Employees need to remember that their contact may be
a once in a lifetime experience for a taxpayer. The taxpayer's
perception of the IRS is formed in great part from that contact
and the perception can have an effect on the taxpayer's future
voluntary compliance.
Examples at the other end of the organizational spectrum of
situations that could have benefited from sensitivity to
taxpayer impact are presented in my written statement.
My final comment is on the number one taxpayer concern
highlighted in the Advocate's Report--the complexity of the tax
law. As an Advocate, I have never heard any taxpayer accept the
socio-economic rationale for the complexity of the Tax Code. To
the contrary, irate taxpayers are frustrated with the system
and its perceived heavy-handedness and unfairness. Taxpayers
ask me why the IRS runs a welfare system or they point out how
big businesses get taken care of but the little guys get no
consideration. Taxpayers don't have the time and the money to
fight the system. As a result, they often succumb to its
enormity and complexity.
I would only ask that the distinguished Representatives and
their colleagues anticipate the impact on the taxpayer as they
contemplate legislation that would use the machinery of the
Service to implement social and economic change.
Thanks for the opportunity to speak with you.
[The prepared statement follows:]
Statement of Louis Romito, Associate Taxpayer Advocate, Pennsylvania
District-Pittsburgh, Internal Revenue Service, Pittsburgh, Pennsylvania
I appreciate the opportunity to discuss the operation of a
typical field level Taxpayer Advocate's office. In particular,
I would like to share my perceptions of the Advocate's Report,
examples of my interactions with taxpayers, and suggestions for
improving the service the Problem Resolution Program staffs can
provide to the taxpaying public.
I have thirty-one years of government service as a program
analyst in positions with the Air Force Logistics Command,
General Services Administration, and the Internal Revenue
Service. I have been the IRS Taxpayer Advocate in the
Pittsburgh Office for eight years, and previously served as the
Disclosure Officer and the Public Affairs Officer.
When the Taxpayer Bill of Rights 2 (TBOR2) was implemented
this past July, I received a copy of the Bill as well as a
Summary of Act Provisions document prepared by our Office of
Chief Counsel. The paper delineated the activities that the
report was to address. In comparing the Report to the
expectations, I think the report meets the challenge. However,
the Report did indicate that feedback of the problems facing
taxpayers came from the regional offices. The field did, in
fact, get to provide input which was assimilated into the
regional response.
As the Advocate notes in the Program Overview of the
report, we have increased our emphasis on the application of
process analysis techniques for the long term resolution of
taxpayer problems. Still, we need to solve the short term
problem and, in doing so, we encounter situations that
exemplify the continuing spirit and commitment of the Problem
Resolution Program.
Foremost among these situations are those involving
requests for relief from hardship, Taxpayer Assistance Order
(TAOs). The numbers of these requests are relatively small
compared to our overall case inventory, yet they have the most
impact on the taxpayer. Although regular Problem Resolution
cases are worked by technicians located in the function
responsible for the respective issue, these special hardship
requests are handled in my office by my analysts or me. The
situations are almost as traumatic to me as they are to the
taxpayer. We have encountered suicide threats, physical
threats, grief, and emotional breakdowns. Fortunately, we have
been able to provide relief in 61% of the cases that qualified
for consideration.
As implied before, the mission of the office has two parts.
The first provides appropriate relief to the problems that
taxpayers are currently encountering. So in Fiscal Year 1997 we
are concentrating on reducing the time it takes for Problem
Resolution to resolve a taxpayer's problem, otherwise known as
cycle time, and increasing the quality of the way we resolve
these problems in terms of timeliness, communication with the
taxpayer, and accuracy. The second part addresses continuing
long term and/or systemic problems through the application of
process analysis techniques that identify and allow us to
correct the underlying causes of taxpayer problems. This second
part is referred to as the advocacy component of our mission.
The current top twenty of these systemic problems are
addressed in the report. The resolution of these problems will
measurably reduce the burden we have placed on the taxpayer.
However, in addition, there are other organizational areas of
concern that can be addressed through advocacy based actions
that will also reduce taxpayer burden. These actions are not as
high profile as the Top Twenty and may be transparent to the
taxpayers. But they are important because of their potential
impact at the field office level. In my opinion, these advocacy
actions would have a long term beneficial effect in reducing
taxpayer burden and providing improved service to the taxpayer.
Perhaps they reflect concerns unique to a discontinued
district. Nevertheless, as an advocate for the taxpayer, they
are suggestions that I feel I have a responsibility to pursue.
My efforts may be perceived at times to ignore political
reality, but that's the line the Advocate sometimes has to walk
between the best interest of the taxpayer and the best interest
of the Service.
If the Service intends to run like a business, it needs to
use good business sense. For instance, because of our
restructuring, the concept of centralization of operations in
the remaining headquarters cities seems to have been adopted as
policy. In any school of management thought, you can find as
many proponents for decentralization as you can for
centralization. If the Service must centralize operations, the
operations should be centralized in those locations that can
best carry out the mission, irrespective of whether that
location is in a headquarters city. Our computer and
telecommunication capabilities transcend geographic
considerations.
There are also a number of computer related needs at the
field level that may have been overlooked in the Service's
preoccupation with Tax Systems Modernization. Filling these
needs will enable the Advocates to deliver the advocacy program
that we have promised.
For instance, we need to have all PRP able to work their
cases on a computer--on line. This will reduce case processing
time by eliminating unwieldy paper casework and increase the
quality of the casework by providing instantaneous managerial
review of casework activity. We need to have our remote offices
on the PRP case networks so referred casework can be
transmitted electronically in order to meet our cycle time
objectives. We need to have computer networks that stay up. The
greatest danger in being dependent on a sophisticated computer
network infrastructure is that if the system goes down we are
out of business and so is the taxpayer. And defective programs
need to be corrected expeditiously--in weeks, not months.
In the case of system failure, we need to have competent
help at hand to get the system up. Radical downsizing of the
Information Systems staff is counterproductive. Help desks
hundreds of miles away are only a partial solution and
outsourcing to contractors who will have response time
allowances, who will need extensive training and monitoring,
and who will be another source of security and confidentiality
concerns is, in this instance, not the answer. The point to
this litany is that in considering implementing one or more of
these suggestions, management may do a cost benefit analysis
and see only a few days case processing time being saved here
and there. To us that time may be insignificant. But to the
taxpayer, my customer, a few days can be an eternity.
Another important factor that the Service needs to keep in
focus is the functional support our program requires. As the
Advocate's Report notes under IID, Communication, the
understanding of our role requires continued education of
executives, managers, and employees. All functions need to
remember that taxpayers in our program have already been in the
system--the normal channels--and, for whatever reason, the
system has failed them. This failure is not perceived,
projected, or proposed. It is real and it is now. The efforts
to correct and resolve the problem should not be secondary to
competing priorities.
Beyond that is the fact that much of the taxpayer complaint
activity we get results from our contact employees forgetting a
basic concept--to treat a taxpayer as you would want to be
treated if the roles were reversed. I am sympathetic towards
the contact employee who encounters the same scenario many
times a day, every day for twenty years. But those employees
need to remember that their contact may be a once in a lifetime
experience for the taxpayer. The taxpayer's perception of the
IRS is formed, in a great part, from that contact. And that
perception can have an effect on the taxpayer's future
voluntary compliance.
This need, to be aware of the bottom line impact of our
actions on the taxpayer is also applicable to higher levels of
the organization. For example, recently the Advocate had to
request an opinion from the General Litigation Office of our
Chief Counsel concerning the release of a lien or levy under
Section 501 of TBOR2. We asked when the Advocate would need to
make a determination that such a release would be in the best
interest of the taxpayer. The response concluded that the
authority to make a positive determination should be delegated
to the Collection Division. I have yet to identify a situation
when a release of a lien or levy would not be in the best
interest of the taxpayer. Further, the release requires two
determinations; the second being that the release is also in
the best interest of the government. It would be inconsistent
to also have that decision made by the Collection Division.
This exercise could have been avoided if the legislative
language had been less muddled.
Additionally, within the past year, the Service has
implemented a little known process called the Collection
Appeals Program for the use of taxpayers who disagree with the
decision of a revenue officer who has proposed enforcement
action such as lien, levy, or seizure. In theory, when
petitioned by the taxpayer after the taxpayer has met with the
Collection supervisor, the Appeals Office can decide in favor
of the taxpayer and suggest some alternative collection method
that may be more appropriate. Some reviews have indicated that
the system is working. My limited observations suggest that
Appeals, which is staffed by revenue agents, sees its
involvement as being limited to determining procedural accuracy
rather than questioning the judgment of a revenue officer or
determining the appropriateness of any action taken by a
revenue officer. I realize that a collection issue is not the
same as an examination issue which can have an assessment
reduced outside of Tax Court because of the hazards of
litigation without questioning the judgment of the revenue
agent. On the other hand, as an Advocate I feel the current
Appeals philosophy, if I've interpreted it correctly, does not
capture the spirit and intent of what a Collection Appeals
process should be.
My final comment is on the number one taxpayer concern
highlighted in the Advocate's Report--Complexity of the Tax
Law. The text of the report states that the complexity is not
intentional but rather is the cumulative effect of numerous tax
law changes, each of which is enacted for a presumably
desirable public purpose. The Commissioner was just as
diplomatic in her testimony last month before the National
Commission on Restructuring the Internal Revenue Service. She
stated that as our society and economy have grown more complex,
so have parts of the Code. The complexity arose from a struggle
for fairness and the need to keep pace with an ever-changing
economy.
As an Advocate, I have never heard those socio-economic
arguments from any taxpayer. To the contrary, irate taxpayers
are frustrated with the system and it's perceived
heavyhandedness and lack of fairness, Taxpayers ask me why the
IRS runs a welfare system or they point to how big business
gets taken care of but the little guy gets no consideration.
Taxpayers are aware of what's going on. They just don't have
the time and money to fight the system. As a result they often
succumb to its enormity and complexity. I would only ask that
the distinguished representatives anticipate the impact on the
taxpayer as they contemplate legislation that would use the
machinery of the Service to implement social and economic
change.
Thank you for the opportunity to speak with you.
Chairman Johnson. Thank you for being with us, Mr. Romito.
Ms. Goldstein from Wisconsin.
STATEMENT OF ELAYNE M. GOLDSTEIN, DISTRICT TAXPAYER ADVOCATE,
MIDWEST DISTRICT, INTERNAL REVENUE SERVICE, MILWAUKEE,
WISCONSIN
Ms. Goldstein. Thank you. Madam Chairman and distinguished
Members of the Subcommittee, it is an honor for me to be here
today to talk to you about the Taxpayer Advocate's Report to
Congress. I was very pleased to see that many of the issues
that we have raised to the Taxpayer Advocate in fact, have
shown up in the report that he submitted to you.
My name is Elayne Goldstein and I am the Taxpayer Advocate
for the Midwest District. The Midwest District consists of the
three States of Wisconsin, Iowa, and Nebraska. I have been a
Taxpayer Advocate for 8 years and in the Problem Resolution
Program a total of 11, 3 of those as a Problem Resolution
Specialist.
In my opinion, both as a Taxpayer Advocate and a taxpayer,
the number one problem for taxpayers today is the difficulty
with the tax law. The complexity of the law pervades almost
every problem resolution case I see coming into the Problem
Resolution Program. Whether it is a business taxpayer who is
having difficulties complying with the Federal tax deposit
system or a low-income taxpayer that is having difficulties
complying and getting credit for the earned income tax credit,
most of the problems I see coming into the program stem from
the complexity of the tax law.
In many cases, it is not only the complexity of the tax law
that creates problems for the taxpayer but their inability to
seek out or have the resources available to find out about how
to comply with the tax law. The IRS is very often faced with
the very difficult task of reducing tax law into easy to
understand language for the general public. We make attempts to
do that in our publications and in our instructions and in our
tax forms.
However, very often, because of the complexity of the law,
it is difficult, if not impossible at times, to reduce the
language to easy to understand language for the general public.
Any tax legislation that is passed must consider the impact the
wording of that legislation will have on the ability of the IRS
to put that law into practice.
I believe the way to simplify the earned income tax credit
is to eliminate it from the Tax Code. The funds could be made
available through another agency that would have the ability to
check on the eligibility of the credit on the front end for
those people who need it. Generally at the IRS, we first send
the money to the taxpayer and we ask questions later. When we
then make an attempt to collect that money back from that
taxpayer who we determine is not eligible for that credit, we
are perceived as being harsh and cruel.
It is my opinion that if the earned income tax credit, or
whatever the name would be for this particular benefit, would
be administered through another agency, it would allow that
agency to apply a system where the criteria is checked up front
and that only the people who are, in fact, entitled to the
benefit, receive it.
One of the burdens placed on taxpayers today, particularly
business taxpayers, is the requirement to verify taxpayer
identification numbers for payees on documents they transmit to
the IRS. Although the business may exercise business care in
obtaining and verifying those identification numbers, they may
at times still be subject to a penalty for providing an
incorrect number to the IRS. If that is not the case, they
still need to use their valuable resources to track down the
taxpayer so that they can go through the process of validating
the identification number that in the front end may have been
incorrect.
It would greatly reduce the burden placed on taxpayers and
the errors made if the IRS was given the resources needed to
establish a system where the payor could call into the IRS and
verify the identification numbers up front.
Many of the calls that I receive in the Problem Resolution
Office, whether it is from taxpayers, practitioners, or
congressional staff, have to do with complaints about their
inability to get into the toll-free system. Those complaints
also include those from people who, although able to get into
the system, are unable to speak to what they refer to as a
``live person.''
While I strongly believe that the IRS has made enormous
strides in providing alternative sources of information for
taxpayers, such as the availability of tax forms, publications,
answers to frequently asked questions on the IRS home page of
the Internet, we have provided a separate telephone number for
people who have refund inquiries, and have tax information on
over 150 tax topics available to the public, I still believe
there is a certain segment of the population that is not able
to reach those alternative sources of information, either
because they do not have the resources to allow them to do that
or, in fact, they do not have the sophistication to use those
alternative sources.
I believe a government that imposes laws and regulations
upon its citizens has an obligation to explain those laws and
regulations to those people. While I do not believe that a lot
of these problems can necessarily be cured by throwing money
their way, I do believe that Congress needs to recognize that
unless we give the taxpayer the information they need to do a
complete and accurate tax return, our voluntary compliance
rates are not going to increase.
The answer may be that additional resources are needed on
our toll-free system, I do not think that should be discounted.
If that is what is needed to provide a level of service that is
acceptable to our customers so they can comply with the tax
law, I believe that is what needs to be done.
We need to attack the causes of taxpayer burden head on and
I do not envy your task, but I do believe it is important that
Congress seek the opinion of field personnel in order to do
reduction in taxpayer burden justice, and I applaud your
efforts in bringing those of us from the field before you to
give you our opinion.
I would like to thank you again for the opportunity to
speak to you today and I will be glad to answer any questions
you may have.
[The prepared statement follows:]
Statement of Elayne M. Goldstein, District Taxpayer Advocate, Midwest
District, Internal Revenue Service, Milwaukee, Wisconsin
It is an honor for me to appear here today to provide you
with my assessment of the issues raised in the Taxpayer
Advocate's Report to Congress. I was pleased to see that many
of the issues raised by field personnel as those causing the
greatest burden for taxpayers were included in this report.
My name is Elayne Goldstein and I am currently the District
Taxpayer Advocate in the Midwest District. The Midwest District
consists of the three states of Wisconsin, Iowa, and Nebraska.
I have been the Problem Resolution Officer, now the District
Taxpayer Advocate, for eight (8) years and in the Problem
Resolution Program a total of 11, three of those years as a
Problem Resolution Specialist.
It is my opinion, both as a District Taxpayer Advocate and
a taxpayer that the most serious problem facing a taxpayer
today is the complexity of the tax law. The complexity of the
law pervades almost every Problem Resolution case I see coming
into the program. Whether it is penalties assessed against a
business for failing to deposit trust fund taxes correctly or
it is a low income taxpayer who does not understand how to
compute the Earned Income Tax Credit, the root cause of the
problem is that the individual does not understand how to apply
the tax law or have the resources to find out.
The IRS is very often faced with no other option than to
explain the law in notices, publications, and instructions in a
language that is not easily understood by the general public.
We are very often challenged to simplify the language of the
law; however, because of its complexity, it is difficult, if
not impossible at times, to reduce it to easy to understand
language. Any tax legislation must consider the impact the
wording of that legislation will have on the ability of the IRS
to put the law into practice.
I believe the way to simplify the Earned Income Tax Credit
is to remove it from the tax law. The funds can be made
available through another federal agency whose procedures allow
them to qualify a person for the monies upfront. Through the
tax system, we release the money first and ask questions later.
The IRS is then perceived as harsh and cruel in its attempts to
collect the money when it has been determined that the taxpayer
is not eligible for the credit. An application system for
eligibility for the Earned Income Tax Credit through another
agency would, in my opinion, ensure that people who are
eligible get the benefit.
One of the burdens placed on taxpayers, particularly
business taxpayers, is the requirement to verify the Taxpayer
Identification Numbers of payees they place on information
documents transmitted to the IRS. Although the business may
exercise good business care in obtaining and verifying these
numbers, they still face the possibility of being assessed a
penalty for providing an incorrect number or must use their
valuable resources to track people down. It would greatly
reduce the burden placed on business taxpayers and the errors
made if the IRS was given the resources to establish a system
for payers to call into the IRS to verify the identification
number upfront.
Many of the calls I receive in the Problem Resolution
Office from taxpayers, practitioners, and congressional staffs
are complaints about their inability to get through on the IRS
toll-free lines. These complaints also include those from
people, who although able to get through the lines, are not
able to speak to a ``live'' person, as they refer to it. While
I strongly believe the IRS has made enormous strides in making
alternative sources of information available, such as tax
forms, publications, and answers to frequently asked questions
on the IRS Homepage of the Word Wide Web, providing a separate
number for refund inquiries and recorded tax information on
almost 150 different tax topics, and the availability of tax
forms by facsimile, there is still a certain segment of the
population that either does not have the resources available to
access these alternative sources of information or the
sophistication to use them. I believe a government that imposes
laws and regulations has an obligation to its citizens to
provide a certain level of personal service to explain those
laws and regulations. While I do not believe that this problem
can necessarily be cured by throwing money at it, Congress has
to recognize that voluntary compliance rates are not going to
increase unless we can make sure all taxpayers have the
information they need to prepare a complete and accurate tax
return. If that means having to provide sufficient resources to
increase the level of access to our toll-free system, then we
need the commitment that this will be done.
We need to attack the causes of taxpayer burden head on and
I don't envy your task, but I do believe it is important for
Congress to seek out the opinions of field personnel on how we
can make it better for the taxpayers of this nation. I applaud
you for seeking out such opinions.
I would like to thank you for the opportunity to speak to
you today and would be glad to answer any questions you may
have.
Chairman Johnson. Thank you very much, Ms. Goldstein.
Ms. Williams from Jacksonville, Florida. You may be Ms.
Thurman's constituent. Jacksonville is also the home of my new
twin grandsons.
STATEMENT OF JEANNE WILLIAMS, DISTRICT TAXPAYER ADVOCATE, NORTH
FLORIDA DISTRICT, INTERNAL REVENUE SERVICE, JACKSONVILLE,
FLORIDA
Ms. Williams. I have been the North Florida Taxpayer
Advocate, formerly the Problem Resolution Officer, for 10
years. I want to thank you for giving me the opportunity to be
here today. It is a treat I did not think I would look forward
to after 50 years with Internal Revenue, but it is one that I
will always remember.
During 1996, we assisted over 7,000 taxpayers on issues
ranging from individual taxpayer problems to complex corporate
returns. We look for the root cause of why the problems were
not resolved when they followed established guidelines. It is
an area that we pursue very actively. We have many of the same
top 20 issues in our district that Mr. Monks' report referenced
but not necessarily in the same order.
During filing season, we have an increased volume of form
911, Application for Taxpayer Assistance Orders. I am going to
talk more to the hardship manual refunds which we issue as
opposed to the collection issues that the others have talked
about.
They ask for expedited refunds of currently filed returns.
Sometimes they have not filed the return, they send it to us
and we issue the manual refund and then send the return for
processing after we have had the check cut. These taxpayers
have low income and must have their refund quickly. The cases
are handled expeditiously to help them relieve hardships, such
as evictions and the shutoff of utilities. In Florida, the
eviction process is very quickly served. We ask for
documentation of the hardship and they send us eviction
notices, they send us utility cutoffs, their car is being
repossessed. It is an area that gets a lot of attention during
filing season.
In addition to the normal expeditious contact for taxpayers
experiencing hardship, the Service has a procedure in place
where the taxpayer is provided the relief much quicker. We have
an excellent working relationship with the functions as do the
other Taxpayer Advocates except for the one gentleman. I never
have felt it necessary to issue a Taxpayer Assistance Order.
One example I can remember, and it is not in the testimony,
was a foreign gentleman who had put a car in layaway with a
used car dealer to send to his father. Well, the used car
dealer had a tax problem and we seized the car lot and sold all
the vehicles in the lot, including this gentleman's car. Of
course, he filed a 911 and was told, sorry, your car is gone. I
mean, when he went to collection. So a 911 was filed with us.
We investigated and that was the initial response we received,
that there is nothing we can do. We sold the car.
But I elevated it to the Division Chief and his answer was,
we were wrong to sell that car. Let us give the man his money
back, and that is what was done, which is the way it should be,
which is why I say we have not felt it necessary to issue a
Taxpayer Assistance Order when you can deal with your
counterparts and resolve the problem.
One area that I feel we need to change in the law is the
area that prohibits us from issuing a manual refund when there
is a debtor master file. That is where another agency has
notified us that the taxpayer owes them money and they have a
refund coming, they have a hardship, but we are prohibited from
issuing that refund as long as they owe that debtor master
file. If they owe taxes, we can bypass the taxes and give them
a refund, but if they owe another agency, we have no authority
to bypass that.
The kind I see most are those where there is a single
mother who years ago perhaps went to college, owes student
loans. She now has two or three children and is desperate for
the money and there is nothing we can do to give her that money
because she owes another agency. But that is something you
would have to fix.
We also deal with the earned income credit. Taxpayers live
on minimum wages and we expedite the refunds on those, also.
One activity we are doing in my district which I am very
proud of is we have a conflict management initiative. We were
chosen as a prototype location to test the applicability of
conflict management tools and techniques for frontline
employees in the performance of their duties. My program was
chosen because of our direct involvement with the Application
for Taxpayer Assistance Orders and the collection field
function.
Historically, our process to collect taxes has been
position based. This initiative has a unique twist. Although
taxpayers often dislike tax administration, we believe that
using the interest-based approach will enhance our skills in
identifying and addressing taxpayers' concerns. We also hope
that using this approach to problem solving will help taxpayers
recognize their interests are being considered even if the
outcome cannot be changed.
What we have done is identified one revenue officer group
and we brought the group in plus all of my collection employees
and trained them in conflict management to enable them to deal
better with each other, with the public, and even in their own
personal lives. We are now in a monitoring stage. We also have
a control group which did not receive the training, so we are
checking the results of the group that received the training
against the results of the group that did not receive any
training to see if this, in fact, is something that we can
apply in more areas of the Service.
I strongly agree with Mr. Monks' recommendation that
something be done about the statute for refunds when several
delinquent returns are filed and the taxpayer is not given the
opportunity to have at least a credit applied to their
accounts. Again, I see my light is on, and I thank you very
much for allowing me to appear before you.
[The prepared statement follows:]
Statement of Jeanne Williams, District Taxpayer Advocate, North Florida
District, Internal Revenue Service, Jacksonville, Florida
My name is Jeanne Williams and I have been the North
Florida District Taxpayer Advocate, formerly Problem Resolution
Officer for ten years. Thank you for giving me the opportunity
to be here today as the Taxpayer Advocate for the North Florida
District. Due to Code Section 6103, relating to restrictions on
disclosure, the examples I am going to discuss are some of the
general scenarios that I may face and do not reflect individual
circumstances of a particular taxpayer.
Whenever a taxpayer's problem is accepted into the Problem
Resolution Program (PRP), it is generally because the normal
procedures for resolving the problem have failed. We have a
two-fold responsibility:
to resolve the taxpayer's problem in a
professional manner as quickly as possible; and,
to identify areas where we can improve our
processes and be more efficient.
The North Florida District has been very active in both
areas. During 1996, we assisted over 7000 taxpayers on issues
ranging from individual taxpayers' problems to complex
corporate returns. Looking for the root cause of why taxpayers'
problems were not resolved when they follow the established
guidelines is also an area that we pursue very actively. An
example of our involvement in improving our internal processes
are the various projects that we have conducted in the last few
years. We have many of the same top 20 issues in our district
but in different ranking order from the national identified
issues.
During Fiscal Year 1996, we conducted a project involving
Collection PRP issues. The average days to resolve these issues
in our office was 78 days. We made several improvements in the
way cases were processed. The average days to resolve this
issue dropped to 30 days. We are very concerned about timely
contact with taxpayers. When a taxpayer reaches our office,
they have already had multiple contacts with Service employees.
It is imperative that we respond as quickly and professionally
as possible to help improve the image of the Service.
During the filing season, we have an increased volume of
Forms 911, Applications for Taxpayer Assistance Orders (ATAOs)
for expedited refunds on the current filing of returns. In the
majority of these cases, the taxpayer has a low income and must
have the refund quickly. These cases are handled expeditiously
for the taxpayer to help relieve hardships such as evictions
and shut-off of utilities. In Florida, the eviction process can
be very quickly served. Documentation by the taxpayer of the
hardship is required. In addition to the normal expeditious
contact to the taxpayer experiencing the hardship, the Service
has a procedure in place where the taxpayer is provided relief
much quicker. Our District has developed an excellent
relationship with all Division Chiefs and has not had to issue
a Taxpayer Assistance Order. Cooperation by all levels of
managers has enhanced our ability to assist the taxpayer unless
the issue involves an area where the law prevents us from
allowing the relief. For example, IRC Section 6402(c) generally
prohibits the issuance of a refund if there is an outstanding
liability to any federal agency.
During fiscal year 1996, 61% of our ATAOs where hardship
was found to exist, resulted in relief provided to taxpayers.
For those who were not provided relief, 3.1% were due to the
law preventing the change. I want to give examples of cases
where we have provided relief to taxpayers. Taxpayers will
contact their local offices, call into the toll-free assistors,
or contact my office seeking relief from their hardships. These
taxpayers live on minimum wages and need their refunds of
earned income credit to prevent evictions and/or having their
electricity, water, or gas shut off. We are able to provide
relief by expeditiously processing their refunds. We have the
ability to manually prepare the refunds, and the taxpayers can
expect their checks within 10 days. We have provided homeless
people with their refund checks by having the checks sent
directly to my office or the local offices where the taxpayers
reside in order to provide the relief when the taxpayers have
no permanent addresses. Each case received is reviewed
thoroughly for determination of true hardship. We work
diligently to prevent our system from being abused by
individuals seeking a fast refund without a legitimate reason.
We want to assist the true hardship cases and provide them
relief if at all possible. In some instances, we are unable to
provide relief to the taxpayer due to other federal agency
liabilities. The law requires that the refund be applied to
these liabilities. Many times the refund has already been
applied to their tax liabilities prior to the taxpayers'
contacts with our office, and we are unable to assist them. For
many single mothers raising children with no child support,
this creates an extreme hardship for them. However, in these
cases, we instruct the taxpayer of other alternatives for the
next year, such as requesting Advanced Earned Income Credit
through their employers. This will not relieve their immediate
problem, but will provide relief in future years.
One activity in my District that we are very proud of is
the Conflict Management Initiative. We were chosen as the
prototype location to test the applicability of the conflict
management tools and techniques for front line employees in the
performance of their duties. The Problem Resolution Program was
chosen because of our direct involvement with the ATAOs and
Collection field function. Historically, our process to collect
taxes has been position-based. This initiative has a unique
twist. Although taxpayers often dislike tax administration, we
believe that using the interest-based approach will enhance our
skills in identifying and addressing taxpayer concerns. We also
hope that using this approach to problem solving will help
taxpayers recognize their interests are being considered, even
if the outcome cannot be changed.
The Taxpayer Advocate Report identified many areas which
tremendously effect our taxpayers. Of those, I strongly concur
with the statute of limitations on refunds and the delays by
IRS in processing Offers-in-Compromise. Additionally, while we
understand the need for the imposition of certain penalties to
ensure compliance, we have found that the imposition of the
Failure to File penalty on tax exempt organizations under Code
Section 6033 creates an undue hardship on the small non-profit
organizations in my district. These are your PTA's, homeowners'
associations, women's clubs, softball leagues, Veterans
Associations, etc. The problems these small organizations
encounter in complying with the filing requirement are
compounded by the fact that their officers are volunteers, are
not knowledgeable about tax filing requirements, and are often
changed from one year to the next. Therefore, the majority of
these penalties are abated due to reasonable cause. However,
the abatements usually occur after considerable utilization of
resources on the part of the non-profit organizations and the
Service. For example, the issuance of failure to file notices,
the filing of the returns by the tax exempt organizations, the
assessment of Failure to File penalties, the requests for
abatements due to reasonable cause, and the consequent removal
of the penalties by the Service are quite consuming and not
cost effective.
If the filing requirement under Code Section 6033 were to
be increased from $25,000 to $50,000, this would alleviate the
filing requirements for many of these small non-profit
organizations and reduce taxpayers' burden. Another issue that
is not uncommon in the Problem Resolution Office is the
guideline governing Federal Tax Deposits. With the present
guidelines, employers are having difficulty applying the
deposit requirements correctly. Specifically, the problem lies
with the ``look-back'' period used for determining whether an
employee deposits monthly or semi-weekly. The ``look-back''
period consists of the first and second quarters of the prior
year and the third and fourth quarters of two years prior. For
example, in tax year 1997 the ``look-back'' period is the first
and second quarters of 1996 and the third and fourth quarters
of 1995. Many employers misinterpret the ``look-back'' period
to be the prior four quarters, thus possibly creating errors in
the method of depositing. The Problem Resolution Office reviews
each case on an individual basis to determine if the resulting
federal tax deposit penalty should be waived.
Generally, the guidelines are misinterpreted by the
bookkeeper and the employer. Our office educates the taxpayer
on how to determine the deposit method, and if warranted, abate
the applicable penalty charge.
In closing, I would reiterate the need for the Taxpayer
Advocate positions to remain an intricate part of Internal
Revenue Service.
Chairman Johnson. Thank you very much. It is a pleasure to
have you and we look forward to the dialog between us
developing each year so that it is more and more specific.
I appreciate your comments about the arbitrariness of the
statute of limitations law and some of the other things you
have brought up. I thought your comment, Ms. Goldstein, about
the EITC was a very interesting one, because it is odd when you
do something to help low-income people that it is so
complicated that they cannot do it themselves and, furthermore,
they have to pay someone else to do it, which they cannot
afford to do. We had planned to come back to that this year,
but we have been through this before and it is very hard to fix
because it does become too burdened, in my estimation, with
social policy.
I just want to, by way of opening, I want to ask you
whether the expanded authority to release liens and return
levied property, the expanded authority to abate interest, and
the ability to establish a process for termination of
installment agreements, those expanded authorities that were in
our last Taxpayer Bill of Rights, have been of any help to you
and whether there are specific new powers, now, clearly, this
right to override the statute of limitations is one of them,
but are there other authorities that you feel you need to deal
fairly with the problems that you face? Have the things we have
done helped and are there new things that we should do?
Mr. Romano.
Mr. Romano. I guess I would like to start by saying that it
may be a little bit too early to tell on a couple of the issues
that were in TBOR2. The expanded authority for interest
abatement should help because it is an issue that we have seen
raised with us locally for many years, and as the claims come
in and the process rolls out, I think we will be able to have a
better feel for whether or not it is going to be effective. But
it does at least open the door for taxpayers to come in and
request relief for not just a ministerial act on the part of
the Government but a managerial act, which is something that
they have been asking for.
The lien and levy procedures, I believe, will also help. We
had to go in and ask for--we needed to have that clarified
somewhat because we were not quite sure how we were going to be
given the authority to make that determination. It is always
going to be in the best interest of the taxpayer, obviously, to
release a lien.
The way the language in the law was written, I think there
is some perception out there on the part of the public and the
taxpayers that in every case where there is an alternative
means provided for payment, that the lien will be released. I
am not sure that was the intent but that is the way it may be
perceived by the public. So I think we are also going to see
some development in that area as we get requests from taxpayers
and we are going to be charged with taking the position and
going to the functions in cases where we have to make a
decision whether it is in both parties' best interests to do
that.
I do not know if anybody has anything to add to that.
Chairman Johnson. Mr. George.
Mr. George. I would just like to add that on the scenario
where we issued a Certificate of Discharge on the Federal tax
lien, this was the second time that I had to go in and issue an
order on it. I worked with Donna Steel several years ago on a
like issue.
It was not necessarily that the Collections Department or
the Service did not want to release the lien or withdraw the
lien, but because of statutory requirements, it states as long
as the Service has an interest or the Secretary has an interest
in the property, it would make it very difficult to withdraw
the lien.
I would like to say that with the Taxpayer Bill of Rights
2, I believe that we will be able to work much easier on those
issues.
Chairman Johnson. Thank you.
I thought the point you made, Ms. Williams, about student
loans and other agencies was a very interesting one that,
frankly, I was totally unaware of. Thank you. Any other
comments?
Mr. George. I have to agree with her. We see this happening
this time of the year, where we have taxpayers that come in
that have significant hardship and request that their refund be
manually sent to them for whatever reason. Normally, it is
because of eviction or just to provide necessary living
expenses. And when we pull the account up on our system and
there is a debtor master file where that particular individual
has a student loan several years ago and has failed to pay it
back, we cannot bypass it. We are able to bypass the earlier
tax liabilities, but as far as bypassing any debtor master file
conditions, we cannot and I think we need to be able to.
Chairman Johnson. I would like to yield to my colleagues.
Let me ask you a very simple question first, though. What
portion of your caseload is small business and what portion is
individual and has that proportion changed over the last 5
years, roughly?
Mr. Romito. I do not have that information available and I
cannot pull it off the top of my head.
Chairman Johnson. I do not want specifics. Just generally,
is it mostly small businesses you deal with or individuals and
has that changed?
Mr. Romito. We deal mostly with individuals, but it depends
on your definition of small business. If you are talking about
sole proprietors also, there is probably a 70 : 30 mix in my
organization.
Chairman Johnson. Thirty percent being the small businesses
or individual and sole proprietors?
Mr. Romito. Thirty percent small businesses.
Ms. Goldstein. In my district, I would estimate about 50
percent are businesses. We do not have a means of segregating
the small business from the larger corporation, but about 50
percent of the cases coming through the Midwest District, I
would say, are from business taxpayers, usually surrounded
around the issue of Federal tax deposits, the penalties that
are assessed against them for failing to deposit timely. It is
about 50 : 50.
Ms. Williams. I would tend to agree with her. It probably
runs about 50 percent, more so when you get an application for
a Taxpayer Assistance Order. You run heavier to business where
they have seizures or liens or levies than you do individuals,
though, unless it is during filing season when we are
processing their manual refunds.
Chairman Johnson. Mr. Coyne.
Mr. Coyne. Thank you, Madam Chairwoman, and thank you all
for coming here today and helping us out with the issues that
we face here.
Mr. Romito, does the Pittsburgh Office entertain free
taxpayer filing to any extent, where people can just walk in
and get their taxes done or have them done by electronic
filing?
Mr. Romito. We do not have a free operation. In prior
years, we used to have a concept called self-help where we
would gather taxpayers into groups as they queued up at the
entrance and take them into a classroom setting and go through
the preparation of simple tax returns with them, but the mix of
resources has precluded that in the last few years.
What we have done instead--this year, for instance, we have
set up a Volunteer Income Tax Assistance site in the Federal
Building and as the taxpayers come in who need forms
preparation, we set them up with appointments at the taxpayer
assistance site. As they ask normal tax questions at the walk-
in area, we will be glad to answer those, but to the extent
that you start taking them through the form line by line by
line, we have not been doing that this year. We also do not
have free electronic filing this year, either.
Mr. Coyne. Do any of the other panelists provide that
service?
Mr. Romano. In Connecticut, Rhode Island, we do offer
electronic filing at least 1 day a week in all of our offices
within the States. The offices are open--some of our larger
offices are open more days a week and our smaller ones are only
open 1 day a week, but any taxpayer who comes in with the
necessary documentation is offered free electronic filing,
assuming they have everything with them when they come in, and
then we offer the other tax assistance, paper preparation and
also the question and answer type assistance.
Ms. Goldstein. In the Midwest District, we are similar to
the other two offices. We have a Voluntary Income Tax
Assistance site one floor below the walk-in service of our
customer service division. What we have been doing, I believe
nationally as an agency, is aggressively marketing the
availability of TeleFile to the almost 26 million people who
are eligible to use it. We are hoping that by increasing the
level of access for those people eligible to use TeleFile, it
may relieve some of the burden from people who ordinarily think
they could file electronically but, in fact, have a much
simpler way of doing that and that is file by telephone.
Mr. Coyne. Mr. Romito, what advocacy projects have you
initiated in an effort to make the IRS and the Problem
Resolution Program more effective and fair for taxpayers? Is
there something that you could elaborate on that you initiated?
Mr. Romito. Advocacy takes many faces and we have a lot of
small projects that we work on, but the major significant
project that we have attacked this year is one of those that I
alluded to in my testimony, where we are attempting to take
care of internal problems, organizational problems that to the
taxpayer might be transparent. Unique to our situation is the
fact that we have the office in Pittsburgh that used to be a
district office and the office in Philadelphia and the way we
processed Problem Resolution cases was not necessarily the same
in both.
Now that we have consolidated the two offices into one
district statewide, we have undertaken new process analysis to
go through the processes in handling cases in both districts,
taking the best practices from each of the offices, sharing
those, developing a singular process that we can then reduce to
a written guideline so that no matter where the taxpayer is
located in the State of Pennsylvania, their case is going to
get processed the same way on either side of the State so that
we have consistency of approach and consistency of treatment.
Mr. Coyne. I am interested in your reaction to the
sentiment that exists that the EITC program is rife with fraud.
Is that your sense from your experience with the IRS, that the
taxpayers purposely mislead the IRS in order to get the
benefits of the earned income tax credit program?
Mr. George. Congressman, I am not sure whether it is a
deliberate attempt by taxpayers to defraud the Internal Revenue
Service from earned income credit. It definitely does happen
and it is happening where the taxpayers do, in fact, file
deliberately head of household, for example, so that they can
maximize the amount of earned income credit that they would
qualify for.
The reason why I do not believe that across the board it is
a deliberate attempt in all cases, there was an incident last
year where there was a single parent who had three children.
The maximum earned income credit, it maxes out at two children
so she went ahead and allowed her mother to take the exemption
for the third child. She said that on television. I believe
that she did not know any different.
I believe the Service is doing a good job. Each year, we
enhance the capabilities of detecting these fraudulent returns.
The math error notice that is going out this year will be one
area that is going to be very helpful to assist taxpayers who
have fallen in the crack and may not deserve a math error
notice, where last year it was an exam issue and we had to go
through the 90-day statute letter.
Mr. Coyne. So many of these instances that might be labeled
as fraud are, indeed, as a result of the complexity of filing
the EITC return?
Mr. George. I believe it is complex. I was talking to a
taxpayer not too long ago, as a matter of fact, several weeks
ago, and they did not know the mechanics of the form.
The form itself is fairly simple. But it is the
instructions this is overwhelming in many cases, and those
individuals that most deserve the earned income credit are
forced to go to practitioners and other agencies to prepare the
return for them.
Mr. Coyne. Thank you very much.
Chairman Johnson. Mr. Portman.
Mr. Portman. Thank you, Madam Chair.
I appreciate the testimony from all five of you. It is very
interesting and I am glad that, Ms. Williams, after how many
years with the Service?
Ms. Williams. Fifty.
Mr. Portman. After 50 years with the Service, that you are
able to come here and give us your two cents worth. You may
give us more before the afternoon is over.
Quickly, Ms. Goldstein mentioned her role in this Taxpayer
Advocate's Report by saying, I was glad to see some of the
things I recommended. Did you get asked your opinion by the
Taxpayer Advocate as to what the 20 leading problems were? Did
you get asked in terms of the 10 areas that he listed that are
paperwork problems and so on? How did you participate in this
process?
Ms. Goldstein. Every quarter, District Taxpayer Advocates
are required to provide a report to our Regional Taxpayer
Advocates on the activities of our office for the quarter and
one of the requirements of the report in the Mid-States Region,
which is headquartered in Dallas, is they want us to list what
we believe are the top 10 problems that are causing burden for
taxpayers. Many of the items that I saw in the Taxpayer
Advocate's Report to Congress were, in fact, the same items I
had advanced in those quarterly narratives to our Regional
Problem Resolution Officer.
Mr. Portman. Is that the same with all of you here? So you
feel as though you are getting input into this annual process
through these quarterly reports?
Mr. Romito. Not directly to the Taxpayer Advocate, perhaps,
but through the regional staff.
Mr. George. Through our quarterly narrative.
Mr. Portman. But, Mr. Romito, you do not feel there is any
problem in getting that to the Advocate, even though you do not
report to the Advocate? You are getting those through?
Mr. Romito. No. None.
Mr. Portman. Of course, my second question is one that I
addressed to Mr. Monks earlier and I saw kind of a shaking of
heads and maybe some reaction. Some would say it would be self-
interest for you to say that there should be a different grade
for the District or Regional Taxpayer Advocate. Some would say
that maybe you should not address the problem because Mr. Monks
is here and other IRS senior people. But can you give me your
honest evaluation of this? Is this a problem? Let me just
restate it, if I might. The concern is, a guy like Mr. George
has issued two of the five ATAOs, as I understand it, is that
correct?
Mr. George. That is correct.
Mr. Portman. Here he is, a guy who has been with the
Service for a long time, maybe not 50 years yet but working his
way----
Mr. George. Not quite.
Mr. Portman. Not quite. He is working on it. Obviously, you
would like to progress. You would like your career to progress,
and you are at the point now, as I understand it, within the
Taxpayer Advocate ranks where you are at the highest level you
could be in, at least within the South Texas Area.
Mr. George. That is correct.
Mr. Portman. Unless maybe you came to Washington, DC. Yet,
you are working with these other functional heads who are of a
different rank and they are of a higher rank and that would be
maybe what you would aspire to if you were to proceed on your
career. Does it make sense to increase your rank so that your
rank is comparable to those that you deal with every day,
including those who you are going to with ATAOs?
Mr. George. I can only speak on behalf of my own opinion
here, is that I have not found my grade as a hindrance on
dealing with either the Branch Chief, the Division Chief, or
even the District Director. I believe the authority that has
been given to the Taxpayer Advocate in the Taxpayer Bill of
Rights and the Taxpayer Bill of Rights 2 sends a clear message
that we do have the authority to act on behalf of the taxpayer
when that issue may arise. I do not know if it has anything to
do with grade. The grade is a problem as far as a normal
progression within our career fields. I am, in fact, at the
highest grade that I can achieve right now.
Mr. Portman. As long as you stay as a Taxpayer Advocate.
Mr. George. That is correct.
Mr. Portman. So you would have to leap back into one of the
other areas and perhaps that would influence not you but
perhaps, objectively speaking, just knowing human nature as we
do, might influence someone's performance even as a Taxpayer
Advocate if that person knew that person had to then move to
one of the other functional areas.
Mr. George. Right, because my background is mainly with
collection and I have had some taxpayer service background. So
for me to go anywhere from my current position, I would go back
into collection.
Mr. Portman. Any other thoughts on that? We are running out
of time, unfortunately.
Ms. Williams. Since I am going to retire, they cannot fire
me. [Laughter.]
Mr. Portman. I am glad you are here.
Ms. Williams. I am the same grade now that I was 10 years
ago when I came in as the Problem Resolution Officer. In that
time, my responsibilities have tripled. You gave me the first
Taxpayer Bill of Rights. Now you have given me TBOR2. You have
given me life and death control over taxpayers' futures, as to
whether I release a levy or not, whether they are going to get
paid this week or next week. And yet, I am the same grade as
most branch chiefs.
I feel that, perhaps not all the PROs, and this is my own
personal opinion, but those that have toll-free cites, excuse
me, customer service sites now, and those that are service
center PROs deserve some recognition of the additional
responsibilities and the duties they have, and I know it is not
for me because it is too late, but there are a lot of them that
do deserve more recognition than they now receive.
Mr. Portman. In terms of the grade?
Ms. Williams. In terms of the grade.
Mr. Portman. And that would relate to whether they were at
a service center or whether they were at a regional level
rather than district level?
Ms. Williams. Well, not regional.
Mr. Portman. But at a customer service site?
Ms. Williams. Customer service sites are much larger, as
are the service center PROs.
Mr. Portman. Any other thoughts on that?
Ms. Goldstein. The only thing I would like to add is the
fact that for those of our districts that consolidated, we went
from one State to responsibility now in the Midwest District
for three States, so we are virtually taking over, if you want
to call it three Problem Resolution Programs and putting the
responsibility for the three onto my shoulders.
Now, of course, the other side would say as Division Chiefs
in the Midwest District who have now assumed three Collection
and three Examination Divisions, their grade has not increased
although the work has dramatically increased by placing the
headquarters office for the Midwest District in Milwaukee.
My greatest concern, really, is the fact that--and it is
not based on grade, whether we will have sufficient resources
so that we can continue the level of service in our associate
districts that we had in the past. That would be more of a
concern to me as far as servicing our customer than the grade
level.
Mr. Portman. You kept a Taxpayer Advocate in those
locations?
Ms. Goldstein. They are considered Associate Taxpayer
Advocates, yes.
Mr. Portman. Any other thoughts on that, and then I
relinquish my time.
[No response.]
Mr. Portman. Again, thank you all for being here.
Thank you, Madam Chair.
Chairman Johnson. Actually, I think Mr. Portman raises a
very good point. Part of the change from Ombudsman to advocacy
and part of the reason for this direct report is to try to
enable the agency from the frontline to talk more directly to
Congress and to have no way of advancing your career through
this, I think, extremely important function of the IRS and one
that has a certain accountability of the other division does
seem to me a problem and it is one we will think about. I
appreciate your comments.
Mr. Hulshof.
Mr. Hulshof. Thank you, Madam Chair.
Chairman Johnson. Excuse me. I am sorry.
Mr. Hulshof. Go ahead. I defer.
Chairman Johnson. We will go to Mrs. Thurman. I thought you
had left.
Mrs. Thurman. I did not leave.
Chairman Johnson. I am glad you did not.
Mrs. Thurman. Thank you, Madam Chairman.
Ms. Williams, in your statement that you submitted, you
talked about fiscal year 1996, you had done a project involving
collection PRP where you were looking at an average day of
resolution of issues from about 78 days and you dropped it to
30 days.
Ms. Williams. Yes.
Mrs. Thurman. That is pretty remarkable. Did you share that
with other offices, or when you are able to do something like
this and show that kind of result or an efficiency in
government, how does that get back to the other regional
offices and offices?
Ms. Williams. We share it with our Regional Problem
Resolution Office--excuse me, the Regional Taxpayer Advocate.
This was really an opportunity for us to look at what our
employees were doing and to utilize the computer system we have
got more effectively. It was also a change in management in the
area. There were a lot of things that contributed to the large
timeframe and then our reduction efforts. But it was a systems
review of all the work they did and how they controlled their
cases, how they did their follow ups to make certain they met
all their deadlines and timeframes.
Mrs. Thurman. So I guess the next thing I should ask the
other panelists is, did you hear about this program and this
project and, in fact, have you looked at a way of implementing
this to do something similar or did you not have a problem with
78 days?
Mr. George. We did not have a problem exactly with the 78
days. What we did do was look at that report. We had a problem
with timely response back to congressional offices, when a
constituent writes. We did an advocacy project to see what we
could do to reduce that timeframe. After we have gone through
the steps of analyzing the process, we determined that what was
delaying the movement of the letters was the many management
levels of approval up to the Director.
After about 6 months of reviewing the possibility of
reducing the number of approval levels, I presented the project
to the District Director and it was agreed that--congressional
inquiries fall into two different categories. They fall into
very highly sensitive issues and very easy to answer issues,
``Your refund will be sent out in a day or two.''
So we tested the feasibility of having the manager or the
caseworker sign the less complex congressionals and the other
ones go forward for the District Director signature. This has
reduced the cycle time immensely in getting back to the
congressional offices so that they can, in turn, get back to
their constituents.
Mr. Romito. Whatever perceived lack of communication there
may have been in the past, I think that is going to be
addressed through what we have just established in the way of
regional advocacy councils, where each of the four regions will
have teams of executives and field people meeting to discuss
what can be done to help the taxpayer and then when those
regional council representatives get together, they will share
what has surfaced in the other regions so that we will have
that across the board ability to be able to take the best
practices from one and apply it, as appropriate, to another.
Mrs. Thurman. Mr. Romano, did you wish to comment?
Mr. Romano. Quite frankly, we did not have a problem with
the 78 days.
Mrs. Thurman. OK.
Mr. Romano. We have not had a serious problem with the
cycle time for processing in our district. I think we have
been--I mean, we are always going in and looking at ways where
we can continually improve the systems that we are currently
using and when we do come up with a new way, we share that.
Lou mentioned before that they work cases online, on a
computer, in his district and we do the same in Connecticut-
Rhode Island and we found that that is going to be a process
that, hopefully, the whole country some day will be able to get
on where we can take a look at not only what is going on out
there as far as resolving taxpayers' problems but look at
individual cases to make sure that there is no duplication of
work and that kind of thing.
Mrs. Thurman. You called it the Advocacy Council?
Mr. Romito. Yes.
Mrs. Thurman. When was that started, and has that started
yet?
Mr. Romito. It has started. Every region has had their
teams assembled. The composition may vary from region to
region. I guess one of the basic spinoff points was that within
the Advocate's report, you may have noted that there were some
major topics that needed to be addressed and various topics,
various issues have been assigned to each of the councils that
they can work on.
Mrs. Thurman. I guess the other part of this is that many
of you have said that when you are asked to identify major
areas, Ms. Williams said that she probably would have sent up
the same one in different priorities. When you are asked to
identify that, are you asked to give suggestions as to ways to
resolve those problems or are you just supposed to identify
what the problem is and that is it, or do you get input into
ways----
I guess the issue here is, if there are several of these
problems out there and if there are things that each one of you
have been doing in your own offices that have maybe alleviated
that or cut down that as a problem, I mean, we hear across
every agency that there is always a lack of communication from
one place to another. We can identify problems, but can we fix
them and are you given that opportunity with input to fix them?
Ms. Goldstein. Generally speaking, when they solicit our
ideas for what the problems are, they will ask for recommended
solutions at the same time.
Mrs. Thurman. And do you do that?
Ms. Goldstein. Usually, if, in fact, I have a recommended
solution.
Mrs. Thurman. Do you see them implemented?
Ms. Goldstein. Not necessarily, but only because sitting in
a district, I am probably a little bit of a Pollyanna in that I
may go forward with a solution but, in fact, it may not be the
solution that can be implemented under the structure we now
have.
Mr. George. As a Taxpayer Advocate, I have participated on
several issues involving the trust fund recovery penalty,
formerly known as the 100-percent penalty. I am currently on
the lockbox task force because we are looking at that.
I think Lee has done an excellent job in involving the
functions in saying that we need to look at a process but we
also need to look at reducing taxpayer burden while we are
looking at that process. So it is because of our position and
the promotion of our program that we have representation on
most national and regional levels.
Mrs. Thurman. And I think that is probably true. My concern
mostly, though, is representation is not enough. It is once
that you give a suggestion that you have tested in your own
field office, based on the issues that you know to be your
biggest problem, where does it go after that? That is the
issue. I think that is what we are all trying to get to. And
then, does that get done? We would like to think that the
people on the frontline are the ones with most of the answers,
quite frankly.
Mr. George. With the trust fund recovery penalty
initiative, yes, there were recommendations that were made to
the Executive Committee and they were implemented. With the
lockbox, we are currently studying that and a report is going
to go to the Commissioner and to the Deputy Commissioner on
what our findings are. So to answer your questions, yes, I have
seen our recommendations implemented and move forward.
Mrs. Thurman. Madam Chairman, may I just ask one more
question?
Chairman Johnson. Yes.
Mrs. Thurman. Do any of you feel that you cannot talk to
your representatives about issues that might be affecting how
we do business better?
Mr. Romito. No. We have excellent relations with the
representatives.
Mrs. Thurman. We just hear sometimes, not necessarily from
you all, I am not pointing fingers, but sometimes we are told
they cannot come tell us what is going on out there, so I just
wanted to make sure that I can pick up the phone and call any
one of you and you can tell me what is going on. Thank you.
Chairman Johnson. Thank you very much for your
participation today. I think that----
Mr. Hulshof. One more.
Chairman Johnson. Excuse me.
Mr. Hulshof. That is OK, Madam Chair.
Chairman Johnson. I am sorry. Mr. Hulshof.
Mr. Hulshof. Thank you very much.
Thanks for your participation, to follow up on Madam
Chair's comment. I appreciate you being here. Ms. Goldstein, I
happen to represent the hard working overburdened taxpayers in
Missouri's Ninth District, which is in the Midwest Region, so I
want to direct some comments to you or questions to you, but
please, the rest of you, feel free to chime in.
Your last answer, Ms. Goldstein, about great ideas or
innovative ideas that you come up with, but I detected that the
rules are somewhat inflexible or that you lack some flexibility
due to the structure that is in place. Is that fair?
Ms. Goldstein. No. Actually, in the past, I think most of
the field PROs would agree that when we would submit a problem
with a recommended solution to that problem through our
channels, it fell into a black hole. We very rarely would even
get a response back as to whether or not they recognized and
acknowledged the problem and whether or not they believed that
the solution was good enough to implement.
Since the inception of the Advocacy Councils, I believe
that is a much more structured way I can get my voice heard up
to the Taxpayer Advocate through the region, and I do not feel
in any way that the Regional Taxpayer Advocate filters any of
that information through her office before it gets forwarded on
to the Taxpayer Advocate.
As Mr. Romito had mentioned, many of the issues that we
raise as field advocates are the real nitty-gritty, can you fix
this line on this tax return? They are not the large global
issues that we probably are dealing with here in the
congressional hearing.
So yes, I would have to probably recant what I said earlier
and say, yes, those types of issues that I have elevated for
example, if a certain segment of the population is not
receiving their refund checks and, there seems to be a problem,
I get very quick response and they generally will implement a
solution to fix that problem. It is usually the larger issues,
the situations with how do we increase access to toll free
under the limitations we now operate that I do not see
implemented, but also, I know the difficulty in getting that
done.
Mr. Hulshof. Earlier, during Mr. Monks' testimony, I think
we discussed briefly a celebrated case recently that went all
the way to the United States Supreme Court and there was some
discussion about legislative changes as opposed to perhaps
administrative changes.
Again, Ms. Goldstein, I will throw this question to you but
would invite other response. Do you believe that most problems
that you deal with on a day-to-day basis can be dealt with on
the legislative side or the administrative side? Ms. Goldstein.
Ms. Goldstein. It is probably a two-edged sword. I have to
remember in my role as a Taxpayer Advocate that I am also the
advocate for the millions of taxpayers out there who do not
bring a problem to my attention, the people who file their
return timely, and pay their tax timely. When I consider the
type of situation that the Chair had mentioned in regard to
that Supreme Court decision, I have to also think about, what
will the impact of a decision or a legislative change have on
all those taxpayers who are complying and filing on time?
I think we have to look at the fairness for all of those
people. The example you gave of that case, how would the
general public feel if we gave certain situations the allowance
to extend the statutory period for filing a claim when, in
fact, they might feel, I file my return timely. Why can't this
other person do the same?
So I think whatever legislation, whether it is
legislatively mandated or administratively mandated, I believe
it is important we look at that silent majority out there who
are complying with the tax law and do not bring the problems to
our attention.
Mr. Hulshof. Does anyone else want to comment on that
question or Ms. Goldstein's response? Mr. Romito.
Mr. Romito. Yes. I think that just a quick note. In both
TBOR1 and TBOR2, many of the provisions that were codified by
that legislation were already in place administratively. So the
answer to your question is, depending on the situation and the
issue, a lot of it can be handled administratively.
Mr. Hulshof. I see my time is quickly expiring. Let me move
to this last area that I am really interested in. Some of you
touched on VITA, as you call it, the volunteer help, taxpayer
assistance. In the Midwest, Ms. Goldstein, I wanted to give you
a chance, what are you seeing as far as community-sponsored
ways or employer-sponsored ways to help people as far as
electronic filing is concerned, because I think this is
something that is worthwhile. Could you share with me on that?
Ms. Goldstein. I feel we get a lot of support from the
community, not only through VITA, the Volunteer Income Tax
Assistance sites, but through another community-based help
system which is called Tax Counseling for the Elderly, TCE,
which is generally staffed by people who are members of AARP.
They are there also to assist older Americans in filing their
return and understanding the tax law. We also do partner with
many employers, asking them to take on electronic filing as a
benefit for their employees.
I personally feel we have a very strong relationship with
our community. Our taxpayer education coordinator does a
wonderful job signing up these companies to support us in
getting the taxpayers' returns timely filed.
Mr. Hulshof. Thank you all.
Chairman Johnson. Thanks, and let me say that there will be
3 days for Members to insert matters in the record, if they
care to.
On this last point about the telephone service, in general,
do you have a message on the machine that tells about these
other settings in which they could get advice? Do you use the
SBA's corps of volunteers who offer their services for free to
small businesses to help them get up and running? I mean, why
only the AARP?
There are a lot of avenues of reaching very capable
retirees who would be very good at helping, giving advice, and
the senior volunteer corps, I guess it is called, at SBA would
be sort of a natural that is already a known list to you in
each district. But certainly, some kind of notice to all the
senior citizen centers, if they have people who are interested
in running a training session seems to me a way to spread that
capability.
Let me just say in closing that it is, and I have noticed
this over the 2 years that I have chaired this Subcommittee it
is unfortunate that the public does not know the many positive
things that the IRS does, not only in your division but in many
divisions and many of the real reforms that you have adopted to
speed processing, to make it more accurate, and to help people
deal with the IRS.
But it is also true that we really do have a job to do and
one of the things that we need you to think about as we develop
this process of more direct communication between you and the
Ways and Means Committee is we need you to think about
solutions. If a tax law is really complicated, we need to have
that noted down, what area in as much information as you can
give us. If you have suggestions about deleting portions and
what you think would be the fairness, because, see, sometimes
your comments would be couched in, this would be a great
solution. It may mean that you will have to change this other
thing over here because it will be unfair.
So it is very important, I think, for you all to focus as
much on solutions and legislative solutions as you do on
problem identification, because we have, particularly over the
last decade when we did not want to raise taxes, we have made
an absolute art of raising taxes in ways that nobody can see,
but they have the same effect. The handmaiden of that approach
to revenue is complexity. It is not just fairness and social
justice. Some of this complexity is motivated by subterfuge,
and it is infuriating, but that does happen, you know it and I
know it, and we have to take more responsibility for it.
One of the reasons we wanted you to be part of this
exchange, and you will be every year, is so that you can hold
us accountable. Do not worry about us being insulted. Relative
to what you could say to us, we hear much worse every time we
are home, and if you do not believe it is to our advantage as
much as to your advantage to do something about the complexity
of the Code, forget it.
The other thing that you might think of, and I say this to
Mr. Monks, too, is that maybe 20 is too long a list. Maybe we
should be really asking you for 10 and the 10 projects that you
are going to work on that are going to be part of what you are
going to do the next year.
So do not hesitate to identify both strengths and
weaknesses of this new process we are developing because I
really think it has the potential to be a very important driver
of the Subcommittee's work and we have never, ever had solid
input from the agency as to how to change the tax laws. They
tell us about what the administrative problems are. We talk
about budget. We talk about what they think about what we think
we might do. I mean, there is some level of exchange but we do
not have any carte blanche way, no open door where you can say
to us, these are the problems the taxpayer faces and this is
the reason and this might be the answer and you have to look at
this chunk of the law that you have got out there.
So I really invite you to think creatively in the future.
We would like to come back to you with things that we are going
to follow up on from the testimony that look to us like they
are sort of doable in the near term because we want not only to
keep this ball rolling from the point of view of the responsive
relationship we would like to develop but also from the
responsive relationship we would like to develop with the
Committee so that they get accustomed to each year the
Oversight Subcommittee coming forward with changes that are in
everybody's interest.
This is not about we/they in the end so much as it is about
all of us, and if a country does not have an enforceable and
fair Tax Code, it cannot collect the revenue. One of the sort
of ironies and terrible tragedies in Russia is that the revenue
is not coming forward because it was never structured to come
forward in a fair way and so they do not have a Tax Code in our
sense of the word and nobody feels any obligation to pay
anything for anyone, much less for the public good. We are the
freest society with an excellent record of compliance and we
need to protect that by addressing the problems as they
develop.
I thank you for your input to this Subcommittee and I look
forward to working with you. You will be hearing from our
staff. Thank you. The Subcommittee is adjourned.
[Whereupon, at 4:12 p.m., the hearing was adjourned.]
[A submission for the record follows:]
Statement of Amercian Institute of Certified Public Accountants Working
Group, Mark H. Ely, Alvin M. Feit, Linda Martin, William F. Marutzky
I. Introduction
These comments on the Taxpayer Advocate's first Annual
Report to Congress are being submitted in response to an
invitation the American Institute of Certified Public
Accountants (``AICPA'') received from the House Subcommittee on
Oversight. The AICPA appreciates the request for comments and
welcomes the opportunity to work with the Subcommittee and the
Taxpayer Advocate in addressing the concerns noted herein.
The AICPA is the national, professional organization of
certified public accountants comprised of 331,000 members. Our
members advise clients on Federal, state, and international tax
matters and prepare income and other tax returns for millions
of Americans. They provide services to individuals, not-for-
profit organizations, small and medium-size businesses, as well
as America's largest businesses. It is from this base of
experience that we offer our comments.
The Taxpayer Advocate is in the unique position of being
inside the Internal Revenue Service, yet having the specific
charge of scrutinizing the Service's activities and
recommending changes that will improve taxpayer services and
the IRS's responsiveness to taxpayers. We understand that
because the Taxpayer Bill of Rights 2 (``TBOR2'') was enacted
near the end of the year, the Taxpayer Advocate had little time
to gather material for the first report. The Taxpayer
Advocate's Report did identify many areas for improvement of
the IRS; however, the tenor and tone of the Report is that of a
self-evaluation by the Service. Given his role, the Taxpayer
Advocate should be a more zealous advocate of taxpayers, rather
than speak for the Service.
In section 101 of TBOR2, Congress directed the Taxpayer
Advocate to provide the annual report and expressly stated that
the report is not to be subject to prior review by the
Commissioner of Internal Revenue, the Secretary of the
Treasury, or any other officer or employee of Treasury or the
Office of Management and Budget. The legislative history of
that provision notes that ``[t]he objective is for Congress to
receive an unfiltered and candid report of the problems
taxpayers are experiencing and what can be done to address
them.'' Joint Committee on Taxation 104th Cong., 2d Sess.,
General Explanation of Tax Legislation Enacted in the 104th
Congress 21 (1996).
Congress clearly expressed its desire for frankness in the
report of the Taxpayer Advocate. The Taxpayer Advocate should
take a more assertive role on behalf of taxpayers when
addressing the Service's shortcomings. We hope that future
reports of the Taxpayer Advocate will take a more critical view
of the Service from the perspective of taxpayers, thereby
offering members of Congress the candor they sought.
With the Problem Resolution Program celebrating its
twentieth anniversary this year, it is an appropriate time to
highlight the unique role the Taxpayer Advocate and the Problem
Resolution Program play within the tax administration system
that of representing the interests of the American taxpayers,
serving as the advocate of the taxpayers, not the advocate of
the Service. In that role it is the Taxpayer Advocate's
responsibility to ensure that the IRS abides by the fundamental
principles of tax administration established for it, as set
forth in Rev. Proc. 64-22, 1964-1 C.B. 689. (See Exhibit 1.)
Rev. Proc. 64-22 states, in part:
--The function of the Internal Revenue Service is to
administer the Internal Revenue Code. Tax policy for raising
revenue is determined by Congress.
--With this in mind, it is the duty of the Service to carry
out that policy by correctly applying the laws enacted by
Congress; to determine the reasonable meaning of various code
provisions in light of the Congressional purpose in enacting
them; and to perform this work in a fair and impartial manner,
with neither a government nor a taxpayer point of view.
--At the heart of administration is interpretation of the
Code. It is the responsibility of each person in the Service,
charged with the duty of interpreting the law, to try to find
the true meaning of the statutory provision and not to adopt a
strained construction in the belief that he is ``protecting the
revenue.'' The revenue is properly protected only when we
ascertain and apply the true meaning of the statute.
Keeping the unique role of the Taxpayer Advocate in mind,
we offer the following input for consideration.
II. Problem Areas for Taxpayers
The following are areas that we believe the Taxpayer Advocate and
his staff should review and consider advocating needed changes and/or
corrective actions.
Interest Netting
Currently, there is a differential between the interest rate a
taxpayer pays on a deficiency and the interest rate the government pays
to a taxpayer on an overpayment; the differential rate can vary from 1
percent to 4.5 percent. Situations often arise when a taxpayer is
indebted to the government at the same time that the government is
indebted to the taxpayer. Absent netting, a taxpayer who owes the
government the same amount that the government owes the taxpayer would
incur an interest obligation in favor of the government.
The Service's current policy with respect to interest netting is
fundamentally unfair, both because of the manner in which the Service
makes interest netting calculations and also because of the Service's
inconsistent application of netting principles, resulting in similarly
situated taxpayers receiving disparate treatment.
Interest provisions in the Code are intended to compensate the
government or the taxpayer for the use of the money. (Rev. Proc. 60-17,
1960-2 C.B. 942.) Interest applies only if there is an amount that is
both due and unpaid. (See, e.g., IRC Sec. 6601(a) and Avon Products,
Inc. v. United States, 78-2 U.S.T.C. (CCH) 9821 (2d Cir. 1978).) To the
extent there is a ``mutuality of indebtedness'' between the taxpayer
and the government (i.e., to the extent the government and the taxpayer
owe each other the same amount of money over the same period of time),
there is no unpaid balance and, therefore, no amount on which interest
should accrue.
The Service's current policy (See Treas. Reg. Sec. 301.6402-1.) of
only netting outstanding overpayments against outstanding liabilities
for both computational and collection purposes is unfair to taxpayers
that promptly pay contested amounts of tax and, therefore, have no
``outstanding'' liabilities. This is illustrated by the recent case of
Northern States Power, in which the company's prompt payment of alleged
deficiencies cost it $460,000 more in interest than it would have had
to pay if it had delayed in making the payment. (See Northern States
Power Co. v. United States, 73 F3d 764 (8th Cir. 1996), cert denied 117
S. Ct. 168.)
Finally, and of significant import, despite the Service's stated
policies toward interest netting (i.e., that netting can legally occur
when both deficiencies and overpayments are outstanding and unpaid;
see, e.g., Notice 96-18), netting continues to be performed on an ad
hoc basis. A revenue agent's decision to deny a taxpayer netting is
supported and justified by language in the Eighth Circuit's opinion in
Northern States Power, which states that such netting is discretionary.
However, the Service's discretionary application of the law without any
formal or enforced guidelines, policies or procedures is inherently
unfair to taxpayers. The virtual absence of any clear legal standards
for interest netting also is unacceptable from a systemic standpoint,
because it affords the IRS unfettered power to convert a taxpayer from
a creditor to a debtor, with the size of a potential interest debt
quickly becoming astronomical.
Further, viewing comprehensive netting as entirely within the
discretion of the Service interjects serious fairness concerns into the
settlement process. The Service has used the netting issue as a
bargaining chip in negotiations to extract concessions from taxpayers
on issues under examination. This inappropriately distances
negotiations from the merits of the underlying issues. It also has the
inappropriate effect of using netting (or the absence of netting) as a
tool to raise revenue, rather than as a means to compensate for the use
of money.
The Service counters taxpayer comments regarding unfairness with
claims that netting in all situations is not administratively feasible.
While comprehensive interest netting raises concerns of administrative
feasibility, more progress must be made in balancing these concerns
against concerns of taxpayer fairness. The Taxpayer Advocate notes in
his report that he has ``a responsibility to address continuing
systemic problems.'' Interest netting is one such problem.
For these reasons, we recommend that the Taxpayer Advocate work to
ensure that guidance be issued to implement comprehensive netting in
all situations in which the IRS currently has the administrative
capability to do so. In all other situations, as an interim measure,
guidance should be issued providing that the Service will net
comprehensively at the request of the taxpayer, provided the taxpayer
furnishes the Service with relevant information and interest
computations. By ``comprehensive netting'' we mean netting for all
interest accruing after December 31, 1986 for all types of taxes and
all years (open or closed) to the extent necessary to compute interest
accurately for a refund or an assessment in an open year. This interim
recommendation is similar to the elective approach recently recommended
by the House Ways and Means Subcommittee on Oversight, as well as the
approach of a draft revenue procedure submitted by the Compliance
Subgroup of the Commissioner's Advisory Group at its January 1995
meeting.
We also recommend that guidance in this area be issued in the form
of proposed regulations, so that all interested persons will have an
opportunity to comment on the technical details. As stated by House
Committee on Ways and Means Chair Bill Archer in his letter to Treasury
Secretary Rubin dated September 26, 1996: ``In my view, Congress has
given Treasury and the IRS both a clear mandate and clear authority to
implement comprehensive procedures to net underpayments and
overpayments before applying differential interest rates.'' Chairman
Archer concluded that ``[i]nterest netting is an [sic] problem that
Congress has long expected would be resolved administratively and I
certainly hope that Treasury will reexamine its position on this
issue.'' This would be an appropriate area for the Taxpayer Advocate to
work to see that the interests of taxpayers are protected. If it is
determined that the Service is legally prohibited from netting in
certain circumstances, the Taxpayer Advocate should recommend a
legislative remedy.
Consistency When Implementing IRS Policies
Often, the Service will institute policies designed to assist
taxpayers or clarify the application of particular Code sections.
However, when the Service institutes policies that impact taxpayers it
can be unfair when those policies are applied only to some taxpayers.
At times policies are designed to apply only to particular taxpayers,
and those instances are not at issue. But, when a benefit is intended
to apply to a taxpayer, and through ignorance or capriciousness, an
agent fails to give the taxpayer the benefit of those policies, it is
to the detriment of both the taxpayer and tax administration. One such
example is cited above, in reference to interest netting. However,
other examples exist.
On June 3, 1996, Assistant Commissioner (Examination) issued a
memorandum to all regional compliance officers regarding overly broad
Information Document Requests (``IDRs''). The memorandum was, in part,
in response to complaints from taxpayers and practitioners about
revenue agents initiating an examination and immediately requesting an
array of documents, many of which prove to be irrelevant to the
examination. The well-reasoned memorandum of the Assistant Commissioner
(Examination) set forth a standard for issuing document requests: an
IDR should be issued for specifically identified issues or specifically
identified reasons. The memorandum made it clear that ``kitchen sink''
or ``boxcar'' IDRs are inappropriate.
The experience of many tax practitioners is that the guidance
issued by National Office is sometimes disregarded and, in this
instance, many agents are unaware of the memorandum. As a result,
taxpayers continue to receive these overly broad, burdensome document
requests. From the standpoint of a taxpayer representative, it is
imprudent to bypass the revenue agent; taxpayers often must comply with
these IDRs, which can be time-consuming and costly. As a general
principle, the Service must strive to communicate its policies more
uniformly throughout the organization. Policies should be meaningful,
and there should be consequences when an agent or appeals officer
disregards a policy set forth by the National Office.
This problem is partially a result of the fact that more and more
National Office directives to field offices are issued by memorandum
rather than through the Internal Revenue Manual (``IRM'). This practice
causes problems when a policy set forth in a memorandum is never made
official and permanent by incorporation into the IRM and is eventually
forgotten or overlooked and is often unknown by those outside the IRS.
The Taxpayer Advocate should review this practice and work to assure
that policies are made a permanent part of the IRM and are applied
consistently and uniformly.
Method of Evaluating Revenue Agents
The IRS Mission Statement states ``[t]he purpose of the Internal
Revenue Service is to collect the proper amount of tax revenue....'' It
is noteworthy that the IRS's mission is to collect the proper amount of
tax, as opposed to maximizing revenue or protecting the Treasury.
However, the Service's methods of evaluating its personnel focus on the
latter, maximizing revenue and protecting the Treasury. Examination's
Program Letter for Fiscal Year 1997 includes the following Examination
measures:
Total Recommendations: Proposed additional tax and
penalties.
Total Recommendations per FTE: Total recommendations
divided by the total full-time equivalents.
Total Revenue Protected: Total dollars protected as a
result of disallowing claims for refund.
As these measures indicate, the Examination Division's performance
is evaluated solely based upon factors other than determinations as to
the proper amount of tax. The conflict between performance measurement
and correct determinations can result in overly aggressive positions or
determinations by revenue agents. (It should be noted that revenue
agents are also evaluated based upon Recommendations per FTE.) To
ensure a fair application of the tax laws, the Taxpayer Advocate should
encourage the Service to abandon the practice of evaluating performance
based solely upon factors that may conflict with the IRS Mission
Statement and instead develop evaluation measures based on making
proper determinations of tax.
IRS ``Test'' Programs
In an effort to enhance taxpayer service, the IRS has implemented
several test programs or other programs that are limited to select
groups of taxpayers. It is the intent of the Service that to the extent
a test program proves to be effective, it will be expanded to other
groups of taxpayers. Unfortunately, expanding the scope of taxpayers
who may avail themselves of some of these programs often takes years,
if it in fact ever occurs. Some of these programs are naturally suited
to be expanded into other areas.
For example, in Fiscal Year 1996, the Service began a one-year test
of mediation with certain types of cases in the Coordinated Examination
Program. The Service has now announced that the ``test'' will continue
for another year. To the extent that mediation has been used, it has
been an unmitigated success. Furthermore, there are other taxpayers and
subject matters that would be particularly well suited to mediation--
such as valuation cases--that could benefit from the expansion of the
mediation program rather than continuation as a ``test''. Other
programs that could be evaluated for expedited expansion include
accelerated issue resolution, early referral, and the delegation of
more settlement authority to the Examination Division. The Taxpayer
Advocate should encourage the Service to expand these programs to
taxpayers in general, or to other focused groups of taxpayers who would
use these programs to everyone's benefit.
Timely Case Resolution
Currently, there is no incentive for the IRS to complete an
examination within the statutory period (without regard to extension).
Furthermore, taxpayers faced with the prospect of a notice of
deficiency are, in essence, forced to grant extensions of the
limitations period as a matter of course. This practice defeats the
general purpose of a limitations period: finality.
Too frequently the Service initiates an examination of a taxpayer's
return when there is insufficient time remaining within the statue of
limitations (without regard to extensions) to complete the examination
and make a correct determination of the taxpayer's liability. In such a
case, the IRS must either seek a consent to extend the statute of
limitations or issue a statutory notice of deficiency. Ultimately, the
choice falls upon the taxpayer; if the taxpayer extends the assessment
period, a more accurate determination can be made; if the taxpayer
fails to extend the assessment period, a notice of deficiency may be
issued. In such a case, the notice of deficiency may be speculative or
arbitrary, because the IRS failed to complete a thorough examination of
the taxpayer's books and records.
In response to a notice of deficiency, a taxpayer has two options:
file a petition for redetermination with the United States Tax Court or
pay the deficiency. Either alternative can result in substantial
expense to the taxpayer. Furthermore, a notice of deficiency receives a
presumption of correctness before the Tax Court. As a result of the
consequences of the issuance of a notice of deficiency taxpayers
generally are forced to agree to an extension of the limitations
period.
In complicated audits, such as those involving large corporate
returns, it may not be feasible for the IRS to complete an examination
within the statutory period. Accordingly, in such cases, it may be
reasonable for the government to request a consent to extend the
statute. However, in audits of individual taxpayers, the government
should complete its examination in the time prescribed by statute,
without the need for extensions. The Taxpayer Advocate should review
the practices of Examination and advocate changes, as needed, to assure
more timely case resolution.
Penalty Abatements
The IRS assesses numerous penalties in response to which taxpayers
spend a great deal of time documenting reasonable cause for having the
penalties abated. The process is both time consuming and expensive.
However, on both reasonable cause and IRS errors, the IRS abates as
much as 50 percent of some types of penalties it proposes.
Unfortunately, taxpayers without representation are often unaware of
the opportunities for abatement. It may be possible to achieve a more
cost-effective outcome by establishing criteria for reducing
assessments that are likely to be abated.
To reduce the burden on both the IRS and taxpayers, we recommend
that the Taxpayer Advocate review the penalty assessment and abatement
practices of the Service and advocate improvements to the system. One
suggestion is for the IRS to establish safe harbor provisions for a
variety of penalties which would automatically be deemed to be
reasonable cause for abatement. This could be confined to late filing,
late deposit and certain information return related penalties. The
object would be to concentrate on those penalties that are regularly
assessed and abated. Safe harbor provisions could take the form of:
No penalty assessments for an initial occurrence; however,
the taxpayer would receive a notice that a reoccurrence will result in
a penalty;
Automatic non-assertion based on a record of a certain
number of periods of compliance; or
Voluntary attendance at some type of educational seminar
on the issue in question, as the basis for non-assertion or abatement.
Use of this approach would encourage and create a vested interest
in compliance, since a good history of compliance could automatically
result in relief. Additionally, the likelihood of future abatements
would diminish if the taxpayer has a history of non-compliance.
Furthermore, a system of automatic abatements would reduce the time
spent by the IRS and taxpayers on proposing assessments, initiating and
handling correspondence, and subsequently abating a high percentage of
penalties. The ability to abate a penalty for a reasonable cause other
than those used for automatic abatements would exist; however,
reasonable cause abatements requiring independent evaluation may be
reduced.
Offers in Compromise
The Taxpayer Advocate's Report discusses the Service's inability to
respond timely to the increased number of offers in compromise that
have resulted from the 1992 change the Service policy. Prior to 1992,
many districts had low acceptance rates for offers and there was a wide
disparity of acceptance rates between districts. In 1992, the Service
liberalized the rules for accepting offers, which resulted in a
substantial increase in the number of offers being filed with the
Service. Although the Service had a policy of making a decision on an
offer within six months, a substantial number of offers were not
completed within this time frame, some of which were due to a delay in
district counsel's review of the recommendation to accept the offer.
The Taxpayer Advocate's Report states that the problem may be
alleviated on a high volume of cases because TBOR2 provides that
counsel only has to approve offers when the liability exceeds $50,000.
However, over the last four years, more significant problems with
the program have developed other than timely response. These problems,
discussed below, should be addressed by the Taxpayer Advocate.
1. Non-Processibility of Offers
In 1995, standards were developed in an attempt to eliminate the
disparity of expenses allowed by the various district offices as well
as between offices in the same district. Although the standards were
developed to create uniformity among the various district offices, we
believe that the standards have been used to return offers to taxpayers
before accepting them for processing, in order to decrease the time
cases are in inventory. We are concerned with the substantial increase
in the number of offers that are being rejected as non-processable or
insufficient in amount and, therefore, not being taken into inventory.
In regard to non-processability, offers are being rejected and returned
to the taxpayer or the representative because of minor errors in
completing the forms. In many of these cases, a telephone call by the
revenue officer could have led to corrections allowing the case to be
taken into inventory in a matter of days.
In other cases, offers have been rejected for insufficiency in the
amount offered. The Service's rejections are due to a number of factors
including:
a. The lack of uniform standards among offices. This includes the
lack of a uniform ``available income'' discount rate to arrive at
present value and the lack of a uniform discount rate to arrive at
quick sale value per the Internal Revenue Manual.
b. Not allowing the use of expenses in excess of the national and
local standards although there was justification for the excess. One
example is excess housing costs. In some cases, it would be more
beneficial to allow the excess than to have the taxpayer sell the
residence, incur capital gains tax and increased commuting expenses and
then be forced to pay nondeductible rent which increases the overall
tax liability.
c. Disagreeing with reasonable values placed on assets by the
taxpayer.
2. Revenue Officer Discretion
We believe revenue officers should be allowed to use the discretion
contained in the Manual to allow variances from national and local
standards when circumstances justify the variance. The standards should
generally be followed but exceptions should be allowed if documented by
the taxpayer. In many cases, justifiable exceptions are not being
allowed.
3. Updating Standards
The standards should be updated and adjusted for inflation
annually, based on the most current statistics available. We also
recommend that the Service adjust the standards by moving the cost of
food from a national standard to a local standard and by localizing the
cost of housing by zip code rather than by county to allow for
variances within a within a state. Further, the Service should adjust
the housing standard to account for the taxpayer's income and the size
of the family as it does for the national standards.
4. District Counsel Review
Offers that have been recommended for acceptance by revenue
officers and appeals officers have been rejected by district counsel on
grounds other than for legal sufficiency. We have heard offers have
been rejected by counsel because counsel did not agree with the
valuation placed on certain assets, concluded that the taxpayer should
pay more with no support for this conclusion, or concluded that the
assets might appreciate in the future. We do not believe this should be
the role of district counsel in the offer process nor do we find
support in the regulations for this role. The district counsel
attorneys are not specifically trained in valuation, discounts for
quick sale value or present value, or uncollectibility matters. The
issue of collectibility should be left to collection and appeals
personnel and counsel should opine only on the legal issues. If
necessary, this may entail a clarification of the roles of each.
We believe the Taxpayer Advocate should undertake a study of the
offer program to determine the reason for the acceptance rates
declining, the increase in non-processable offers, the amount for tax
dollars collected on rejected offers, and other problems discussed
herein. Statistics from each district office should be analyzed to
determine trends and the reasons for them and should be shared with
interested stakeholders. We also recommend that the Taxpayer Advocate
study the uniformity problems and fairness issues and make
recommendations to the Service and/or Congress for changes to the offer
program. We believe that the offer process is a viable tool for the
Service to collect delinquent taxes and allow taxpayers a ``fresh
start''.
Employee-Independent Contractor Issues
The seemingly simple question of whether a worker is an employee or
an independent contractor continues to confound both individual and
business taxpayers. Currently, the classification of a worker is based
upon the ``twenty common-law factors,'' which generally means that
there is no single defining set of rules to determine a particular
worker's status. As a result, businesses must make their ``best guess''
based upon the variety of authorities that exist, with costly
consequences if the worker is misclassified.
An employer that has misclassified its workers may be liable for
several years of withholding taxes that were not paid over on behalf of
the worker, such as Federal income tax withholding and social security
taxes. Furthermore, the employer's qualified retirement plans may be at
risk for failure to include a worker who should have been deemed an
eligible employee. For the worker, several consequences exist, as well.
If an independent contractor, the worker may be ineligible for numerous
benefits offered by the business; however, the worker is entitled to
deduct business expenses from revenues without limitation. A worker who
is reclassified as an employee can lose the ability to deduct some or
all business expenses.
Guidance by the Service on the issue of worker classification has
historically been one-sided in favor of classification as an employee.
Statistics indicate that over 90% of Forms SS-8 that are evaluated by
the Service in order to make a determination as to worker
classification result in classification as an employee. Rather than
address each employment situation objectively, the Service seems to
presume that a worker is an employee, unless independent contractor
status can be proven. The Service needs to recognize that independent
contractor relationships are a legitimate form of business and do not
exist solely for the purpose of avoiding taxation. Each work
relationship should be evaluated on its merits, without preconceived
notions as to a worker's status.
To solve the problems that arise in the area of worker
classification, the Taxpayer Advocate should work with Congress to
establish a set of clear rules through which both employers and workers
can readily define the workers' true status. Clear rules in this
important area would increase certainty in the application and
administration of the tax laws.
Entering the Electronic Age
The IRS has made progress in moving the organization toward the
electronic age. One such example is the recent finalization of
regulations that would permit the Commissioner to specify methods other
than by mechanical signature to verify the accuracy of return
information. In furthering its goal of paperless filing, the IRS held
an ELF (Electronic Filing) Summit with taxpayers and practitioners
during Fiscal Year 1996. At the meetings, the IRS was able to learn of
the obstacles that prevent taxpayers and practitioners from increasing
their usage of various means of electronic filing. The meetings seemed
to be very educational for both the IRS and the taxpayer/practitioner
community.
The IRS should continue to meet with taxpayers and tax
practitioners regarding the myriad of issues that arise in the
electronic age; the Taxpayer Advocate should gather information about
those issues and communicate them within the Service to ensure that
taxpayers' concerns (and potential concerns) are addressed by the
Service in its development of the Electronic Tax Administration system.
The technological abilities of taxpayers varies as widely as their
income levels (and not necessarily correspondingly), yet the Service
attempts to establish rigid policies that are intended to govern all
taxpayers. Furthermore, the Service, through some of its guidance,
seems to be attempting to give added focus to safeguards, to the
detriment of computerization.
One example is the Service's draft revenue procedure regarding the
electronic imaging of documents. One of the provisions in the draft
revenue procedure stated: ``For example, the imaging system and the
taxpayer's books and records must be cross-referenced, so that all
imaged documents that support an entry in the taxpayer's books and
records can be automatically identified and retrieved for viewing or
printing.'' However, if a taxpayer has original books and records,
there is no requirement of a specific method of cross-reference.
The Service seems to be attempting to use the availability of
electronic systems to place unwarranted additional burdens on
taxpayers. The cliche image of the taxpayer with a shoebox full of
receipts may be amusing, but if those receipts substantiate the items
on the return, that shoebox is an acceptable method of record
retention. The Taxpayer Advocate should take an active role in guiding
the Service into the electronic age as it has evolved, rather than
attempting to mold the electronic age around the IRS's goals.
III. Taxpayer Advocate's Legislative Proposals
We would also like to comment on the legislative
recommendations endorsed by the Taxpayer Advocate for further
study and consideration. The first deals with a proposal to
simplify the computation and assessment of the estimated tax
penalty for individuals. We agree that the current statutory
rules are complex for taxpayers and difficult for IRS to
administer and we recommend that the Taxpayer Advocate work
with the Congress to develop appropriate legislative remedies.
We also support reviews of the proposed exception to the
statute of limitations on refunds so that untimely requests for
overpayments may be credited to liabilities in other years, and
of the proposed elimination of the failure to pay penalty on
deficiency underpayments. We recommend that the Taxpayer
Advocate work with the Congress on these proposals.
IV. Recommendations for Future Reports and Activities of the Taxpayer
Advocate
TBOR2 requires that the annual report cover the activities
of the Taxpayer Advocate for the prior fiscal year. It
specifically requires that the report identify initiatives the
Taxpayer Advocate has undertaken to improve taxpayer services
and IRS responsiveness. In our view, the Taxpayer Advocate's
Annual Report to Congress should serve as a report card on how
well the IRS is doing in improving its service to and treatment
of taxpayers. We recommend that future reports of the Taxpayer
Advocate take a more critical view of the Service's operations
and treatment of taxpayers, not only from the standpoint of
individual cases, but from a systemic viewpoint. The role of
the Taxpayer Advocate is to serve as an objective observer of
IRS operations, to advocate on behalf of taxpayers and to
candidly report to Congress on those operations. We encourage
the Taxpayer Advocate to provide a frank review of the
Service's performance.
Comparative Evaluation Standards
We recommend that the Taxpayer Advocate consider using the
IRS Policy Statements that deal with the treatment of taxpayers
as a yardstick against which the behavior of Service employees
can be measured. It is recommended that the Taxpayer Advocate
adopt a standardized comparative report format to detail the
IRS's performance in meeting its own enumerated policies. A
comparative report format could detail performance by
functional areas of the agency and, over a period of time,
serve to illustrate changes in those functional areas.
We also recommend that the Taxpayer Advocate develop
measurement standards, in addition to the IRS policies, to be
used for comparative evaluations. In preparing those
measurement standards, the following principles of tax
administration, set forth in Rev. Proc. 64-22, should be
considered.
The Service also has the responsibility of applying and
administering the law in a reasonable, practical manner. Issues
should only be raised by examining officers when they have
merit, never arbitrarily or for trading purposes. At the same
time, the examining officer should never hesitate to raise a
meritorious issue. It is also important that care be exercised
not to raise an issue or to ask a court to adopt a position
inconsistent with an established Service position.
Review of IRS Practice Standards
We recommend that the Taxpayer Advocate and his staff
review IRS practices to assure that the Service is being held
to the same standards as taxpayers and their representatives.
For example, if taxpayers are required to file and pay on time
and respond timely to IRS requests for information, then the
Service should also be timely in its actions. If taxpayers and
their representatives face possible penalties if they take
positions on their returns that do not have either substantial
authority for taxpayers or a realistic possibility of being
sustained for preparers then revenue agents should face
sanctions if they propose audit adjustments that do not meet a
minimum standard such as having a realistic possibility of
being sustained.
Publication of the Advocacy Memoranda
The Advocate indicated in his report that he had issued a
number of Advocacy Memoranda. However, these Memoranda were
only referenced and were not identified in detail. It is
recommended that the Memoranda issued by the Advocate's Office
be published and made available for public inspection. We
believe inspection will create an atmosphere that encourages
public comment and ultimately improved service by the IRS.
Interaction with Professional Organizations
The Advocate's Report indicated that he has initiated an
interaction with professional organizations. Indeed, the
Advocate has met with the AICPA Tax Practice and Procedures
Committee. However, to the best of our knowledge, no formal
communication channel has been established nor has any formal
system for interaction been adopted between the Advocate's
Office and professional organizations. Yesterday, we received a
letter from the IRS Office of Public Liaison extending to the
AICPA an invitation to meet with the Taxpayer Advocate. We hope
this constitutes the initial step in structuring an ongoing
working relationship between the Taxpayers Advocate and the
AICPA.
Professional organizations such as the AICPA are
stakeholders in the tax system. However, the AICPA also acts in
the public interest in performing its function. For example,
the AICPA has worked, in cooperation with the IRS, to learn
more about the public's perception of the agency by conducting
a survey of the attitudes of its members toward the IRS. The
results of that study were made available to the IRS.
Hopefully, the AICPA study offered insight into strengths and
weaknesses of certain operational areas.
We recommend that the Taxpayer Advocate immediately
endeavor to formalize relationships with stakeholders from the
professional community, so that communications from these
groups can be considered in the next report.
Detailed Reporting of IRS/Treasury Studies and Other Projects
Advocate's Report indicated references to a number of
studies being conducted by the IRS either by Congressional
mandate or by IRS/Treasury initiative. The Advocate's report
did not identify completely nor provide a detailed explanation
of those studies. It is recommended that the Advocate have a
section in his report that identifies the studies and other
projects relevant to tax administration being conducted by the
IRS/Treasury; the report should outline the progress of those
studies and projects and the specific activities of the
Taxpayer Advocate in representing taxpayer interests in
connection with them. It is further recommended that a section
of the Advocate's Report be dedicated exclusively to the
ongoing IRS/Treasury studies and projects.
Advocate Report Format
We recommend that the Advocate's Report adopt a
standardized format by way of index and content. If the report
is submitted in a standardized format, much of the information
that would be presented could be used for comparative analysis.
Since similar information would be prepared and submitted in
subsequent reports, readers might find it more communicative.
V. Closing
The AICPA appreciates the opportunity to offer these
comments and is willing to provide the Subcommittee and the
Taxpayer Advocate with additional assistance and comments as
requested.
Exhibit 1
Rev. Proc. 64-22 n1
n1 Also released as Technical Information Release 592.
dated May 1, 1964. 26 CFR 1.9100-1: Extension of time for
making certain elections. (Also part I, Section 614; 26 CFR
1.614-2.)
1964-1 C.B. 689; 1964 IRB LEXIS 361; REV. PROC. 64-22
Statement of some principles of Internal Revenue tax
administration.
The function of the Internal Revenue Service is to
administer the Internal Revenue Code. Tax policy for raising
revenue is determined by Congress.
With this in mind, it is the duty of the Service to carry
out that policy by correctly applying the laws enacted by
Congress; to determine the reasonable meaning of various Code
provisions in light of the Congressional purpose in enacting
them; and to perform this work in a fair and impartial manner,
with neither a government nor a taxpayer point of view.
At the heart of administration is interpretation of the
Code. It is the responsibility of each person in the Service,
charged with the duty of interpreting the law, to try to find
the true meaning of the statutory provision and not to adopt a
strained construction in the belief that he is ``protecting the
revenue.'' The revenue is properly protected only when we
ascertain and apply the true meaning of the statute.
The Service also has the responsibility of applying and
administering the law in a reasonable, practical manner. Issues
should only be raised by examining officers when they have
merit, never arbitrarily or for trading purposes. At the same
time, the examining officer should never hesitate to raise a
meritorious issue. It is also important that care be exercised
not to raise an issue or to ask a court to adopt a position
inconsistent with an established Service position.
Administration should be both reasonable and vigorous. It
should be conducted with as little delay as possible and with
great courtesy and considerateness. It should never try to
overreach, and should be reasonable within the bounds of law
and sound administration. It should, however, be vigorous in
requiring compliance with law and it should be relentless in
its attach on unreal tax devices and fraud.