THE ROLE OF TAXPAYER ADVOCATES AND OMBUDS IN PROMOTING PROCEDURAL JUSTICE AND TAX MORALE International Conference on Taxpayer Rights November 2015

THE ROLE OF TAXPAYER ADVOCATES AND OMBUDS IN PROMOTING PROCEDURAL JUSTICE AND TAX MORALE

International Conference on Taxpayer Rights

November 2015

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Procedural Justice“Procedural justice includes two issues:

• fair decision making (voice, neutrality) – i.e., participatory, neutral, transparent, rule based; consistent decision-making --

• fair interpersonal treatment (treatment with dignity/respect; trust in authorities) – i.e., treatment involving respect for people; respect for their rights; treatment with dignity and courtesy; care and concern from authorities.

• Such issues can be considered at the institutional level and/or in terms of the actions of particular individuals.”

--- Tom Tyler, Legitimacy and Criminal Justice: The benefits of self-regulation (2009)

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Tax Morale

• “If people hate taxes so much why do they pay them? The common, seemingly obvious, answer – fear of being caught cheating – is only a partial answer. . . .The key to this puzzle is ‘tax morale,’ the collective name for all the non-rational factors and motivations – such as social norms, personal values and various cognitive processes – that strongly affect an individual’s voluntary compliance with laws. Higher tax morale correlates with higher tax compliance.”

--Marjorie E. Kornhauser, Normative and Cognitive Aspects of Tax Compliance: Literature Review and Recommendations for the IRS Regarding Individual Taxpayers (2007).

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Office of the Taxpayer Advocate

• Internal Revenue Code § 7803(c) describes the mission and duties of the office:

• Assist taxpayers in resolving problems with the Internal Revenue Service (IRS);

• Identify areas in which taxpayers have problems in dealings with the IRS;

• To the extent possible, propose changes in the administrative practices of the IRS to mitigate problems identified; and

• Identify potential legislative changes which may be appropriate to mitigate such problems.

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How does TAS accomplish its mission?

• Case Advocacy: 78 Local Taxpayer Advocate offices advocate with respect to specific taxpayer cases; by statute, at least one must be located in each state; includes Technical Advisors as subject matter experts.

• Systemic Advocacy: Analysts identify, analyze, and advocate with respect to systemic taxpayer problems; participate in IRS teams; review IRS guidance to employees.

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How does TAS accomplish its mission?

• Research Function: Conducts applied research studies and reviews all data cited in NTA Reports to Congress and testimony; provides analyses for TAS business operations.

• Attorney-Advisors: Support the NTA in all her duties, especially the Annual Reports to Congress and review and comments on Regulations.

• Headquarters: Includes Business Modernization (IT), Finance, Training, Business Analytics.

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Basic TAS Demographics

• 1,900 Employees, including 800 Case Advocates

• TAS cases involve all types of issues: Audit, Assessment, Collection, Processing Problems, Taxpayer Rights.

• FY 2015: 227,189 cases received by TAS case advocacy.

• FY 2015 cases closed: 78.4% relief rate.

• TAS has over 100 different issue codes for categorizing cases: In FY 15, 61% of cases involved more than 1 issue, 18% involve 2 or more issues

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Types of TAS Cases

Top Ten Primary Issues (FY 2015)

Total Receipts Economic Burden Receipts

FY 2015 FY 2014 % Change FY 2015 FY 2014 % Change

Identity Theft 56,174 43,690 28.6% 40,284 31,160 29.3%

Pre-Refund Wage Verification Hold 40,633 35,220 15.4% 25,206 20,917 20.5%

Processing Amended Return 11,847 10,245 15.6% 5,331 4,713 13.1%

Earned Income Tax Credit (EITC) 10,880 13,450 -19.1% 8,545 10,519 -18.8%

Levies 7,977 8,086 -1.3% 7,074 7,206 -1.8%

Processing Original Return 7,148 7,664 -6.7% 4,479 4,669 -4.1%

Reconsideration/SFR/6020B/Audit 6,723 6,768 -0.7% 2,310 2,388 -3.3%

Unpostable/Reject 6,057 3,751 61.5% 4,954 2,829 75.1%

Returned/Stopped Refunds 4,612 3,271 41.0% 2,517 1,559 61.4%

Injured Spouse Claim 4,604 7,284 -36.8% 3,746 6,104 -38.6%Top Ten Receipts: 156,655 139,429 12.4% 104,446 92,064 13.4%

All other Receipts: 70,534 77,268 -8.7% 31,023 32,668 -5.0%

Total Receipts: 227,189 216,697 4.8% 135,469 124,732 8.6%

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Types of FY 15 TAS Cases

• 59% (133,313) involved Wage & Investment taxpayers

• 40% (91,183) involved Small Business/Self-Employed Taxpayers

• 1% (2,269) involved Tax Exempt/Government Entities Taxpayers

• < 1% (747) involved Large Business/International Taxpayers

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Additional Demographics

• Since it stood up in 2000, TAS has assisted about 3.7 million taxpayers in resolving their problems with the IRS.

• That is a lot of taxpayers!

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The Right to a Fair and Just Tax System

• Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely.

• Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.

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Key Attributes of an Effective Taxpayer Advocate/Ombuds

• Independence

• Transparency

• Question: How to achieve this while maintaining open communication with the tax agency?

• Question: How to gain and keep taxpayer trust if advocate/ombuds is within the tax agency?

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Independence• Appointment Authority of National Taxpayer Advocate -- IRC

7803(c)(1)(B)(ii)

• Career Path Limitations -- IRC 7803(c)(1)(B)(iv)

• Mandatory Statement of Independence -- IRC 7803(c)(4)(A)(iii)

• Confidentiality -- IRC 7803(c)(4)(A)(iv)

• Independent Communications -- IRC 7803(c)(4)(B)

• Taxpayer Assistance Order (TAO) -- IRC § 7811

• Taxpayer Advocate Directive (TAD) -- Del. Order 13-3

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Mandatory Statement of Independence

• Each local taxpayer advocate shall, at the initial meeting with any taxpayer seeking the assistance of a local office of the taxpayer advocate, notify such taxpayer that the taxpayer advocate offices operate independently of any other IRS office and report directly to Congress through the National Taxpayer Advocate. IRC 7803(c)(4)(A)(iii).

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Confidentiality

• Each local taxpayer advocate may, at the taxpayer advocate’s discretion, not disclose to the IRS contact with, or information provided by, such taxpayer. IRC 7803(c)(4)(A)(iv).

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Communications

• Each local office of the taxpayer advocate shall maintain a separate phone, facsimile, and other electronic communication access, and a separate post office address. IRC 7803(c)(4)(B).

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Taxpayer Assistance Order (TAO)

• Issued by the National Taxpayer Advocate (and her delegates) where the taxpayer is suffering or about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered by the Secretary. IRC 7811(a)(1).

• Significant Hardship = economic burden; systemic burden; impairment of rights; serious privation (more than mere economic or personal inconvenience). (IRC 7811(a)(2) and Treas. Reg. § 301.7811-1(a)(4)(ii).

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Taxpayer Assistance Order

May require the Secretary of the Treasury within a specified time period to:

(1) to release property of the taxpayer levied upon, or

(2) to cease any action, take any action as permitted by law, or refrain from taking any action, with respect to the taxpayer [with respect to collection, bankruptcy and receiverships, discovery of liability and enforcement of title,] or any other provision of law which is specifically described by the National Taxpayer Advocate in such order. IRC 7811(b)(1) and (2).

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Any TAO issued by the NTA may be modified or rescinded – (1) only by the NTA, the Commissioner of

Internal Revenue, or the Deputy Commissioner of Internal Revenue, and

(2) only if a written explanation of the reasons for the modification or rescission is provided to the NTA. IRC 7811(c).

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BUT, in her Annual Report to Congress, the NTA must:

“Identify any Taxpayer Assistance Order which was not honored by the Internal Revenue Service in a timely manner . . . .”IRC 7803(c)(2)(B)(ii)(VII).

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Taxpayer Advocate Directive (TAD)

• A TAD may be issued to

(1) mandate administrative or procedural changes to improve the operation of a functional process, or

(2) grant relief to groups of taxpayers (or all taxpayers) when its implementation will protect the rights of taxpayers, prevent undue burden, ensure equitable treatment, or provide an essential service to taxpayers.

Delegation Order 13-3 (formerly DO-250, Rev. 1), Authority to Issue Taxpayer Advocate Directives (Jan. 17, 2001).

See also IRM 13.2.1.6, Taxpayer Advocate Directives (July 16, 2009).

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Transparency

• Annual Reports to Congress:(1) Objectives Report to Congress: delivered by June 30 of each year, NTA reports on objectives of her office for the upcoming fiscal year, including “full and substantive analysis, in addition to statistical information.”

(2) Annual Report to Congress: delivered by December 31 of each year, NTA reports on the activities of her office during the past fiscal year.

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Transparency

• Interaction with Independence:“Each report . . . Shall be provided directly to the [Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate] without any prior review or comment from the Commissioner, the Secretary of the Treasury, the Oversight Board, any other officer or employee of the Department of the Treasury, or the Office of Management or Budget.” IRC 7803(c)(2)(B)(iii).

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Objectives Report

• Filing Season Analysis

• Areas of Focus for upcoming fiscal year (i.e., systemic issues)

• TAS operational focus for upcoming fiscal year

• IRS responses to prior year’s Annual Report administrative recommendations.

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Annual Report to Congress

• Most Serious Problems: “a summary of the most serious problems encountered by taxpayers, including a description of the nature of such problems” along with “recommendations . . . as may be appropriate to resolve problems encountered by taxpayers.” IRC 7803(c)(2)(B)(ii)(III) and (VIII).

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• Legislative Recommendations “as may be appropriate to resolve problems encountered by taxpayers.” IRC 7803(c)(2)(B)(ii)(VIII); and

• Identify areas of the tax law that impose significant compliance burdens on taxpayers or the IRS, including specific recommendations for remedying these problems. IRC 7803(c)(2)(B)(ii)(IX).

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• Most Litigated Issues: “identify the 10 most litigated issues for each category of taxpayers, including recommendations for mitigating such disputes.” IRC 7803(c)(2)(B)(ii)(X)

• And …. “Include such other information as the National Taxpayer Advocate may deem advisable.” IRC 7803(c)(2)(B)(ii)(XI). [The NTA’s favorite provision!]

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Tax Administration Impact of Taxpayer Advocate Independency and Transparency

• Since 2000, TAS has assisted in approximately 1.4 million cases involving taxpayers experiencing economic burden.

• Since 2000, TAS has issued 2000 Taxpayer Assistance Orders (and threatened to issue many, many more).

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• Since 2001, TAS has made 1,351 administrative recommendations in its Annual Report to Congress.

• Most recently the IRS agreed to 48 % of the administrative recommendations made in the 2014 Annual Report to Congress.

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• Since 2001, TAS has made 166 Legislative Recommendations, 24 of which Congress or the IRS (through regulations) has adopted. Congress has introduced over 250 bills proposing enactment of the NTA’s legislative recommendations.

• The NTA has testified before Congress more than 60 times, addressing taxpayer concerns.

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TAS Promotes Taxpayer Trust

• TAS ensures not only that taxpayers can present their case to the IRS but that the IRS listens to the taxpayers (the right to challenge the IRS and be heard) and provides explanations for its actions (the right to be informed).

• Through the Low Income Taxpayer Clinic Grant program, TAS ensures that taxpayers have access to legal representation regardless of income level (the right to retain representation).

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• About 48% of TAS taxpayers who received relief in their TAS cases felt more positive about the IRS as a result of their interaction with TAS.

• About 36% of TAS taxpayers who did not receive relief in their TAS cases still felt more positive about the IRS as a result of their interaction with TAS.[TAS Customer Satisfaction Surveys, through 3rd quarter FY 2015.]

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TAS and Taxpayer Compliance

• TAS Research is currently studying the relationship between TAS assistance and future compliance of the taxpayers TAS assists.

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Challenges

• Independent Counsel

• Independent Budget/Appropriations

• Amicus Brief Authority

• Agency acknowledgement and acceptance of TAS Role (see August 2013 NTA Report to Acting Commissioner)

• Managing conflict/adversarial relations between TAS and IRS – are they avoidable?

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• TAS casework serves as a check on the coercive power of the tax agency.

• The taxpayer can have some expectation that if he makes a mistake or experiences some kind of hardship, there is an entity that can ensure the government takes into consideration those specific circumstances. (The right to a fair and just tax system.)

Documents

THE ROLE OF TAXPAYER ADVOCATES AND OMBUDS IN PROMOTING PROCEDURAL JUSTICE AND TAX MORALE International Conference on Taxpayer Rights November 2015