National Taxpayer Advocate Identifies Objectives for Upcoming Year; Releases Special Report on Tax-Exempt Issues

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The National Taxpayer Advocate Nina Olson’s FY2014 Objectives Report to Congress and related Special Report outline priority issues the Taxpayer Advocate Service (TAS) will focus on during the upcoming fiscal year, including tax return preparer fraud, inadequate IRS funding, tax identity theft and screening of tax-exempt organizations.

FY 2014 Objectives Report to Congress

FY 2014 Objectives Report to Congress

The real crisis is not the one generating headlines. The real crisis facing the IRS – and therefore taxpayers – is a radically transformed mission coupled with inadequate funding to accomplish that mission.

National Taxpayer Advocate Nina E. Olson released her FY 2014 Objectives Report to Congress that identifies the priority issues the Taxpayer Advocate Service (TAS) will address during the upcoming fiscal year. The report, released June 26, 2013, expresses particular concern about the impact of budget cuts on the IRS’s ability to meet taxpayer needs, the IRS’s unwillingness to issue full refunds to victims of tax return preparer fraud, and shortcomings in IRS procedures for assisting victims of tax identity theft.

In addition, Olson released a Special Report to Congress examining the IRS’s use of questionable criteria to screen applicants for tax-exempt status. The report suggests a framework that incorporates appropriate checks and balances. The National Taxpayer Advocate also offers her analysis of some of the root causes of the problems, makes preliminary recommendations to address them and discusses TAS’s efforts on behalf of taxpayers who sought TAS assistance.

“Today, the IRS is an institution in crisis,” Olson wrote. “In my view, however, the real crisis is not the one generating headlines. The real crisis facing the IRS – and therefore taxpayers – is a radically transformed mission coupled with inadequate funding to accomplish that mission. As a consequence of this crisis, the IRS gives limited consideration to taxpayer rights or fundamental tax administration principles as it struggles to get its job done.”

TAS Areas of Focus

The Objectives Report identifies the priority issues on which the Office of the Taxpayer Advocate will focus during the upcoming fiscal year, and describes numerous challenges facing the IRS, including:
-Relieving the financial harm suffered by victims of tax return preparer fraud.
-Conducting adequate oversight of the tax return preparer industry.
-Providing effective, timely, and taxpayer-centric relief to victims of tax identity theft.
-Conducting education and outreach to taxpayers about their responsibilities under the Affordable Care Act.
-Resolving erroneous revocations of the tax-exempt status of small § 501(c)(3) organizations and failing to provide them with a pre-revocation administrative appeal.
-Establishing less draconian and more reasonable “settlement initiatives” for the millions of taxpayers who have legitimate reasons for overseas bank and financial accounts and whose failure to file reports was merely negligent.

Special Report on Exempt Organization Review Concerns

In addressing the exempt organization (EO) issues, the Advocate’s office does not have investigative authority and did not seek to duplicate other ongoing investigations. The report takes a broad look at factors that contributed to the use of questionable screening criteria and processing delays and offers 16 recommendations to address them. The report groups these contributing factors into four categories:

1. Lack of guidance and transparency;

2. Absence of adequate checks and balances;

3. Management and administrative failures; and

4. EO’s “cultural difficulty” with TAS.

According to a May 14, 2013, report by the Treasury Inspector General for Tax Administration (TIGTA), IRS Tax EO function employees inappropriately selected applications for tax-exempt status for further review, asked these applicants unnecessary questions and delayed processing their applications. TIGTA found that IRS employees used inappropriate selection criteria because they didn’t understand the law or believed it was unworkable, and they created inappropriate job aids and information requests that were not vetted.

Among other things, Olson also recommends that Congress enact a Taxpayer Bill of Rights. In her preface to the report, she details how the EO review process violated 8 of those 10 taxpayer rights.

TAS Cases

Following the release of the TIGTA report, TAS identified 19 cases that may have involved the “Be on the Lookout” (BOLO) selection criteria out of more than 915,000 total case receipts.

If TAS had received a significant number of case referrals from EO or the systemic processing delays had been reported, TAS likely would have identified the problem sooner. The National Taxpayer Advocate will provide additional training to TAS employees regarding EO issues, and TAS will participate in a task force with the IRS’s Tax Exempt and Government Entities Division, of which EO is a part, to identify and address systemic EO issues in the future.

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About the Objectives Report to Congress
The National Taxpayer Advocate is required by statute to submit two annual reports to the House Committee on Ways and Means and the Senate Committee on Finance. The statute requires these reports to be submitted directly to the Committees without any prior review or comment from the Commissioner of Internal Revenue, the Secretary of the Treasury, the IRS Oversight Board, any other officer or employee of the Department of the Treasury, or the Office of Management and Budget. The first report is due on June 30 of each year and must identify the objectives of the Office of the Taxpayer Advocate for the fiscal year beginning in that calendar year. The second report, due on December 31 of each year, must identify at least 20 of the most serious problems encountered by taxpayers, discuss the ten tax issues most frequently litigated in the courts, and make administrative and legislative recommendations to resolve taxpayer problems. For more information, visit http://www.taxpayeradvocate.irs.gov/2014ObjectivesReport or download the full report.

About the Taxpayer Advocate Service
The Taxpayer Advocate Service is an independent organization within the IRS. TAS employees help taxpayers who are experiencing financial difficulties, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving problems with the IRS; and taxpayers who believe an IRS system or procedure is not working as it should. If you believe you are eligible for TAS assistance, call 1-877–777–4778 (toll-free). For more information, go to http://www.TaxpayerAdvocate.irs.gov or http://www.irs.gov/advocate. You can get updates on tax topics at http://www.facebook.com/YourVoiceAtIRS, http://www.Twitter.com/YourVoiceatIRS, and http://www.youtube.com/TASNTA.

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Maryclaire Ramsey
Office of The National Taxpayer Advocate
(202) 622-7320
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