Washington, DC (PRWEB) July 16, 2014
National Taxpayer Advocate Nina E. Olson today released her mid-year report to Congress, identifying the priority issues the Taxpayer Advocate Service (TAS) will address during the upcoming fiscal year. The report emphasizes the importance of taking concrete steps to give meaning to the recently adopted Taxpayer Bill of Rights, issuing tax refunds to victims of tax return preparer fraud, continuing to make improvements in the Exempt Organizations area, and the need to establish minimum standards for tax return preparers.
The report praises the IRS for implementing the Advocate’s longstanding recommendation to adopt a Taxpayer Bill of Rights. In addition, “the IRS ran a generally successful filing season (although taxpayer services were sub-optimal largely due to staffing limitations), instituted a more equitable approach to its Offshore Voluntary Disclosure initiative, and introduced a voluntary system for educating unenrolled return preparers,” Olson wrote in a preface to the report. “All this is generally good news. But as we note in the report, the good news also raises additional questions and concerns.”
Taxpayer Bill of Rights
On June 10, 2014, the IRS adopted a Taxpayer Bill of Rights (TBOR), as the National Taxpayer Advocate has long recommended. The TBOR, a list of 10 core rights, is designed to help taxpayers and IRS employees gain a better awareness of the dozens of discrete taxpayer rights scattered throughout the multi-million word Internal Revenue Code. A taxpayer survey conducted for TAS in 2012 found that fewer than half of U.S. taxpayers believe they have rights before the IRS, and only 11 percent said they know what those rights are.
“Taxpayer knowledge and education is the best taxpayer protection there is,” the report says. “A comprehensive public outreach campaign is crucial to overcome taxpayers’ lack of knowledge about their rights and inform them that the IRS has adopted a TBOR. These initiatives will require a variety of communication plans and tools, all with the goal of making taxpayer rights a part of every IRS communication with the taxpayer.”
The IRS has incorporated the TBOR into a revamped version of Publication 1, Your Rights as a Taxpayer, which is the main vehicle for explaining taxpayer rights to taxpayers. The IRS has also created special sections on its public and internal websites to highlight the 10 taxpayer rights. In addition, TAS has created a webpage that links existing statutory and administrative remedies to each of the 10 rights.
IRS Treatment of Victims of Return Preparer Fraud
At the same time that hundreds of thousands of taxpayers have become victims of tax-related identity theft, a smaller number of taxpayers have been victimized by unscrupulous preparers who have stolen their tax refunds by fraudulently altering information on their tax returns. While the IRS has been working hard to issue tax refunds to identity-theft victims quickly, by contrast, it has generally declined to issue tax refunds to victims of preparer fraud at all.
“As I discuss in the Area of Focus, Return Preparer Fraud: A Sad Story,” Olson writes, “the IRS has consistently dragged its heels, making one excuse after another, because providing relief to these victims just is not a high enough priority, or more disturbingly, because the IRS simply does not want to provide relief.”
In a typical preparer fraud case, a taxpayer visits a preparer to have his or her (or a joint) tax return prepared. The preparer completes the return. The taxpayer reviews it, authorizes the preparer to e-file it, and often pays the preparer’s fee. After the taxpayer leaves, the preparer alters the return, often by changing the bank account routing number so the refund is transmitted to the preparer’s own account.
The report states that IRS Commissioner John Koskinen decided on March 14 that the IRS will issue refunds to victims of preparer fraud who have filed police reports with the appropriate law enforcement agencies and met certain other substantiation requirements. To date, the IRS has not implemented the Commissioner’s decision, saying it must first resolve certain accounting issues and declining to provide a certain date by which it will issue the refunds.
In 2013, the National Taxpayer Advocate delivered her mid-year Objectives Report to Congress the month after the disclosure that the Exempt Organizations (EO) unit was using questionable criteria to screen applicants for tax-exempt status. The Advocate’s report contained a separate volume, Special Report: Political Activity and the Rights of Applicants for Tax-Exempt Status, which took a broad look at factors that contributed to the use of the questionable screening criteria and associated processing delays and offered 16 recommendations to address them.
In this report, the Advocate outlines a proposal that could provide a clearer test to determine whether an organization seeking exempt status under IRC § 501(c)(4) is operating “primarily” for social welfare purposes. There is currently very little guidance to help make that determination. Among other unresolved issues, one could focus on the percentage of the entity’s expenditures, the percentage of the entity’s time allocations, the percentage of the entity’s advertisements, or other factors.
“The National Taxpayer Advocate believes organizations requesting the right to receive contributions exempt from tax should be evaluated on how they expend those contributions,” the report says. “Under this analysis, as with the 501(h) election, volunteer time and activity, which do not generate taxable income for which tax exemption would be available in the first instance, are irrelevant to this determination.”
Minimum Standards for Tax Return Preparers
In 2002, the National Taxpayer Advocate began recommending that Congress authorize the IRS to establish minimum standards for tax return preparers. In the absence of congressional action, the IRS in 2010 began to implement preparer standards on its own. Earlier this year, the U.S. Court of Appeals for the District of Columbia affirmed a lower court decision concluding that the IRS exceeded its rulemaking authority in acting without a statutory grant of authority. Last month, the IRS announced that lacking the authority to continue its mandatory credentialing program, it will implement a voluntary program for the upcoming 2015 filing season.
The report argues that minimum standards for return preparers are important to protect taxpayers from incompetent or unscrupulous preparers. More than 140 million individual taxpayers each year file tax returns, and well over half use return preparers. Yet there are currently no standards for hanging out a shingle and preparing returns, and there is considerable evidence that many preparers lack the knowledge and ability to prepare accurate tax returns.
Significantly, more than 10 million taxpayers who claim the Earned Income Tax Credit (EITC) use unregulated preparers to prepare their tax returns. Because these taxpayers have limited or low income, the report says they often turn to pawn shops, used car dealers, and check-cashing outlets for return preparation assistance. Without meaningful standards, Olson wrote, “We will continue to subject these low-income taxpayers to the actions of incompetent or unscrupulous preparers and we will be unlikely to make progress in reducing the EITC noncompliance rate to an acceptable level.”
Olson reiterates her longstanding recommendation that a meaningful preparer standards program must contain four components: (1) registration to promote accountability; (2) a one-time “entrance” examination to ensure basic competency in return preparation; (3) continuing education courses to ensure preparers keep up to date with the many frequent tax-law changes; and (4) a taxpayer education campaign to help guide taxpayers to credentialed practitioners (i.e., CPAs, attorneys, and Enrolled Agents) or preparers who have satisfied the above requirements.
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 TaxpayerAdvocate.irs.gov or irs.gov/advocate. You can get updates on tax topics at facebook.com/YourVoiceAtIRS, Twitter.com/YourVoiceatIRS, and YouTube.com/TASNTA.