Thursday, July 16, 2015

WORKING WITH THE IRS WHILE IT IS IN THE PENALTY BOX: MIDYEAR REPORT FROM NATIONAL TAXPAYER ADVOCATE


On July 15, 2015, the National Taxpayer Advocate, Nina Olson, issued her mid-year report which she is required to do twice a year.  For some time now, the IRS has been trying to do its job with one hand tied behind its back as it struggles to deal with a multi-year Congressional punishment program for a variety of crimes and misdemeanors. From the Tea Party scandal to the fact that the IRS is just plain fun to hate, Congressional funding for the tax agency is down about 17% on an inflation-adjusted basis since FY 2010.

The Commissioner has told his people that their charge now is to do “less with less” ---“just do the best you can, and don’t sweat the small stuff.  If you drop a call with a taxpayer (euphemistically called “courtesy disconnects” by the IRS) even though you have been on the phone with the taxpayer for an hour and a half, don’t worry.  They will call back.  Just move on to the next case.”

Ms. Olson’s report shows a dismal performance in the Taxpayer Service area with telephone hold time rising close to thirty minutes and far below 50% success rates in responding to calls from practitioners calling on the Priority Service Line, taxpayers themselves calling customer service representatives, calls from taxpayers inquiring about the Taxpayer Protection Program, as well as calls to the TAS.

Not mentioned in the mid-year report but painfully visible to tax controversy practitioners, the Appeals function is no longer working their inventories of non-docketed cases.  These are cases in the pipeline on which no agreement has been reached at the Examination level; the Internal Revenue Manual still provides procedures which provide for an informal review by an Appeals Officer before the issuance of a notice of deficiency which triggers a filing requirement of a petition in the Tax Court.

 In non-docketed status, the taxpayers enjoy the advantage of negotiating with the IRS before it is lawfully permitted to bill the taxpayer for the amount in dispute. At the same time, as long as the taxpayer has agreed to extend the statute of limitations, taxpayers can proceed with an Appeals Officer without the pressure of having to deal with an IRS trial attorney who is nervously playing a juggling act settling an inventory of cases which regularly appear on Tax Court calendars.

Today, hardworking and understaffed Appeals offices are doing the best they can to keep up with frequently issued Tax Court calendars. Now, what Appeals works on is largely determined by the Tax Court. The Court is almost current in its processing of new cases and it is at a very comfortable-to-manage approximately eleven thousand new petitions at midyear for 2015.

The Advocate’s midyear report notes that for the vast majority of filers it looks like everything at the IRS is hunky dory.

“It should be emphasized that more than 98 percent of all tax revenue collected by the IRS is paid voluntarily and timely.  Less than two percent is collected through enforcement action….”

Also, the Report finds, for the majority of taxpayers filing their returns without assistance from the IRS, “the filing season was generally successful.”  Ironically then, success can be measured in part by those who tried to muddle through filing on their own or with the help of a tax practitioner, simply because there was no need to contact the government for assistance.

Obvious to any practitioner, the greatest concern is what is not getting done at the Service.  While IRS-bashers in Congress are having fun holding the IRS by the nose while others kick the agency in the pants, the taxpayers and practitioners who have long standing working relationships with the IRS are concerned about the future. The IRS does a lot more than process tax payments. What about the private letter ruling function, reviewing qualified plans in the employee benefits area, issuing tax exemption letters to public service organizations,  providing technical advice to agents in the field,  working their offer in compromise inventories, and processing applications for innocent spouse determinations?

For the taxpaying public with time-sensitive business matters pending before the Service, there is little consolation in knowing that their Congressmen are enjoying big belly laughs every time they make the Service look bad in the press.

Ms. Olson continues to be a shining light coming out of Washington.  Her warnings should be well-heeded. The very existence of our self-reporting tax system is at great risk.