March 3, 2019 9:39 pm

National Taxpayer Advocate’s Annual Report Focuses on Shutdown

In her 2018 annual report to Congress, National Taxpayer Advocate Nina E. Olson described the challenges to the IRS resulting from the 35-day government shutdown and recommended additional multi-year funding to replace 1960s-era information technology systems still in use today (IR-2019-11, 2/12/19). The report also includes the second edition of the “Purple Book,” which represents 58 legislative recommendations to strengthen taxpayer rights and improve tax administration.

The main section of the report identifies 20 of the most serious problems taxpayers face in dealing with the IRS during what she calls “the taxpayer’s journey,” including:

  • Obtaining answers to tax-law questions
  • Return filing issues
  • Notices
  • Audits
  • Collection actions

The report contains road maps, which are pictorial representations of the process.

Impact of the government shutdown. Aside from delaying her annual report by one month, the preface to the report examined the permissible scope of IRS activities during this period. For example, under the authority given to employees of the Taxpayer Advocate Service during this period, the employees were allowed to open mail to look for checks payable to the government, but not to assist taxpayers experiencing an economic hardship. And taxpayers were experiencing more difficulty getting through by telephone when the filing season opened (immediately after the shutdown ended) as compared with the prior year. Mail to the IRS piled up, including responses to the FY 2018 earned income tax credit audit and amended returns waiting to be manually processed.

Other major issues. The IRS systems that hold the official records of taxpayer accounts (the Individual Master File and the Business Master File) date to the 1960s and are the oldest major IT systems still in use in the federal government.  Moreover, taxpayer information is stored in over 60 separate case management systems that generally do not communicate with each other. The National Taxpayer Advocate wants to see multi-year funding from Congress for the IRS to upgrade its technology. Other major issues include:

  • Improving how taxpayers get answers to tax questions
  • Addressing the lack of disclosure of chief counsel legal advice
  • Increasing the use of the IRS Free File program

Legislative recommendations. To improve IRS operations, the Taxpayer Advocate urges Congress to consider comprehensive tax administration legislation this year similar to the Taxpayer First Act of 2018, which unanimously passed the House last year but was not acted upon in the Senate.

Tax Glossary

Unrecaptured Section 1250 gain

Long-term gain realized on the sale of depreciable realty attributed to depreciation deductions and subject to a 25% capital gain rate.

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