National Taxpayer Advocate Erin M. Collins released her 2023 Annual Report to Congress, describing 2023 as a year of “extraordinary transition for the IRS and therefore for taxpayers.” The report credits the IRS with substantially improving taxpayer services and developing plans to transform the taxpayer experience in the coming years, but it identifies paper processing as an area of continuing weakness.
Most Serious Problems
By law, the Advocate’s report is required to identify the ten most serious problems taxpayers are experiencing in their dealings with the IRS and to make administrative and legislative recommendations to address those problems. Before cataloging taxpayer challenges, however, Collins praised the IRS for taking notable strides forward. However, paper processing is an area of continuing weakness. The areas in which taxpayers continued to experience delays were primarily those that required employees to process tax returns and taxpayer correspondence, including:
- Extraordinary delays in assisting victims of identity theft;
- Delays in processing amended tax returns and taxpayer correspondence;
- Challenges in receiving telephone assistance despite overall improvements; and
- Employee Retention Credit (ERC) processing.
At the end of each of the ten most serious problem sections in the report, the National Taxpayer Advocate makes administrative recommendations to address the problems. Among her key recommendations:
- Prioritize the improvement of online accounts for individual taxpayers, business taxpayers, and tax professionals to provide functionality comparable to that of private financial institutions;
- Improve the IRS’s ability to attract, hire, and retain qualified employees;
- Ensure all IRS employees – particularly customer-facing employees – are well-trained;
- Upgrade the back end of the Document Upload Tool (DUT) to fully automate the processing of taxpayer correspondence;
- Enable all taxpayers to e-file their federal tax returns; and
- Extend eligibility for first-time penalty abatement to all international information return penalties.
Legislative Recommendations: The “Purple Book”
The National Taxpayer Advocate’s 2024 Purple Book proposes 66 legislative recommendations intended to strengthen taxpayer rights and improve tax administration. Among the recommendations:
- Require the IRS to timely process claims for credit or refund;
- Authorize the IRS to establish minimum standards for paid tax return preparers and revoke the identification numbers of sanctioned preparers;
- Expand the U.S. Tax Court’s jurisdiction to adjudicate refund cases;
- Extend the reasonable cause defense for the failure-to-file penalty to taxpayers who rely on return preparers to e-file their returns; and
- Enable the Low Income Taxpayer Clinic (LITC) program to assist more taxpayers in controversies with the IRS.
On or about January 31, TAS will publish two research studies and detail the design of a third study on the following topics at www.TaxpayerAdvocate.irs.gov:
- Two-year bans on eligibility for refundable tax credits are often imposed without following required procedures;
- A review of online accounts offered by state and foreign tax agencies can help the IRS improve its own online accounts; and
- IRS procedures for withholding tax refunds in suspected identity theft cases may be harming legitimate taxpayers.
Other Report Highlights
This year’s report also contains:
- A taxpayer rights and service assessment that presents performance measures and other relevant data;
- A description of TAS’s case advocacy and systemic advocacy operations;
- A summary of key TAS advocacy accomplishments;
- A discussion of the ten federal tax issues most frequently litigated in court last year; and
- An At a Glance section, which provides concise summaries of the ten most serious problems.
Visit www.TaxpayerAdvocate.irs.gov/AnnualReport2023 for more information.