Erin M. Collins, the third and newest IRS National Taxpayer Advocate (NTA), has issued her first annual report to Congress.
Generally, within the report Collins identifies key challenges faced by taxpayers during the COVID-19 pandemic and praises, as well as criticizes, the IRS’s handling of certain issues during these unprecedented times. Additionally, the report outlines fiscal year 2021 Taxpayer Advocate Service (TAS) priorities.
“It is clear from my conference calls and the guidance the IRS is releasing that the IRS is putting taxpayers first and making meaningful efforts to provide relief to the extent possible,” Collins writes. “On behalf of taxpayers, I applaud the IRS’s efforts.” However, she goes on to add that “despite the IRS’s best efforts, there have been notable adverse taxpayer impacts.”
NTA Objectives Report to Congress
The NTA Objectives Report to Congress, Fiscal Year 2021, marks the first of two NTA reports required annually under the Internal Revenue Code for submission to the House Ways and Means and Senate Finance Committees. The reports are not subject to review or comment by the IRS Commissioner or Secretary of the Treasury.
Collins was sworn in as the NTA on March 30, 2020, following her predecessor Nina Olson’s retirement. Olson served as the NTA from 2001 – 2019.
IRS in “Proverbial Operational Hole”
In particular, Collins notes within the report how antiquated IRS systems are and the detrimental impact that has had on both IRS operations and taxpayers, especially amidst all the closures and social distancing requirements. “The IRS’s current arcane computer systems and infrastructure could not handle tax administration remotely, and it has not established across-the-board electronic communication procedures between the taxpayer and the IRS. The IRS needs to improve its infrastructure, hardware, and software to continue its mission-critical operations if another situation arises so that taxpayers do not have to put their lives on hold while the IRS recovers from the effect of the next crisis,” Collins writes.
Further, Collins recommends the following improvements for IRS functionality as it “climbs out of the proverbial operational hole”:
- Increase the use of electronic exchange of documents and correspondence with taxpayers;
- Institute the necessary improvements to its telephone systems allowing assistors to handle calls remotely; and
- Continue to upgrade its computer systems to work in a secure remote environment
President Donald Trump signed into law the Taxpayer First Act (TFA) (P.L. 116-25) in July 2019, which provides for the most sweeping administrative reforms to the IRS in over 20 years. Although the TAS has worked with the new IRS TFA Office in implementing many of the law’s provisions, Collins notes that there remains concern that the IRS has not properly implemented a TFA provision directing the agency to establish a single point of contact for identity theft victims. Moreover, she writes the IRS may not properly implement a TFA provision directing it to exclude taxpayers with incomes at or below 200 percent of the Federal Poverty Level from assignment to private debt collection after December 31, 2020.
Pros and Cons of Sub-Regulatory Guidance
Additionally, referencing the flurry of IRS guidance issued recently in response to the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136), Collins details the pros and cons of sub-regulatory guidance in the form of FAQs. Taxpayers and practitioners are understandably concerned about relying on such unofficial guidance, according to Collins.
“FAQs do not rise to the level of ‘published guidance,’ and taxpayers cannot rely on them to establish substantial authority to avoid penalties for inaccurate reporting. Actual reliance on an FAQ, however, is a factor in determining whether the taxpayer took a tax position with reasonable cause and in good faith so as to avoid a penalty,” Collins writes. Although Collins acknowledges the time required to draft, review, and publish proposed regulations for comment, she maintains that formal guidance is necessary for substantive issues.
Most notably, to alleviate taxpayer and practitioner concerns, the TAS will encourage the IRS to publicly state that it will follow the FAQs issued during the COVID-19 pandemic, according to Collins. To that end, as noted in the report, TAS will encourage the IRS to publish a statement in the Federal Register that includes the following:
- The IRS will number and provide effective dates for all FAQs and will be prohibited from deleting previously issued guidance from its website even if it has changed its position; and
- For penalty relief purposes, taxpayers can rely on FAQs as authority for returns filed for taxable periods ending before an FAQ is obsoleted.
Further, Collins highlights that these requests will add permanence and prevent the IRS from changing an FAQ without leaving any evidence.
Looking ahead, the IRS should examine and learn from past experiences when deciding how to address the COVID-19 pandemic as well as future disasters, according to Collins. “The IRS will need to demonstrate understanding and flexibility when conducting compliance initiatives over subsequent months and possibly years,” Collins writes. “Many taxpayers will unavoidably encounter challenges in accurately reporting their tax obligations and may miss filing and payment deadlines. This reality will inevitably lead to increased enforcement actions against taxpayers whose tax preparers may no longer be available or who may themselves still be living in the wake of tragedy.”
By Jessica Jeane, J.D. – Senior News Editor and Content Management Analyst