The Taxpayer Advocate Service: Recent Developments in Taxpayer Advocacy

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1 Dallas CPA Society s Continuing Education Day Conference May 26, 2011 Dallas, TX The Taxpayer Advocate Service: Recent Developments in Taxpayer Advocacy Joel N. Crouch, J.D. 901 Main Street, Suite 3700 Dallas, TX fax jcrouch@meadowscollier.com Copyright Meadows, Collier, Reed, Cousins, Crouch & Ungerman, L.L.P. All rights reserved.

2 The Office of the Taxpayer Advocate Functions By statute it has four principal functions: Assist taxpayers in resolving problems with the IRS. Identify areas in which taxpayers are experiencing problems with the IRS. Propose changes in the administrative practices of the IRS to mitigate problems taxpayers are experiencing with the IRS. Identify potential legislative changes which may be appropriate to mitigate such problems. See IRC Section 7803(c) Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP 2

3 The Office of the Taxpayer Advocate Functions Taxpayer Advocate Services ( TAS ) assistance to individual taxpayers involves three scenarios: They have experienced a tax problem that causes financial difficulty; They have encountered problems trying to resolve their issues directly with the IRS; or An IRS action or inaction has caused or will cause them to suffer a long-term adverse impact, including a violation of taxpayer rights. Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP 3

4 The Office of the Taxpayer Advocate Functions What TAS can do for individual and business taxpayers with a specific tax issue: Research IRS systems to determine what is occurring on the taxpayer s account (this means all issues, not just the one that brought the taxpayer to TAS). Research appropriate statutes, regulations and IRS Guidance. Determine the correct resolution for each issue. Help the taxpayer obtain any supporting documentation needed to resolve the issue. Advocating for the taxpayer with the appropriate IRS function to resolve each issue, including expediting actions where appropriate. Helping the taxpayer understand all the issues involved and the resolution(s) achieved. Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP 4

5 The TAS is Not a Substitute for Regular IRS Issue Resolution Procedure Cases are accepted by TAS in four categories: Economic Burden-cases where a taxpayer is experiencing financial difficulty. Systemic Burden-cases in which an IRS process has failed to operate as intended and, as a result, the IRS has failed to timely respond to or resolve a taxpayer issue. Equitable Treatment or Taxpayer Rights-cases are accepted to insure taxpayers receive fair and equitable treatment and taxpayers rights are protected. Public Policy-cases where TAS determines that a compelling public policy warrants assistance to an individual or group of taxpayers. Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP 5

6 The TAS is Busy The FY 2010 statistics bear this out: Cases Received Cases Closed Relief Rate Economic Burden 119, , % Systemic Burden 178, , % Equitable Treatment/Taxpayer Rights % Public Policy % Totals 298, , % This is a 9.7% increase from FY 2009, and represents a 23.4% increase since FY Source: Taxpayer Advocate Service 2010 Annual Report to Congress Volume One Page 509 Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP 6

7 The TAS is Busy TAS is receiving a different mix of cases: Since FY 2006 cases involving Economic Burden have jumped from about 30% of receipts to more than 40% in FY In that same time period, Systemic Burden cases have dropped from about 70% of receipts to a little less than 60% in FY TAS has experienced a 65.3% growth in Economic Burden cases over the past 5 years. This shift is probably related to the economic downturn and TAS has responded by establishing a special timeline to respond to cases involving taxpayers experiencing financial difficulty. For example, in those cases the case advocates are to expedite initial processing and contact the taxpayer to communicate those actions and request additional information (if needed) within three workdays of TAS receiving the case. See: IRM Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP 7

8 TAS Analysis Case Receipts to Detect Trends Comparing FY 2006 and FY 2010 receipts show substantial shifts in issues: Description of Issues Percent change FY 2006 to FY 2010 Document Processing 63.9 Audit 42.4 Refund 57.3 Collection -5.5 Entity Penalty 8.7 Technical, Procedural or Statute Issues Payment or Credit Appeals 31.5 Criminal Investigation Interest Others Source: Taxpayer Advocate Service 2010 Annual Report to Congress Volume One Page 510 Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP 8

9 TAS Analysis Case Receipts to Detect Trends Top issues received by TAS during FY 2010: Processing Amended Returns. Open Audit (excluding Earned Income Tax Credit). Unpostable and Reject Returns. Levies. Stolen Identity. Reconsideration of substitute for Return and Audits. Processing Original Returns. Expedite Refund Request. Earned Income Tax Credit. Injured Spouse Claim. Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP 9

10 Increased Burdens on IRS and Thus TAS The IRS is increasing employment by Congress as a vehicle for administering social benefit programs. For example: Earned Income Tax Credit. Economic Stimulus Payments. Making Work Pay Credits. First Time Home Buyer Credits. Hybrid Car Credits. Administration of these programs will place additional burdens on the IRS and can be correlated to TAS case receipts. The percentage of TAS total case receipts attributable to social benefit programs rose from 5% to 18% over the past five years. Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP 10

11 For Example: First Time Home Buyers Credit In FY 2010: More than 2.3 million original and amended returns claimed the credit. 415,500 of these returns were selected for examination (22% of all audits closed during that year). As of September 2010, nearly 132,000 of those exams remain open. This concentration of the IRS resources directly impacted TAS s inventory. In FY 2010, TAS received 43,520 FTHBC related cases, of which 91% involved audit or document processing issues. Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP 11

12 FY 2010 Challenges: Document Processing Issues This has always been among the largest sources for TAS systemic burden receipts and deals with problems or delays in processing original returns, amended returns and claims for refund. A subcategory of this issue is Unpostable or Reject Returns has grown by almost 800% since FY There were three reasons for this growth: A new procedure for processing unsigned refund returns. For the 2010 filing season refund returns missing a signature or schedule were not sent back to taxpayers, but processing was suspended while the IRS sent letters requesting the missing information. This created a large inventory of returns waiting for taxpayer replies, and a spike in TAS case receipts in the second half of FY Returns relating to the Making Work Pay Credit. The IRS s decision to manually verify returns claiming the FTHBC, and initial requests for HUD-1 Settlement Statements. Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP 12

13 DISCLAIMER The information included in these slides is for discussion purposes only and should not be relied on without seeking individual legal advice. IRS Circular 230 Disclosure Information included in these slides is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any penalties under U.S. federal tax law, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP 13

14 Joel N. Crouch Partner Mr. Crouch is a partner with Meadows, Collier, Reed, Cousins, Crouch & Ungerman, L.L.P., specializing in civil and criminal tax controversies. He represents a broad range of clients, including individual taxpayers, closely-held business enterprises, estates, corporations and tax advisors in all stages of federal civil and criminal tax proceedings. Over the past 20 years, he has helped his clients resolve hundreds of civil and criminal tax matters, many of which involved sophisticated and complex legal and tax issues, both domestic and international. Mr. Crouch has extensive experience in resolving tax matters at all stages of a tax dispute including IRS examinations, administrative appeals, and if necessary, litigation in the U.S. Tax Court, the U.S. Court of Federal Claims and U.S. District Courts. Mr. Crouch has tried civil cases in the U.S. District Court, the U.S. Court of Claims and U.S. Tax Court. He has also successfully argued cases at the U.S. Court of Appeals for the Fifth Circuit. Mr. Crouch has also tried criminal cases in the U.S. District Court. In partnership litigation, he has been involved in challenging IRS positions on the enforceability of several federal regulations, the applicable statute of limitations and application of penalties. phone (214) toll-free (800) fax (214) jcrouch@meadowscollier.com As a board certified tax lawyer by the Texas Board of Legal Specialization, Mr. Crouch has intimate knowledge of the tax laws, regulations, accounting standards and developments within the IRS and other federal government agencies. His specialized knowledge and experience allows him to effectively advocate on behalf of his clients in litigation against the federal government. He has represented accountants and attorneys in civil promoter examinations and criminal investigations arising from their involvement in structured transactions. He has successfully navigated these investigations so that his clients exposure to penalties and criminal prosecution has been eliminated or significantly reduced. Mr. Crouch has been recognized as one of the best in his field by Texas Monthly and Law and Politics magazines by being named a Texas Super Lawyer from 2003 through He is a frequent speaker on both substantive and procedural tax issues for both legal and accounting professionals. Topics include tax shelter defense, IRS examinations, appeals, litigation and collection strategies, IRS criminal investigations, IRS offshore activities, IRS focus on tax professionals, independent contractor versus employee, IRS penalties, and litigating partnership tax cases. Mr. Crouch authored an article, Take Two: IRS Voluntary Disclosures and The Offshore Disclosure Initiatives originally published in the April 2011 issue of BarTabs published by the Collin County Bar Association, page 8.