The National Taxpayer Advocate
Relief Options Include Taxpayer Assistance Orders

By Wayne Edmunds and Roxanne Spindle

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Recognizing the complexity of tax law, both substantive and procedural, the IRS for many years has sought to promote taxpayer compliance and aid taxpayers that experience problems when dealing with the IRS. In 1979, the IRS consolidated and formalized its taxpayer assistance efforts by creating the Office of the Taxpayer Ombudsman. In 1996, ever sensitive to criticism and in an effort to provide better service, the IRS replaced this office with the Office of the Taxpayer Advocate. Taxpayer mistrust and dissatisfaction remained, however, and Congress enacted sweeping reform in the IRS Restructuring Act of 1998, radically overhauling both the IRS organizational structure and the way the agency conducts its business. One significant area of change relates to the Office of the Taxpayer Advocate.

The Office of the Taxpayer Advocate assists individual and business taxpayers when established IRS systems and procedures fail to resolve problems or disputes. The Taxpayer Advocate Service is not a substitute for established IRS procedures or the formal appeals process, nor can the National Taxpayer Advocate reverse legal or technical tax law determinations. A taxpayer may seek help from the advocate but, in the final analysis, will prevail only upon showing that the IRS action or position in question is improper. The advocate’s office is also responsible for recommending administrative and legislative changes, in its National Taxpayer Advocate’s Annual Report to Congress. Furthermore, the advocate can issue taxpayer assistance orders to help taxpayers who face hardships as a result of actions taken by the IRS.

As detailed in IRC section 7803, the National Taxpayer Advocate is appointed by the Secretary of the Treasury, after consultation with the IRS Commissioner and the Oversight Board. The National Taxpayer Advocate reports directly to the Commissioner, but operates independently from the IRS.

Position Qualifications and Job Description

Only an individual possessing a background in both customer service and tax law with experience in representing individual taxpayers before the IRS may serve as the National Taxpayer Advocate. Additionally, an individual must not have been employed by the IRS during the two-year period immediately prior to appointment and must agree not to accept employment with the IRS for at least five years after leaving the post.

IRC section 7803 outlines the National Taxpayer Advocate’s responsibilities. Specifically, the advocate is charged with the following duties:

  • Assist taxpayers in resolving problems with the IRS;
  • Identify areas in which taxpayers have problems when dealing with the IRS;
  • Propose changes to IRS administrative practices to mitigate future problems; and
  • Identify possible changes to the law in order to mitigate future problems.

The National Taxpayer Advocate is subject to congressional oversight and each year must submit two reports to the House Ways and Means Committee and the Senate Finance Committee. Reports must be submitted directly to each committee with no prior review or comment from the Secretary of the Treasury, the Commissioner of the IRS or other Treasury officer, or the Office of Management and Budget (OMB). One report, due by June 30 of each year, outlines the objectives of the Office of the National Taxpayer Advocate for the year and includes statistical information and a full and substantial analysis. The second report, due by December 31, is an activities report that identifies initiatives taken to improve taxpayer service and the IRS response to taxpayer problems. This report should include summaries of at least 20 of the most serious problems encountered by taxpayers when dealing with the IRS. To help in this endeavor, the Taxpayer Advocate Service maintains an Office of Systemic Advocacy and manages the Taxpayer Advocacy Panel.

Office of Systemic Advocacy. The Office of Systemic Advocacy’s purpose is to advocate change that benefits groups of taxpayers. Systemic advocacy refers to identifying and addressing systemic tax problems by analyzing the root causes and recommending corrective action. A systemic issue affects a segment of the taxpayer population and involves systems, processes, policies, procedures, or legislation; it requires study, analysis, recommendations, and action to effect a positive resolution. The IRS has developed a new Internet-based program for taxpayers to use to submit systemic problems and suggestions to improve tax administration, available at www.irs.gov/advocate/index.html.

Taxpayer Advocacy Panel. The Taxpayer Advocacy Panel (TAP) acts as a two-way conduit, serving as a focus group for the IRS that provides input on strategic initiatives and as a venue for raising issues identified by citizens. TAP listens to taxpayers, identifies taxpayer issues, and makes suggestions for improving IRS service and customer satisfaction.

The Treasury Department created the Taxpayer Advocacy Panel in October 2002 by expanding the old Citizen Advocacy Panel. Each panel member is a U.S. citizen who will volunteer approximately 300 hours during the year. The panel includes small business owners, retired military personnel, professors, tax professionals, and one former state legislature member. During 2003, the panel focused on priority topics concerning individuals and small businesses.

The Taxpayer Advocacy Panel has identified navigating the IRS as the number-one problem faced by both individuals and business owners. The second most serious problem was delay in the processing of offer-in-compromise (OIC) cases. Key legislative recommendations in the report address the ability of victims of discrimination to adjust income for attorney fees, the treatment of married couples co-owning a business, and taxation of children’s income. The most litigated tax issues are the nonfiling/underreporting of income, and taxpayers’ rights in collection due-process hearings.

Local Taxpayer Advocates

The 1998 IRS Restructuring Act requires the IRS to maintain a system of local taxpayer advocates. Local taxpayer advocates have primary contact with taxpayers that encounter problems dealing with the IRS. The IRS currently has at least one taxpayer advocate per state, who report directly to the National Taxpayer Advocate. To further ensure independence from day-to-day IRS operations, each local taxpayer advocate office maintains separate means of communicating with taxpayers: separate telephone line, separate fax line, and separate postal address.

The IRS provides IRS Publication 1546, Taxpayer Advocate Service, to assist taxpayers who seek help. Publication 1546 contains step-by-step instructions on how to reach a local taxpayer advocate, what to expect from the advocate, and what information the taxpayer should be prepared to provide. Publication 1546 also contains the address, telephone number, and fax number for each local taxpayer advocate office.

To promote taxpayer awareness, every IRS notice of deficiency must inform the taxpayer of the right to contact a local office of the National Taxpayer Advocate.

To reach a local taxpayer advocate, a taxpayer may:

  • Visit the Taxpayer Advocate website at www.irs.gov/advocate;
  • Telephone, fax, or write the nearest local taxpayer advocate office, using the address and numbers provided in Publication 1546;
  • Telephone the National Taxpayer Advocate toll-free number (877-777-4778); or
  • Telephone the general IRS toll-free number (800-829-1040) and ask for taxpayer advocate assistance.

Publication 1546 states that the local taxpayer advocate will provide the following:

  • The name and telephone number of the individual assigned to the case;
  • Courteous service;
  • Timely acknowledgment;
  • An impartial and independent review of the problem;
  • Time frames for action;
  • Updates on progress;
  • Advice on how to prevent future problems.

Whenever possible, the local taxpayer advocate will investigate the matter and assist the taxpayer in achieving a satisfactory resolution. It should be remembered, however, that the taxpayer advocate system is a service arm of the IRS, not a panacea for all taxpayer problems, and, as noted, not a substitute for established IRS procedures and cannot, for example, replace the formal appeals process.

Taxpayer Assistance Orders

One way in which the National Taxpayer Advocate assists taxpayers is by issuing taxpayer assistance orders (TAO), which typically involve collection issues and instruct the IRS to take a specific course of action or refrain from a specific course of action in order to protect the taxpayer from significant hardship. The order will allow additional time for review of the case and a determination of whether the original action was proper. The National Taxpayer Advocate is also authorized to specify a time period within which the action required in the TAO must be completed.

Although the National Taxpayer Advocate may initiate a taxpayer assistance order, an order is usually issued in response to a specific taxpayer request. To request a TAO, an aggrieved taxpayer should file an application with the Office of the National Taxpayer Advocate, indicating that the taxpayer is suffering or is about to suffer a significant hardship because of the manner in which the IRS is enforcing the tax law. A taxpayer may use Form 911, Application for Taxpayer Assistance Order. Alternatively, a taxpayer may simply submit a written statement, signed by the taxpayer or a duly authorized representative, setting out the following:

  • Taxpayer information (taxpayer name, identification number, and mailing address);
  • The type of tax and the period in question;
  • A description of the IRS action or proposed action that is causing or is about to cause the hardship;
  • The IRS office and IRS personnel involved (if known);
  • A description of the hardship caused or about to be caused; and
  • The nature of the relief sought.

In the case of a potential levy of property where the taxpayer claims hardship, a revenue officer attempting to levy is instructed to assist the taxpayer in preparing Form 911 and route the form to the district Taxpayer Advocate. Further enforcement action should be withheld during the Taxpayer Advocate’s review.

Significant hardship. As noted, relief is available only to a taxpayer who is suffering or is about to suffer “significant hardship.” The request should clearly describe the hardship, which IRC section 7811 defines as including the following:

  • The existence of an immediate threat or adverse action;
  • A delay of more than 30 days in resolving a taxpayer account problem;
  • The likelihood that the taxpayer will incur significant costs (including professional fees) if relief is not granted; and
  • The likelihood of irreparable injury or long-term adverse impact if relief is not granted.

Instructions accompanying Form 911 add two additional criteria for issuance of a taxpayer assistance order:

  • The taxpayer has not received a response or resolution to the problem by the date promised; and
  • A system or procedure has failed to operate as intended or has failed to resolve the problem or dispute.

“Significant hardship” generally refers to a serious privation resulting from the manner in which the laws are being administered by the IRS rather than from the law itself. A taxpayer’s mere economic or personal inconvenience does not constitute significant hardship. Significant hardship is a subjective determination made on a case-by-case basis.

For example, a levy served on a taxpayer’s checking account after the taxpayer had entered into a formal installment agreement with IRS might result in a significant hardship. In general, the IRS does not issue levies after taxpayers have entered into formal agreements. A levy that leaves insufficient funds in the account to cover checks that have been written could affect the taxpayer’s credit rating, and the taxpayer might request that the levy be released. If the Taxpayer Advocate agreed, the levy would be released.

In Letter Ruling 200152045, November 15, 2001, a taxpayer accidentally remitted substantial excess payroll taxes to the IRS. Normal tax refund procedures do not authorize the IRS to grant refunds until after the close of the quarter and after a quarterly return claiming the refund has been filed. In the ruling, the IRS suggested that the taxpayer file a Form 911. If the Taxpayer Advocate determined that waiting for the normal refund procedure created a significant hardship, then it could issue a TAO to resolve the significant hardship.

In deciding whether to issue a TAO in a situation where the IRS has failed to follow its own published guidelines, the National Taxpayer Advocate must make determinations in a manner that is most favorable to the aggrieved taxpayer. Most requests for taxpayer assistance orders seek relief from collection activity. A TAO may, for example, order the IRS to release taxpayer property that has been levied upon, or order the IRS to cease an action, take an action, or refrain from taking an action regarding collection, immediate assessment in bankruptcy or receivership, or demand for payment of claims not pending in such proceedings, examination, or inspection as well as any other provision of law described in the TAO.

A TAO is generally binding on the IRS. A TAO may be modified or reversed only by the National Taxpayer Advocate or the Commissioner or Deputy Commissioner of the IRS, and only after providing a written explanation setting out the reasons for the change.

A taxpayer may not use a taxpayer assistance order to delay collection until expiration of the statute of limitations. A request for a TAO will suspend the running of the statute of limitations until the date of the TAO decision, plus any additional time specified in the TAO itself.


Wayne Edmunds, JD, MLT, CPA, and Roxanne Spindle, PhD, CPA, are both associate professors at Virginia Commonwealth University in Richmond, Va.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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