Taxpayer Advocates Recommend IRS Improvements

The Taxpayer Advocacy Panel, a federal advisory committee of 99 citizen volunteers, made a series of recommendations to the IRS on improving payment installment agreements, the scheduling of audits, fixing problems in 1009 forms and other areas.

In its newly issued annual report for 2008, the panel noted that when the Social Security Administration mailed 1099 forms with incorrect tax information to about 2.7 million taxpayers, the panel recommended that although this was the SSA’s error, the IRS should alert taxpayers and tax return preparers about the error so they could avoid filing returns with the incorrect information. To expedite awareness of the problem, the panel elevated the issue, and in response, the IRS issued an alert to its employees and provided instructions for resolving the problem when taxpayers contacted the IRS.

Another issue that TAP elevated last year involved a change to the Internal Revenue Manual to ensure that initial audit examinations took place at a convenient time and place, for both the taxpayer and the IRS.

“The recommendation stems from a complaint brought to the IRS that an auditor was not allowing sufficient time for a practitioner to prepare for an audit,” said the report. “While the committee believes this is an isolated incident, it prompted the committee to review the methods and policies related to audit scheduling.”

The recommendation was forwarded to the IRS, and the IRS said it would consider making the recommended change.

Another recommendation involved clarifying the IRS Statutory Notice of Deficiency to prevent taxpayers from signing the notice without understanding that they were agreeing to a stated assessment by the IRS. The panel noted that taxpayers often sign the notices without thoroughly understanding the impact of what they sign. TAP recommended clarifying the consent language to ensure taxpayers make an informed decision when a Statutory Notice of Deficiency is sent out. The IRS plans to revise the document.

The panel also recommended making a change in the balance-due notice that the IRS sends to taxpayers when they fall behind on installment payments. Taxpayers participating in a payment program often misunderstand the notice, creating alarm. The panel recommended a redesign to make clear that the notice is fulfilling a statutory requirement, and does not indicate a breach of the established payment program. The IRS agreed with the panel’s suggestions, and indicated a redesign was in progress.

In all, the panel developed 25 recommendations for the IRS based on taxpayer issues and feedback, and completed 86 projects at the request of the IRS. Among them was a special project to clarify the guidance for taxpayers dealing with the complex tax rules relating to cancellation of debt. The panel also completed a project to assess the performance of the IRS’s 401 Taxpayer Assistance Centers and make recommendations for improving their efficiency and tax preparation services. TAP also reviewed more than 50 IRS notices, forms, and publications and recommended clarifications, including to the Schedule C and Schedule C-EZ.