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June 13, 2019 Pro Bono Matters

Taxpayer Advocate Service: Not Just for Low-Income Taxpayers

By Andrew R. Roberson, McDermott Will & Emery LLP, Chicago, IL

Many tax practitioners I have talked to over the years are aware of the Taxpayer Advocate Service (TAS), but are unfamiliar with how TAS operates and what kinds of cases it handles.  Some have indicated that they view TAS as dealing primarily with issues for low-income taxpayers and not a resource for issues affecting corporate taxpayers or high-income individuals.  This article seeks to dispel this common misconception and provide guidance on how TAS can help with all types of taxpayers and issues.

Background on TAS

TAS is an independent organization within the IRS with offices in every state, the District of Columbia, and Puerto Rico.  It was originally created in 1979 as the Office of the Taxpayer Ombudsman to serve as the primary advocate within the IRS for taxpayers, and the position was codified in the Technical and Miscellaneous Revenue Act of 1988.  The statutory authority for TAS is currently found in section 7803(c).  A more detailed discussion of the history of TAS can be found here.

TAS’s purpose is to ensure that taxpayers are treated fairly and know and understand their rights.  TAS is free, confidential, and tailored to meet taxpayers’ needs.  Nina E. Olson, the National Taxpayer Advocate (NTA), who currently leads TAS is retiring at the end of July after 18 years.

TAS works in two main ways: (1) helping taxpayers with individual problems; and (2) recommending systemic changes at the IRS or in the tax laws.  Individuals, businesses, and exempt organizations may all be eligible for assistance in situations where an IRS problem is causing financial difficulty or an IRS procedure is not working correctly.  As set forth on TAS’s website, cases fall into four general categories:

  1. Where a taxpayer is experiencing some financial difficulty, emergency, or hardship, and the IRS needs to move much faster than it usually does (or even can) under its normal procedures. In those cases, time is of the essence.  If the IRS doesn’t act quickly (for example, to remove a levy or release a lien), the taxpayer will experience even more financial harm.
  2. Where many different IRS units and steps are involved, and the case needs a “coordinator” or “traffic cop” to make sure everyone does their part.  TAS plays that role.
  3. Where the taxpayer has tried to resolve a problem through normal IRS channels but those channels have broken down.
  4. Where the taxpayer is presenting unique facts or issues (including legal issues), and the IRS is applying a “one size fits all” approach, isn’t listening to the taxpayer, or doesn’t recognize that it needs new guidance for those circumstances.

Some of these issues are outlined on TAS’s website.  TAS also has statutory authority under section 7811 to issue Taxpayer Assistance Orders (TAOs), which order the appropriate IRS operating unit to take action or stop action in certain situations.  The IRS operating unit can either comply with the TAO or appeal it.  If disagreements remain, the issue may ultimately be elevated to the NTA and the Commissioner of Internal Revenue.  More detailed discussions of the TAO process can be found in PMTA 2017-01, Internal Revenue Manual 13.1.20, and Treas. Reg. § 301.7811-1.  Additionally, a discussion of who is a “taxpayer” for purposes of issuing a TAO can be found in Rothkamm v. United States, 802 F.3d 699 (5th Cir. 2015).

Regarding systemic assistance, TAS looks at patterns in taxpayer issues to determine if an IRS process or procedure is not working correctly.  If so, TAS recommends steps to resolve the problem.  The NTA presents an Annual Report to Congress identifying at least twenty of the most serious problems that taxpayers are facing.  Taxpayers and practitioners are encouraged to report systems issues using the IRS’s Systemic Advocacy Management Systems (SAMS).  SAMS is frequently used by low-income taxpayer clinics to highlight IRS procedural issues.

TAS is instrumental to the efficient and effective operation of the IRS.  Through the efforts of the NTA, Congress enacted the Taxpayer Bill of Rights (TBOR) in section 7803(a)(3) of the Internal Revenue Code.  The TBOR, which contains ten fundamental rights for taxpayers, was the subject of an earlier Tax Times article.

Utilizing TAS Outside the Low-Income or Pro Bono Context

As noted above, there is a belief by some tax practitioners that TAS is a resource for low-income taxpayers and may not be able to assist with corporate taxpayers or issues involving large dollar amounts.  This misconception may result in tax practitioners not understanding how TAS can help them in IRS disputes for specific clients or for industry-wide issues.

As tax practitioners are aware, IRS procedural rules and limited resources can sometimes cause issues to fall through the cracks.  For example, taxpayers may have made claims for refund or requests for abatement that are not really in dispute but that are being held up for some unknown reason without any IRS contact person.  TAS has helped me in several of these situations to timely correct a problem to ensure that a corporate taxpayer’s account is being properly credited or a refund is being issued.  This is just one example of a situation where TAS can assist larger taxpayers.

Another example of TAS’s assistance to corporate taxpayers is illustrated by the recent controversy surrounding the IRS’s administration of the section 965 transition tax.  In this situation, the IRS has taken the position (surprising to many practitioners and taxpayers) that for taxpayers making an election under section 965(h) to pay the transition tax over 8 years through installment payments, any overpayments of 2017 tax liabilities cannot be used as credits for 2018 estimated tax payments or refunded, unless and until the overpayment amount exceeds the full 8 years of installment payments.  More background on this issue can be found here.

Many tax practitioners and organizations have engaged in discussions to convince the IRS to reverse course on this position, which in some situations limits the ability of taxpayers to defer payment of the transition tax and instead results in the creation of a type of advance payment to the IRS for which the taxpayer does not receive any credit for foregone interest or use of the funds.  To assist with this problem, inquiries were made with TAS.

As a result of these inquiries, TAS advocated for a change in the IRS’s position.  The NTA, in a blog post on August 16, 2018, addressed the IRS’s position in detail and explained why the position should be changed.  It remains to be seen whether the IRS reverses course, but it is encouraging to see TAS advocating for an issue that largely affects corporate taxpayers.

As the above demonstrates, TAS is a resource for taxpayers of all shapes and sizes.  Getting to know your local Taxpayer Advocate and building relationships and connections with TAS can be extremely beneficial in assisting tax clients with IRS disputes that cannot be resolved through normal administrative channels.  In certain situations, TAS may decide to issue a TAO or to recommend action with respect to a systemic issue.  Through this process, taxpayers are ensured that their voices will be heard within the IRS.  In many situations, involving TAS can resolve matters in a timely and efficient matter for taxpayers.