I.          Office Of The Taxpayer Advocate

In this current difficult fiscal times in particular, taxpayers find themselves without sufficient means to pay their bills much less satisfy their tax obligations.  But maneuvering through the labyrinths of the Internal Revenue Code and Internal Revenue Service does not have to be a hopeless journey that we all must make.   In the event a taxpayer finds him or herself in the middle, or on the verge, of financial harm at the hand of the Internal Revenue Service, the Office of the Taxpayer Advocate may be the place to turn.

A.        Origins

In 1977, the Problem Resolution Program was first implemented because taxpayer's problems were not promptly or properly resolved, and the Internal Revenue Service had not been fully sensitive to the needs of taxpayers.  Since 1977, the Program has evolved from the Problem Resolution Program to the Taxpayer Advocate Service.[1]  There were several catalysts in establishing the Taxpayer Advocate Service including (1) the creation of the Office of the Taxpayer Ombudsman in 1979, codified as the Taxpayer Bill of Rights,[2] (2) the Taxpayer Bill of Rights 2 which changed the title of the Taxpayer Ombudsman to Taxpayer Advocate and provided the Advocate with greater autonomy and enhanced authority to advocate changes that benefit taxpayers,[3] and (3) the Internal Revenue Service Restructuring and Reform Act of 1998 which changed the Taxpayer Advocate Service's organization.[4] 

The Restructuring and Reform Act of 1998 significantly changed the appointment of the National Taxpayer Advocate from being an appointee of the Commissioner to being an appointee of the Secretary of the Treasury in consultation with the Commissioner of Internal Revenue and IRS Oversight Board.[5]  The core purposes for these changes were to (1) create an independent reporting structure for all Taxpayer Advocate Service employees, and (2) provide taxpayers with taxpayer advocates in every state.[6]

The functions of the Office of the Taxpayer Advocate are:  (i) to assist taxpayers in resolving problems with the Internal Revenue Service; (ii) to identify areas in which taxpayers have problems in dealings with the Internal Revenue Service; (iii) to the extent possible, to propose changes in the administrative practices of the Internal Revenue Service to mitigate problems identified under clause (ii); and (iv) to identify potential legislative changes which may be appropriate to mitigate such problems.[7]

B.        The Advocate

The Office of the Taxpayer Advocate is run by the National Taxpayer Advocate who reports directly to the Commissioner of Internal Revenue and who is entitled to compensation at the same rate as the highest rate of basic pay established for the any senior executive of the Internal Revenue Service.[8]  Based on the salary structure, it is clear that the Taxpayer Advocate is considered to be a highly respected position of the federal government.

The National Taxpayer Advocate is appointed by the Secretary of the Treasury after consultation with the Commissioner of Internal Revenue and the Oversight Board.[9]  This person must have a background in tax law and in customer service representing individual taxpayers,[10] must not have been an officer or employee of the Internal Revenue Service during the prior 2-year period, and agrees not to accept any employment with the Internal Revenue Service for at least 5 years after ceasing to be the National Taxpayer Advocate.[11] As will be seen herein, the Advocate is intended to operate independently of the Internal Revenue Service.

The duties of the National Taxpayer Advocate include the submission of various annual reports to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate on the objectives of the Office of the Taxpayer Advocate.  These reports must be submitted not later than June 30 and December 31 for each calendar year and the reports shall contain full and substantive analyses of the issues presented by taxpayers, in addition to statistical information.[12] 

As a telling example of the Advocate’s defining role in assisting taxpayers in navigating through the Internal Revenue Service, Nina Olson’s[13] most recent report to congress reminds of past reports in which the Advocate has highlighted the “‘confounding complexity of the Internal Revenue Code’” as one of the most serious problems facing taxpayers.  We do so again this year.”[14]  The report notes that FY 2010 will mark the ten-year anniversary of the Taxpayer Advocate Service, which began operations in March of 2000. “As TAS enters its tenth year, both [TAS] and the IRS face a difficult environment for achieving what is, in essence, the same mission – ensuring that the IRS treats taxpayers fairly and identifying ways to increase voluntary compliance while addressing noncompliance,” Olson said. She identified the collection of tax revenue at a time when “increasing numbers of taxpayers have difficulty paying their daily living expenses” as a principal challenge.[15]

The National Taxpayer Advocate’s December 31^st report must “(I) identify the initiatives the Office of the Taxpayer Advocate has taken on improving taxpayer services and Internal Revenue Service responsiveness; (II) contain recommendations received from individuals with the authority to issue Taxpayer Assistance Orders . . . (III) contain a summary of at least 20 of the most serious problems encountered by taxpayers, including a description of the nature of such problems; (IV) contain an inventory of the items described in subclauses (I), (II), and (III) for which action has been taken and the result of such action; (V) contain an inventory of the items described in subclauses (I), (II), and (III) for which action remains to be completed and the period during which each item has remained on such inventory; (VI) contain an inventory of the items described in subclauses (I), (II), and (III) for which no action has been taken, the period during which each item has remained on such inventory, the reasons for the inaction, and identify any Internal Revenue Service official who is responsible for such inaction; (VII) identify any Taxpayer Assistance Order which was not honored by the Internal Revenue Service in a timely manner . . . ; (VIII) contain recommendations for such administrative and legislative action as may be appropriate to resolve problems encountered by taxpayers; (IX) identify areas of the tax law that impose significant compliance burdens on taxpayers or the Internal Revenue Service, including specific recommendations for remedying these problems; (X) identify the 10 most litigated issues for each category of taxpayers, including recommendations for mitigating such disputes; and (XI) include such other information as the National Taxpayer Advocate may deem advisable.[16]

The National Taxpayer Advocate also is tasked with developing and distributing guidance to all Internal Revenue Service officers and employees outlining the criteria for referral of taxpayer inquiries to local offices of taxpayer advocates.[17]  The mission of the Taxpayer Advocate Service is “to help taxpayers resolve problems with the Internal Revenue Service and to recommend changes to prevent the problems.” The organization fulfills its mission through two types of advocacy - case-related and systemic.

Taxpayer Advocate Service not only handles cases in which a taxpayer is suffering or about to suffer a significant hardship, but it also handles cases in which assisting the taxpayers in solving problems with the Internal Revenue Service benefit from Taxpayer Advocate Service involvement, even though the taxpayer is not individually experiencing a hardship.  Where Taxpayer Advocate Services cannot provide a remedy for taxpayers because of deficiencies in administrative procedures or barriers imposed by the tax law, Taxpayer Advocate Service will propose administrative solutions of legislative changes, as appropriate.[18]

Taxpayer Advocate Service employees have statutory and delegated authorities to advocate and negotiate for taxpayers.[19]  Statutory authorities are found in IRC §7803(c) and IRC §7811 and are discussed more thoroughly herein.  Briefly, IRC §7803(c) defines the primary purpose of the Taxpayer Advocate Service as well as provides the foundation for the independence of TAS within the Internal Revenue Service.   IRC §7811 authorizes the issuance of Taxpayer Assistance Orders.[20] 

Delegated authorities, both administrative and procedural, are granted to the National Taxpayer Advocate by the Commissioner and re-delegated to employees and management of the Taxpayer Advocate Service. This authority allows Taxpayer Advocate Services to resolve routine cases in the same manner as other functions within the Internal Revenue Service exercising the same authority.[21]  For example, if a taxpayer receives a notice of intent to levy and he previously contacted the Internal Revenue Service requesting an installment agreement, but has not received a response, the taxpayer may contact Taxpayer Advocate Services and request an installment agreement. Taxpayer Advocate Services can establish the installment agreement under certain circumstances and so long as the determination to establish the agreement is made in the same fashion as that of a Collection or Customer Service employee considering the same facts.[22]

The Taxpayer Advocate Service’s delegated authorities are both procedural and administrative and include:

•    Delegation Order No. 40 which grants the authority to make credits or within the applicable period of limitations, including manual refunds in certain circumstances.[23] 

•    Delegation Order No. 231 which grants authority to abate interest on erroneous refunds under IRC §6404(e)(2).[24]

•    Delegation Order No. 232 which grants the authority to issue, modify or rescind Taxpayer Assistance Orders for cases under the Taxpayer Advocate Service’s jurisdiction.[25]

•    Delegation Order No. 233 which grants authority to approve replacement checks for lost or stolen refunds under certain circumstances, substantiate credits to taxpayer accounts where a taxpayer furnishes proof of payment but the Service cannot locate the payment within a reasonable time, and abate for reasonable cause all automatically assessed penalties.[26]

•    Delegation Order No. 250 which grants authority to issue a Taxpayer Advocate Directive to mandate administrative or procedural changes to improve the operation of a functional process or to grant relief to groups of taxpayers.[27]

•    Delegation Order No. 267 which grants the authority to report certain delinquent accounts currently not collectible, to release liens, to release levies, to make trust fund recovery penalty adjustments and to accept installment agreements.[28]  This Order also grants the authority to correct administrative errors and service errors, including decimal point errors, transposition errors and input errors.[29]

           
In sum, the Taxpayer Advocate Service has broad discretion to act on behalf of and in the best interests of United States taxpayers.

C.        Structure

There are nine Area Taxpayer Advocates who provide program guidance and direction to Local Taxpayer Advocates.[30]  There is at least one Local Taxpayer Advocate in each of the fifty states, as well as in each Service center.[31]  The National Taxpayer Advocate is responsible for appointing local taxpayer advocates, and for evaluating and taking personnel actions with respect to any employee of any local office of a Taxpayer Advocate.[32] 

Each office must maintain means of communication that are independent of the Internal Revenue Service.  For example, each office must maintain separate phone and fax machine numbers and separate post office addresses.  Another example, employees must inform taxpayers that the Office operates independently from the Internal Revenue Service and reports directly to Congress through the National Taxpayer Advocate.[33] 

To this end of separation, the local taxpayer advocate has the discretion not to inform the Internal Revenue Service of any contact or any information provided to the local office by a taxpayer.[34]  Information subject to nondisclosure includes both the information supplied by the taxpayer to the Taxpayer Advocate and the very identity of the taxpayer.[35]  Internal Revenue Service employees are prohibited from contacting persons other than the taxpayer about the collection or determination of a tax without first giving the taxpayer reasonable notice that such contacts may be made.[36]  Conversely, the Internal Revenue Service is required by statute to inform the taxpayer of his or her right to access the taxpayer advocate with contact information for the local advocate’s office.[37]   

Taxpayer advocates in local offices and service centers are supposed to resolve taxpayer inquiries and responses by ensuring that they are handled by the appropriate function, especially the collection enforcement function in the Small Business and Self-Employed Division. If Tax Payer Assistance accepts the case, the first benefit to the taxpayer is that collection is put on hold, pending resolution of the problem.

The circumstances for which a taxpayer is eligible for assistance through the Taxpayer Advocate are as follows:

Economic Burdens

1.   The taxpayer is experiencing economic harm or is about to suffer economic harm. The economic harm may be the result of actions by the Internal Revenue Service or created as a result of circumstances in the taxpayer's personal life.

2.   The taxpayer is facing an immediate threat of adverse action such as the notice of a lien or a levy or the seizure of property, utility cutoffs or evictions.

3.   The taxpayer will incur significant costs if relief is not granted such as when the Internal Revenue Service is unable to immediately make adjustments, process returns or release a lien and the taxpayer thus is forced to incur significant costs (significant will be determined on a case by case basis by the local advocate’s office).

4.   The taxpayer will suffer irreparable injury or long term adverse impact if relief is not granted to remedy a taxpayer losing assets, income, or potential income. This could include loss of a license to practice the taxpayer’s chosen profession or an inability to obtain a loan following the issuance of a federal tax lien. 

Systemic Burdens

1.   The taxpayer has experienced a delay of more than 30 days to resolve a tax account problem where (1) there is an established timeframe for a specific action, or (2) when there is no established timeframe for a specific action but the problem is delayed more than 30 days after the initial date the taxpayer made a request for Internal Revenue Service assistance. Delays due to taxpayer unresponsiveness will not be considered a systemic burden for which relief will be granted.

2.   The taxpayer has not received a response or resolution to the problem or inquiry by the date promised.

3.   A system or procedure has either failed to operate as intended, or failed to resolve the taxpayer's problem or dispute within the Internal Revenue Service.

Best Interest of the Taxpayer

1.   The manner in which the tax laws are being administered raises considerations of equity, or have impaired or will impair taxpayers' rights.  In the event that these issues are raised by an IRS employee, the Treasury Inspector General for Tax Administration shall investigate.

Public Policy

1.   The National Taxpayer Advocate has the sole authority for determining whether a taxpayer’s given situation merits review based on public policy.[38]

The taxpayers themselves are not required to document their case in order to be accepted into the program.  The Taxpayer Advocate’s Office will take responsibility for compiling the relevant information and for documenting the problems through the course of their investigation and evaluation of appropriate resolution.  It must be noted that cases involving a complaint regarding the constitutionality of the tax system or a frivolous tax strategy intended to avoid or delay the filing or paying of federal taxes will not be accepted for review by the Taxpayer Advocate. 

II.        The Taxpayer Advocate’s Claims Processing

After a case has been accepted into TAS, there are generally three phases in resolving the case: (1) the Case Advocate clarifies the taxpayer’s issue and what type of relief/assistance is requested or needed, (2) the Case Advocate builds the case by conducting research such as reviewing information document requests, gathering information from taxpayers, third parties, or the Internal Revenue Service employee assigned to the case, and reviewing procedural guidance and applicable regulations or laws, and (3) the Case Advocate takes any actions necessary to provide relief/assistance and to bring the case to resolution, including educating the taxpayer.[39]

The Case Advocate must review any information provided by the taxpayer within three to five workdays to determine if the information is sufficient to take the next step toward resolution.   If the information is insufficient a request for additional information must be made.[40]  If the information is not timely forthcoming, the Case Advocate must take any actions possible with the information that has been received.[41]  If no action may be taken due to a lack of information provided by the taxpayer after so requesting the information, the Case Advocate may close the case as a “no response.”[42]  In other circumstances in which the Case Advocate does have sufficient information, actions to resolve the case must be made immediately.[43]

Actions should be taken to provide assistance to the taxpayer as soon as the Case Advocate has sufficient information required for the actions to be taken.[44] 

III.       Taxpayer Assistant Orders

The Office of the Taxpayer Assistant is vested with the authority to issue Taxpayer Assistance Orders[45] if the National Taxpayer Advocate determines “the taxpayer is suffering or about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered by the Secretary.”[46]  A significant hardship includes “(A) an immediate threat of adverse action; (B) a delay of more than 30 days in resolving taxpayer account problems; (C) the incurring by the taxpayer of significant costs (including fees for professional representation) if relief is not granted; or (D) irreparable injury to, or a long-term adverse impact on, the taxpayer if relief is not granted.”[47]  In the event any Service employee is not following applicable published administrative guidance, by statute the National Taxpayer Advocate must construe the facts in the light most favorable to the taxpayer.[48]

A Taxpayer Assistance Order may require the Secretary of the Treasury within a specified time period (1) to release property of the taxpayer levied upon, or (2) to cease any action, take any action as permitted by law, or refrain from taking any action, with respect to the taxpayer.[49]  Actions taken by the Office of the Taxpayer Advocate on a taxpayer’s application for assistance suspend the running of any period of limitation beginning on the date of the taxpayer's application for taxpayer assistance and ending on the date of the National Taxpayer Advocate's decision or for any period specified by the National Taxpayer Advocate in a taxpayer assistance order.[50]  This suspension of a limitations period does not apply in the event the taxpayer has not made a written application for assistance. 

Specifically, in order for the suspension of the statute to be applicable, the taxpayer or authorized representative must submit a signed Form 911, Application for Taxpayer Assistance Order, or a written statement containing the following information:

•Taxpayer name, identification number, and current mailing address,

• Kind of tax (individual, corporate, etc.) and tax period(s) involved,

• Description of Internal Revenue Service action or proposed action causing or about to cause a significant hardship,

• Internal Revenue Service office and personnel involved, if known,

• Description of the specific hardship,

• Kind of relief requested, and

• Signature(s) of the taxpayer(s) or duly authorized representative.[51]

          
Although no special form is required, the Service published Form 911 for the purpose of seeking this relief.[52]  When the requirements for suspension of a limitations period are met, the applicable statute will be suspended beginning on the Taxpayer Advocate Received Date and ending on the Taxpayer Advocate Service’s Decision Date.  The Taxpayer Advocate Service’s decision date will be either the date the Application of Assistance Order (Form 911) is denied or the date an agreement is reached with the involved function as to what should be done with the Operations Assistance Request.[53]  The Taxpayer Advocate Service is required to suspend the statute on the appropriate taxpayer's account within seven calendar days from the date received.[54]

Upon receipt of a request for a Taxpayer Assistance Order, the Taxpayer Advocate first will determine whether circumstances listed in the statute are present.  Some of these circumstances are readily determinable, such as the threat of adverse action, a delay of more than thirty days in resolving a taxpayer account problem, and the taxpayer's liability for additional costs, including professional fees.  Other circumstances are more subjective, such as whether the taxpayer will suffer irreparable injury or long-term adverse effects.  The Internal Revenue Manual identifies a list of examples that officers consider in determining whether a taxpayer is or will suffer undue hardship including (1) whether the taxpayer lacks sufficient funds necessary for housing, utilities, food, transportation to and from work, or medical treatment, (2) whether the taxpayer may become unemployed or lose his or her source of income, (3) whether the taxpayer will lose out of acquiring real property, (4) whether the Internal Revenue Service handled the taxpayer's case differently than other taxpayers in similar situations and the impact will cause serious damage to the taxpayer's ability to earn future income, (5) whether the Internal Revenue Service responded to the taxpayer in a timely manner, (6) whether the taxpayer's credit was not applied in the correct manner or to the correct account, and (7) whether the taxpayer received a statutory final notice before enforcement action was taken.[55]

IV.       Conclusion

The National Taxpayer Advocate is given the discretion to consult with appropriate supervisory personnel of the Service in carrying out the Advocate's responsibilities.  When the National Taxpayer Advocate submits recommendations to the Commissioner, the Commissioner must respond to the Advocate within three months.[56]  Undoubtedly the powers vested in the Office of the Taxpayer Advocate, and it’s autonomy from the Service, can be significant and meaningful to taxpayers who experience unfavorable treatment by the Internal Revenue Service or who find themselves in a position of hardship as a result of the Internal Revenue Code.

Janet L. Iverson

Murphy Pearson Bradley & Feeney

San Francisco, California
jiverson@mpbf.com