NATIONAL TAXPAYER ADVOCATE 2026 PURPLE BOOK: COMPILATION OF LEGISLATIVE RECOMMENDATIONS…

INTRODUCTION

Section 7803(c)(2)(B)(ii)(IX) of the Internal Revenue Code requires the National Taxpayer Advocate, as part of her Annual Report to Congress, to propose legislative recommendations to resolve problems encountered by taxpayers. This year, we present 71 legislative recommendations.

To make these recommendations as accessible and user-friendly as possible for Members of Congress and their staffs, we have taken several steps:

• Organized recommendations by category, generally following the stages of tax administration ( e.g., return filing, audits, collection), so readers can easily locate areas of interest.

• Presented each recommendation in a standardized format, modeled after congressional committee reports, including sections on “Present Law,” “Reasons for Change,” and “Recommendation(s).” Each begins with a concise, plain-language summary of the underlying “Problem” and our proposed “Solution.” Our objective is to allow readers to quickly get a feel for all our recommendations by scanning the summaries.

• Referenced past legislation, where relevant bills have been introduced that are generally consistent with one of our recommendations. We have included a footnote at the end of the recommendation that identifies one or more of those bills. (Because of the large number of bills introduced in each Congress, we may have overlooked some. We apologize for any bills we have inadvertently omitted.)

• Provided a comprehensive reference table in Appendix 1, identifying additional materials, including prior bills and detailed discussions from earlier National Taxpayer Advocate reports.

By our count, Congress has enacted approximately 53 legislative recommendations proposed by the National Taxpayer Advocate, including 23 provisions enacted as part of the Taxpayer First Act. ¹ See Appendix 2 for a complete listing.

During the last two months of 2025, Congress enacted three recommendations from the National Taxpayer Advocate 2025 Purple Book. On November 25, 2025, the President signed into law H.R. 998, the Internal Revenue Service Math and Taxpayer Help Act, which significantly improves the clarity of math error notices. ² This legislation was based on 2025 Purple Book Recommendation #9, Require That Math Error Notices Describe the Reason(s) for the Adjustment With Specificity, Inform Taxpayers They May Request Abatement Within 60 Days, and Be Mailed by Certified or Registered Mail. ³ On December 11, 2025, the Senate approved H.R. 1491, the Disaster Related Extension of Deadlines Act, which had previously been passed by the House. ⁴

1 Taxpayer First Act, Pub. L. No. 116-25, 133 Stat. 981 (2019). We say Congress enacted “approximately” a certain number of National Taxpayer Advocate recommendations because in some cases, enacted provisions are substantially similar to what we recommended but are not identical. The statement that Congress enacted a National Taxpayer Advocate recommendation is not intended to imply that Congress acted solely because of the recommendation. Congress, of course, receives suggestions from a wide variety of stakeholders on an ongoing basis and makes decisions based on the totality of the input it receives. 2 Pub. L. No. 119-39, 139 Stat. 659 (2025). 3 National Taxpayer Advocate 2025 Purple Book, Compilation of Legislative Recommendations to Strengthen Taxpayer Rights and Improve Tax Administration ( Require That Math Error Notices Describe the Reason(s) for the Adjustment With Specificity, Inform Taxpayers They May Request Abatement Within 60 Days, and Be Mailed by Certified or Registered Mail ). https://www. taxpayeradvocate.irs.gov/wp-content/uploads/2024/12/ARC24_PurpleBook_03_ImproveAssmtCollect_9.pdf. 4 Disaster Related Extension of Deadlines Act, H.R. 1491, 119th Cong. (2025).

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INTRODUCTION

Section 2(a) of the bill implements 2025 Purple Book Recommendation #55, Amend the Lookback Period for Allowing Tax Credits or Refunds to Include the Period of Any Postponement or Additional or Disregarded Time for Timely Filing a Tax Return . Section 2(b) of the bill implements 2025 Purple Book Recommendation #56, Protect Taxpayers in Federally Declared Disaster Areas Who Receive Filing and Payment Relief From Inaccurate and Confusing Collection Notices . At our publication deadline, the bill had been presented to the President for signature and was awaiting his action.

The Office of the Taxpayer Advocate is a non-partisan, independent organization within the IRS that assists taxpayers in resolving problems with the IRS and makes administrative and legislative recommendations to mitigate taxpayer problems and protect taxpayer rights. We call this compilation the “Purple Book” because the color purple, as a mix of red and blue, symbolizes bipartisanship. Historically, tax administration legislation has attracted bipartisan support. For example, both the Taxpayer First Act (2019) and the Internal Revenue Service Math and Taxpayer Help Act (2025) passed Congress on voice votes and by unanimous consent.

The recommendations presented in this volume are common-sense, generally non-controversial reforms designed to strengthen taxpayer rights and improve tax administration. We welcome the opportunity to discuss these recommendations with Members of Congress and their staffs.

Below are ten legislative recommendations we highlight for particular attention:

• Authorize the IRS to Establish Minimum Standards for Federal Tax Return Preparers and to Revoke the Identification Numbers of Sanctioned Preparers (Recommendation #5). The IRS receives over 160 million individual income tax returns each year, and most are prepared by paid tax return preparers. While some tax return preparers must meet licensing requirements ( e.g., certified public accountants, attorneys, and enrolled agents), most tax return preparers are not credentialed. Numerous studies have found that non-credentialed preparers disproportionately prepare inaccurate returns, causing some taxpayers to overpay their taxes and other taxpayers to underpay their taxes, which subject them to penalties and interest charges. Non-credentialed preparers also drive much of the high improper payments rate attributable to wrongful Earned Income Tax Credit (EITC) claims. In FY 2024, 27.3% of EITC payments, amounting to $15.9 billion, were estimated to be improper, and among tax returns claiming the EITC prepared by paid tax return preparers, 96% of the total dollar amount of EITC audit adjustments was attributable to returns prepared by non-credentialed preparers.

Federal and state laws generally require lawyers, doctors, securities dealers, financial planners, actuaries, appraisers, contractors, motor vehicle operators, and even barbers and beauticians to obtain licenses or certifications. The Obama, Trump, and Biden administrations have each recommended that Congress authorize the Treasury Department to establish minimum standards for federal tax return preparers. To protect taxpayers and the public fisc, we likewise recommend that Congress provide this authorization as well as authorization for the Treasury Department to revoke the Preparer Tax Identification Numbers (PTINs) of preparers who have been sanctioned for improper conduct. ⁵

• Expand the Tax Court’s Jurisdiction to Hear Refund Cases (Recommendation #43). Under current law, taxpayers seeking to challenge an IRS tax due adjustment can file a petition in the U.S. Tax Court (Tax Court), while taxpayers who have paid their tax and are seeking a refund must file suit in a U.S. district court or the U.S. Court of Federal Claims. Litigating in a U.S. district court or the Court of

5 In general, a PTIN must be obtained by a tax return preparer who is compensated for preparing or assisting in the preparation of all or substantially all of a federal tax return or claim for refund. The preparer must then include the PTIN on any returns or claims for refund prepared.

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INTRODUCTION

Federal Claims is generally more challenging – filing fees are more costly, rules of civil procedure are complex, the judges generally do not have tax expertise, and proceeding without a lawyer is difficult. By contrast, taxpayers litigating their cases in the Tax Court face a low $60 filing fee, may follow less formal procedural rules, are generally assured their positions will be fairly considered even if they don’t present them well because of the tax expertise of the Tax Court’s judges, and can more easily represent themselves without a lawyer. For these reasons, the requirement that refund claims be litigated in a U.S. district court or the Court of Federal Claims effectively deprives many taxpayers of the right to judicial review of an IRS refund disallowance. In FY 2024, about 97% of all tax-related litigation was adjudicated in the Tax Court. ⁶ We recommend Congress expand the jurisdiction of the Tax Court to give taxpayers the option to litigate all tax disputes, including refund claims, in that forum.

• Enable the Low Income Taxpayer Clinic Program to Assist More Taxpayers in Controversies With the IRS (Recommendation #64). The Low Income Taxpayer Clinic (LITC) program assists lowincome taxpayers and taxpayers who speak English as a second language. When the LITC program was established as part of the IRS Restructuring and Reform Act of 1998, the law limited annual grants to no more than $100,000 per clinic. The law also imposed a 100% “match” requirement so a clinic cannot receive more in grants than it raises from other sources. The nature and scope of the LITC Program has evolved considerably since 1998, and those requirements are preventing the program from expanding assistance to a larger universe of eligible taxpayers. We recommend Congress remove the per-clinic cap and allow the IRS to reduce the match requirement to 25%, where doing so would expand coverage to additional taxpayers.

• Require the IRS to Timely Process Claims for Credit or Refund (Recommendation #2). Millions of taxpayers file refund claims with the IRS each year. Under current law, there is no requirement that the IRS pay or deny them. It may simply ignore them. The taxpayers’ remedy is to file suit in a U.S. district court or the U.S. Court of Federal Claims. For many taxpayers, that is not a realistic or affordable option. The absence of a processing requirement is a poster child for non-responsive government. While the IRS generally does process refund claims, the claims can and sometimes do spend months and even years in administrative limbo within the IRS. We recommend Congress require the IRS to act on claims for credit or refund within one year and impose certain consequences on the IRS for failing to do so.

• Allow Taxpayers to Claim the Child Tax Credit and Earned Income Tax Credit for a Child Who Meets All Statutory Requirements Except Having a Social Security Number by the Due Date for the Tax Return (Recommendation #58). The tax law requires that a taxpayer’s children have Social Security numbers (SSNs) by the tax return filing deadline to claim them for purposes of the Child Tax Credit (CTC) or EITC. The intent of this requirement is to limit the tax credits to U.S. persons, but in a variety of circumstances taxpayers cannot or do not obtain SSNs for their children in time and lose out on thousands of dollars of benefits for which they otherwise qualify. For example, a taxpayer may claim a child born on December 31 for purposes of these credits but generally must have the child’s SSN in hand by April 15 to do so (unless filing for an extension).

Among taxpayers who lose out on the credits: military and other expatriate families stationed overseas who must take additional steps to obtain SSNs; parents who don’t obtain SSNs in time when a birth takes place outside a hospital setting and the parents don’t file a timely SSN application, a hospital misplaces the paperwork, the Social Security Administration (SSA) makes a processing error, or the parents move and mail isn’t forwarded; adopted children who have not yet received SSNs; children

6 Data compiled by the IRS Office of Chief Counsel (Nov. 8, 2024). IRS, Counsel Automated Tracking System, TL-711 and TL-712. This data does not include cases on appeal and declaratory judgments.

National Taxpayer Advocate 2026 Purple Book vii who are born and die before the SSA issues an SSN; and taxpayers who do not obtain SSNs for their children due to religious beliefs ( e.g., some Amish sects). In these circumstances, U.S. citizens are being denied valuable benefits intended by Congress. We recommend Congress allow taxpayers who obtain SSNs after the filing deadline to timely file amended returns to claim CTC and EITC benefits or, in the case of those opposed to SSNs for religious reasons, to submit other forms of substantiation. ⁷

• Provide Consistent Tax Relief for Victims of Federally Declared Disasters (Recommendation #53). After a hurricane, flood, wildfire, or other natural disaster has destroyed homes or businesses, Congress often passes legislation to provide tax relief to those affected. But there is no consistency regarding whether or which forms of tax relief are granted. Taxpayers may receive extensive relief, some relief, or no relief at all. Relief, even when granted, generally is not authorized until months later. The current ad hoc approach creates uncertainty for disaster victims and their communities and often means that similarly situated taxpayers receive different results. We recommend Congress determine which forms of tax relief to grant in the case of federally declared disasters and provide that relief automatically. In the alternative, recognizing that different types of disasters may warrant different forms of relief, we recommend Congress authorize a menu of relief options and direct the Treasury Department to prescribe regulations for determining which forms of relief to provide based on the nature and severity of the disaster.

• Extend Reasonable Cause Defense for the Failure-to-File Penalty to Taxpayers Who Rely on Return Preparers to E-File Their Returns (Recommendation #31). The tax law imposes a penalty of up to 25% of the tax due for failing to file a timely tax return, but the penalty is waived where a taxpayer can show the failure was due to “reasonable cause.” Most taxpayers pay tax return preparers to prepare and file their returns for them. In 1985, when all returns were filed on paper, the Supreme Court held that a taxpayer’s reliance on a preparer to file a tax return did not constitute “reasonable cause” to excuse the failure-to-file penalty if the return was not timely filed. In 2023, a U.S. Court of Appeals held that “reasonable cause” is also not a defense when a taxpayer relies on a preparer to file a tax return electronically.

For several reasons, it is often much more difficult for taxpayers to verify that a return preparer has e-filed a return than to verify that a return has been paper-filed. Unfortunately, many taxpayers are not familiar with the electronic filing process and do not have the tax knowledge to ask for the right document or proof of filing. Penalizing taxpayers who engage preparers and do their best to comply with their tax obligations is grossly unfair and undermines the congressional policy that the IRS encourage e-filing. Under the court’s ruling, astute taxpayers would be well advised to ask their preparers to give them paper copies of their prepared returns and then transmit the returns by certified mail themselves so they can ensure compliance. We recommend Congress clarify that reliance on a preparer to e-file a tax return may constitute “reasonable cause” for penalty relief and direct the Secretary to issue regulations detailing what constitutes ordinary business care and prudence for purposes of evaluating reasonable cause requests.

• Promote Consistency With the Supreme Court’s Boechler Decision by Making the Time Limits for Bringing All Tax Litigation Subject to Equitable Judicial Doctrines (Recommendation #45). Taxpayers who seek judicial review of adverse IRS determinations generally must file petitions in court by statutorily imposed deadlines. The courts have split over whether filing deadlines can be waived under extraordinary circumstances. Most tax litigation takes place in the Tax Court, where taxpayers are required to file petitions for review within 90 days of the date on a notice of deficiency (150 days if addressed to a person outside the United States). The Tax Court has held it lacks the legal authority

7 The IRS is currently making an administrative exception in the case of children who die before an SSN is issued.

viii Introduction to waive the 90-day (or 150-day) filing deadline even, to provide a stark example, if the taxpayer had a heart attack on day 75 and remained in a coma until after the filing deadline. The Supreme Court held that filing deadlines are subject to “equitable tolling” in the context of Collection Due Process hearings. We recommend Congress harmonize the conflicting court rulings by providing that all filing deadlines to challenge the IRS in court are subject to equitable tolling where timely filing was impossible or impractical.

• Strengthen Incentives for IRS Contractors to Ensure Their Employees Keep Taxpayer Return Information Confidential (Recommendation #70). The IRS currently receives about 10 million paper-filed Forms 1040, U.S. Individual Income Tax Return, nine million paper-filed Forms 941, Employer’s Quarterly Federal Tax Return, and two million paper-filed Forms 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, each year. ⁸ In the past, IRS employees have transcribed these returns on IRS campuses. Beginning in 2026, the IRS plans to send a large portion of these returns to private contractors to scan in their own facilities. Particularly in light of the recent case involving Charles Littlejohn, a contractor’s employee who stole the tax return information of thousands of taxpayers and then provided it to news organizations, we recommend Congress strengthen penalties applicable to government contractors whose employees improperly inspect or disclose tax return information to incentivize them to implement and maintain more stringent systemic safeguards.

• Provide That Assessable Penalties Are Subject to Deficiency Procedures (Recommendation #14). The IRS ordinarily must issue a notice of deficiency giving taxpayers the right to appeal an adverse IRS determination in the Tax Court before it may assess tax. ⁹ In limited situations, however, the IRS may assess penalties without first issuing a notice of deficiency. These penalties are generally subject to judicial review only if a taxpayer first pays the penalties and then sues for a refund. Assessable penalties can be substantial, sometimes running into the millions of dollars. Under current IRS interpretation, these penalties include but are not limited to international information reporting penalties under IRC §§ 6038, 6038A, 6038B, 6038C, and 6038D. The inability of taxpayers to obtain judicial review on a preassessment basis and the requirement that taxpayers pay the penalties in full to obtain judicial review on a post-assessment basis can effectively deprive taxpayers of the right to judicial review at all. To ensure taxpayers have an opportunity to obtain judicial review before they are required to pay often substantial penalties they do not believe they owe, we recommend Congress require the IRS to issue a notice of deficiency before imposing assessable penalties.

8 IRS, Pub. 6292, Fiscal Year Return Projections for the United States: 2025-2032, at 4 (Sept. 2025), https://core.publish.no.irs.gov/ pubs/pdf/p6292--2025-06-00.pdf. 9 In the case of “mathematical or clerical errors,” the IRS may issue a “math error” notice that assesses tax without providing the right to judicial review. The taxpayer has 60 days to request that the math error assessment be abated. If the taxpayer makes the request, the IRS is required to abate the assessment, and if the IRS decides to challenge the taxpayer’s position, it must then issue a notice of deficiency. See IRC § 6213(b).

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Strengthen Taxpayer Rights