TABLE OF CONTENTS — 1225 Publ 5286 (PDF)

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

STRENGTHEN TAXPAYER RIGHTS

Elevate the Importance of the Taxpayer Bill of Rights by Redesignating It as Section 1 of the Internal Revenue Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Require the IRS to Timely Process Claims for Credit or Refund . . . . . . . . . . . . . . . . . . . . . . . . . 3
Require Notices of Claim Disallowance to Clearly State the Reasons for Disallowance, Explain Administrative and Judicial Appeal Options, and Specify Applicable Timeframes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

IMPROVE THE FILING PROCESS

Treat Electronically Submitted Tax Payments and Documents as Timely If Submitted on or Before the Applicable Deadline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Authorize the IRS to Establish Minimum Standards for Federal Tax Return Preparers and to Revoke the Identification Numbers of Sanctioned Preparers . . . . . . . . . . . . 12
Extend the Time for Small Businesses to Make Subchapter S Elections . . . . . . . . . . . . . . . . 16
Adjust Individual Estimated Tax Payment Deadlines to Occur Quarterly . . . . . . . . . . . . . . . . 18
Eliminate Duplicative Reporting Requirements Imposed by the Bank Secrecy Act and the Foreign Account Tax Compliance Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Authorize the Use of Volunteer Income Tax Assistance Grant Funding to Assist Taxpayers With Applications for Individual Taxpayer Identification Numbers . . . . . . 21

IMPROVE ASSESSMENT AND COLLECTION PROCEDURES

Continue to Limit the IRS’s Use of “Math Error Authority” to Clear-Cut Categories Specified by Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Require Independent Managerial Review and Written Approval Before the IRS May Assert Multiyear Bans Barring Taxpayers From Receiving Certain Tax Credits and Clarify That the Tax Court Has Jurisdiction to Review the Assertion of Multiyear Bans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Give Taxpayers Abroad Additional Time to Request Abatement of a Math Error Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Give Taxpayers Abroad Additional Time to Request a Collection Due Process Hearing and to File a Petition Challenging a Notice of Determination in the Tax Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Provide That Assessable Penalties Are Subject to Deficiency Procedures . . . . . . . . . . . . . . 34
Direct the IRS to Implement an Automated Formula to Identify and Protect Taxpayers at Risk of Economic Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Allow Taxpayers to Dispute an Underlying Tax Liability in a Collection Due Process Hearing If They Have Not Had a Prior Opportunity to Dispute the Liability in the U. S. Tax Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

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Prohibit the IRS From Withholding the Earned Income Tax Credit Portion of a Taxpayer’s Refund to Satisfy Federal Tax Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Eliminate Installment Agreement User Fees for Low-Income Taxpayers and Those Paying by Direct Debit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Improve Offer in Compromise Program Accessibility by Eliminating the Upfront Payment Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Require the IRS to Consider a Taxpayer’s Current Income When Determining Whether to Waive or Reimburse an Installment Agreement User Fee . . . . . . . 49
Modify the Requirement That the Office of Chief Counsel Review Certain Offers in Compromise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Require the IRS to Mail Notices at Least Quarterly to Taxpayers With Delinquent Tax Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Clarify When the Two-Year Period for Requesting Return of Levy Proceeds Begins So Persons Subject to Paper Levies and Persons Subject to Electronic Levies Are Similarly Treated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Protect Retirement Funds From IRS Levies, Including So-Called “Voluntary” Levies, Absent Flagrant Conduct by a Taxpayer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Provide Stronger Taxpayer Protections Before the IRS May Recommend the Filing of a Lien Foreclosure Suit on a Taxpayer’s Principal Residence . . . . . . . . . . . . . . . . . . 58
Provide Collection Due Process Rights to Third Parties Holding Legal Title to Property Subject to IRS Collection Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Extend the Time Limit for Taxpayers to Sue for Damages for Improper Collection Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Revise the Private Debt Collection Rules to More Accurately Identify and Protect Taxpayers With Incomes Below 200% of the Federal Poverty Level . . . . . . . . . . . . . 65

REFORM PENALTY AND INTEREST PROVISIONS

Convert the Estimated Tax Penalty Into an Interest Provision to Properly Reflect Its Substance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Apply a Single Interest Rate to Underpayments of Estimated Tax in the Periods Between Each Installment Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Extend Reasonable Cause Defense for the Failure-to-File Penalty to Taxpayers Who Rely on Return Preparers to E-File Their Returns . . . . . . . . . . . . . . . . . . . . . . 71
Authorize a Penalty for Tax Return Preparers Who Engage in Fraud or Misconduct by Altering a Taxpayer’s Tax Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Clarify That Supervisory Approval Is Required Under IRC § 6751(b) Before Proposing Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Require an Employee to Determine and a Supervisor to Approve All Negligence Penalties Under IRC § 6662(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Increase the Burden of Proof for Determining That a Failure to File a Report of Foreign Bank and Financial Accounts Was “Willful” and Reduce the Maximum Penalty Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

STRENGTHEN TAXPAYER RIGHTS BEFORE THE OFFICE OF APPEALS

Require Taxpayers’ Consent Before Allowing IRS Counsel or Compliance Personnel to Participate in Appeals Conferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

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STRENGTHEN THE OFFICE OF THE TAXPAYER ADVOCATE

Clarify That the National Taxpayer Advocate May Hire Legal Counsel to Enable Her to Advocate More Effectively for Taxpayers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Clarify the Authority of the National Taxpayer Advocate to Make Personnel Decisions to Protect the Independence of the Office of the Taxpayer Advocate . . . . . . . . . 92
Clarify the Taxpayer Advocate Service’s Access to Files, Meetings, and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Authorize the National Taxpayer Advocate to File Amicus Briefs . . . . . . . . . . . . . . . . . . . . . . 96
Authorize the Office of the Taxpayer Advocate to Assist Certain Taxpayers Experiencing Economic Hardships During a Lapse in Appropriations . . . . . . . . . . . . . . . . . . 98
Repeal Statute Suspension Under IRC § 7811(d) for Taxpayers Seeking Assistance From the Taxpayer Advocate Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

STRENGTHEN TAXPAYER RIGHTS IN JUDICIAL PROCEEDINGS

Expand the Tax Court’s Jurisdiction to Hear Refund Cases . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Authorize the Tax Court to Order Refunds or Credits in Collection Due Process Proceedings Where Liability Is at Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Promote Consistency With the Supreme Court’s Boechler Decision by Making the Time Limits for Bringing All Tax Litigation Subject to Equitable Judicial Doctrines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Extend the Deadline for Taxpayers to File a Refund Suit When They Request Appeals Reconsideration of a Notice of Claim Disallowance and the IRS Has Not Timely Decided Their Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Authorize the Tax Court to Sign Subpoenas for the Production of Records Held by a Third Party Prior to a Scheduled Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Provide That the Scope of Judicial Review of Innocent Spouse Determinations Under IRC § 6015 Is De Novo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Clarify That Taxpayers May Raise Innocent Spouse Relief as a Defense in Collection, Bankruptcy, and Refund Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Fix the Donut Hole in the Tax Court’s Jurisdiction to Determine Overpayments by Non-Filers With Filing Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

MISCELLANEOUS RECOMMENDATIONS

Restructure the Earned Income Tax Credit to Make It Simpler for Taxpayers and Reduce Improper Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Adopt a Consistent and More Modern Definition of a “Qualifying Child” Throughout the Internal Revenue Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Provide Consistent Tax Relief for Victims of Federally Declared Disasters . . . . . . . . . . . . . 130
Permanently Give Taxpayers Affected by Federally Declared Disasters the Option of Using Prior Year Earned Income to Claim the Earned Income Tax Credit . . . . . . 133
Reinstate the Theft Loss Deduction So Scam Victims Are Not Taxed on Amounts Stolen From Them . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

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Protect Taxpayers in Federally Declared Disaster Areas Who Receive Filing and Payment Relief From Inaccurate and Confusing Collection Notices . . . . . . . . . . . . . . . 141
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 . . . . . . . . . . . . . . . . . . . . . . . . . 144
Allow Members of Certain Religious Sects That Do Not Participate in Social Security and Medicare to Obtain Employment Tax Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . 148
Remove the Requirement That Written Receipts Acknowledging Charitable Contributions Must Be “Contemporaneous” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Establish a Uniform Standard Mileage Deduction Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
Encourage and Authorize Independent Contractors and Service Recipients to Enter Into Voluntary Withholding Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
Require the IRS to Specify the Information Needed in Third-Party Contact Notices . . . . . 156
Enable the Low Income Taxpayer Clinic Program to Assist More Taxpayers in Controversies With the IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Clarify That Late-Filed Tax Returns Qualify as “Returns” for Bankruptcy Discharge Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Compensate Taxpayers for “No Change” National Research Program Audits . . . . . . . . . . . 165
Improve Tax and Financial Literacy by Promoting Interagency Collaboration and Modernizing the Requirement That the IRS Publish Charts on Government Revenue and Outlays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Establish the Position of IRS Historian Within the Internal Revenue Service to Record and Publish Its History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
Postpone Tax Deadlines for Hostages and Individuals Wrongfully Detained Abroad . . . . 173
Strengthen Incentives for IRS Contractors to Ensure Their Employees Keep Taxpayer Return Information Confidential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
Eliminate the IRS’s “Roadmap for Evading Tax Court Review” in Collection Due Process Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178

APPENDIX 1: ADDITIONAL REFERENCE MATERIALS FOR LEGISLATIVE RECOMMENDATIONS IN THIS VOLUME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

APPENDIX 2: PRIOR NATIONAL TAXPAYER ADVOCATE LEGISLATIVE RECOMMENDATIONS ENACTED INTO LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

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INTRODUCTION