The Taxpayer Advocate.

The Taxpayer Bill of Rights 2 (TBOR2) was signed into law in July 1996 and includes more than 40 provisions intended to make the IRS more responsible to taxpayers. One of the most important provisions, new Sec. 7802, establishes the Office of the Taxpayer Advocate, replacing the Taxpayer Ombudsman. The Taxpayer Advocate is appointed by and reports directly to the Commissioner and independently represents taxpayers' interests. This new position carries a higher level of independence, authority and responsibility. Lee R. Monks, who was the Taxpayer Ombudsman, was appointed the first Taxpayer Advocate.

The Taxpayer Advocate is primarily responsible for assisting taxpayers in resolving problems with the Service, identifying areas in which taxpayers have problems in dealing with the IRS, proposing changes in the Service's administrative practices to mitigate the problems, and identifying potential legislative changes that may alleviate the problems. In addition, the Taxpayer Advocate is required to make two reports to the House Ways and Means Committee and the Senate Finance Committee.

The first report, due June 30 of each year, is a statement of the office's objectives for the next calendar year. The other report, due at the end of each calendar year, must contain the following information: 1. Identification of the initiatives the Advocate has taken to improve taxpayer services and IRS responsiveness. 2. Recommendations received from individuals with the authority to issue Taxpayer Assistance Orders (TAOs) under Sec. 7811. 3. A summary of at least 20 of the most serious problems encountered by taxpayers, including a description of the nature of such problems. 4. An inventory of the items described in #1, 2 and 3 for which action has been taken and the result of such action or what action remains to be completed and the period during which each item has remained in the inventory. 5. An inventory of the items described in #2 and 3 for which no action was taken, the reasons for the inaction, the period during which the item has remained on the inventory and the Service official responsible for the inaction. 6. Identification of any TAO not honored by the IRS in a timely manner. 7. Recommendations for legislative and administrative action appropriate for the problems encountered by taxpayers. 8. A description of the extent to which regional problem resolution officers participate in the selection and evaluation of local problem resolution officers. 9. Any other information the Taxpayer Advocate deems advisable.

The first annual report was due to Congress on Dec. 31, 1996. Input had to be obtained from the various problem resolution officers and combined into the report format along with input from the Taxpayer Advocate's office. The report was timely submitted directly to Congress.

The Taxpayer Advocate has established a formal response system under which the appropriate IRS official must respond to the Taxpayer Advocate within 90 days. In most cases, action will be taken to resolve the problem. However, if there is a failure to respond or if the action is deemed inadequate, the Taxpayer Advocate reports this to Congress in the next annual report.

The first part of the 1996 report discusses the initiatives of the Taxpayer Advocate;s staff, which include a Revenue Protection Strategy (to identify and prevent fraud and abuse of the earned income credit (EIC)), a Last Known Address Study (to improve updating and maintaining taxpayer address records), a Customer Feedback System (to report on all complaints related to employee misconduct), a joint return study (to review problems of divorced and separated taxpayers), and an Audit Reconsideration Project (to initiate improvements to audit reconsiderations).

Another section of the report deals with legislative recommendations. The purpose of the recommendations is to generate ideas for improvement that will lead to discussions within the Treasury Department on possible changes to the tax laws. The current recommendations are to simplify the computation and assessment of the estimated tax penalty, allow an exception to the statute of limitations to allow barred refunds to be applied to taxes due in later years, and to eliminate the failure-to-pay penalty by increasing the interest rate on underpayments to a market rate.

The last section of the report is the identification and resolution of the most serious problems facing taxpayers. The initial source of information was the day-to-day dialogue with taxpayers and tax preparers, the problem resolution management information system and input from the Service. The problems noted in the initial report are as follows: 1. Complexity of the tax law. 2. Inability to readily access the IRS by telephone. 3. Lack of clarity and inappropriate tone of Service communications with taxpayers. 4. Erroneous IRS notices. 5. Difficulty in understanding Federal tax deposit requirements. 6. Compliance burden on small businesses. 7. Problems in the administration of penalties. 8. Lack of understanding of taxpayers' concerns. 9. Delay by the Service in compliance contacts. 10. Problems in determining and maintaining taxpayers' current address. 11. Cost to taxpayers of electronic filing. 12. Problems in EIC administration. 13. Abatement of interest due because of IRS delays. 14. Problems in mailing forms, vouchers, etc. 15. Separate mailing of math error notices and affected refund checks. 16. Delay by Service officials in processing offers in compromise. 17. Burdensome cash management practices. 18. Lack of acknowledgment of taxpayer submissions and payments. 19. Lack of one-stop service. 20. Inconvenient times and locations for doing business with the IRS.

In addition to the items that appear in the report, the Taxpayer Advocate plans to have additional dialogue and input from the practitioner community; initiate strategic planning with focus groups from industry, as well as the small business community; determine if a need still exists for the voluminous calls to the Service, in light of all of the instructions and informational materials provided to taxpayers and practitioners; and review the top 10 sources of problem resolution cases and try to eliminate them.

It appears that the first report is a good move in informing Congress and the IRS of some of the problems that taxpayers and practitioners have to face on a recurring basis. The Service will have the opportunity to work with the Taxpayer Advocate and hopefully implement changes that will improve tax administration.