Filed under: Tax Compliance & Planning

The Taxpayer Advocate Service (TAS), an independent organization with the Internal Revenue Service, recently produced and submitted its Annual Report to Congress, and the separate Objectives Report to Congress. TAS exists to protect taxpayers’ rights, help taxpayers resolve problems, and recommend systematic changes at the IRS or in tax law.

Over the past two decades, TAS has fielded over four million cases from taxpayers experiencing an immediate threat of adverse action from IRS, delays in resolving IRS problems, significant costs to achieve resolution with IRS, or other long-term adverse impacts if IRS relief was not granted.

Report highlights that affect tax exempt organizations are described below.

Form 1023-EZ Erroneous Approvals

Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, may be used by small organizations applying for tax exempt status under Code Sec. 501(c)(3). Organizations completing Form 1023-EZ merely select checkboxes related to organizational structure, specific activities, and foundation classification and then certify this information is correct. They need not provide supporting information to further explain or prove the attestations made on Form 1023-EZ.

A primary focus in the reports concerns the lack of IRS review of an organization’s governing documents, particularly involving appropriate purpose and dissolution. TAS identified a substantial number of Form 1023-EZ approvals with governing documents that lacked these sections. While the IRS does have a post determination process for reviewing selected Form 1023-EZ filers, those reviews have not translated to sufficient mitigation of the risks associated with the initial Form 1023-EZ application process.

In addition, the IRS plans to release a revised electronic Form 1023 in January 2020. TAS is concerned this revised form will eliminate the requirement to provide governing documents along with the Form 1023 application, creating a parallel concern to the Form 1023-EZ filing issue noted above. TAS intends to advocate for a continuation of the existing Form 1023 process of submitting governing documents along with Form 1023.

Electronic Roadmap Tools

TAS’ 2018 Annual Report to Congress contains roadmaps to assist taxpayers in understanding IRS processes in various areas. These roadmaps focus on seven areas: tax return preparation, tax return processing, notices, exam, appeals, collection, and litigation. During FY 2020, TAS will convert these roadmaps, originally only available in print version, to a digital format, with new features to help users access information more easily.

Other Focus Areas

  • IRS continues to test electronic communication options with taxpayers. One pilot program uses the Taxpayer Digital Communications (TDC) Secure Messaging system, which allows the IRS to use a secure portal to send and receive emails and exchange documents with taxpayers. Taxpayer complaints about the TDC system focus on burdensome three-factor authentication requirements. A second pilot program by the Office of Appeals tested a WebEx Virtual Conference product, facilitating virtual meetings between the IRS and taxpayers. This approach received positive feedback from taxpayers. In FY 2020, TAS will work to move these programs forward.
  • Office of Appeals in-person conferences. Taxpayers elevating tax controversies to the Office of Appeals benefit from in-person conferences with an Appeals Technical Employee (ATE). Ideally, the ATE’s level of expertise should match the technical issue(s) in question. However, TAS is concerned about ATEs having the appropriate experience to handle the tax issue(s) on appeal. They’re also troubled by the limited access tax payers have to Office of Appeals field offices (located in just six locations nationwide). In FY 2020, TAS intends to monitor access to in-person conferences, expansion of Appeals office locations, and advocate for taxpayers going through the appeals process.
  • Improvement to IRS notices. TAS is concerned about lack of communication with taxpayers receiving IRS notices regarding their rights, responsibilities, and procedures to respond to notices. In TAS’s 2018 Annual Report to Congress, this issue was identified as a “Most Serious Problem” and focused on Collection Due Process Notices, Math Error Notices, and Statutory Notices of Deficiency. TAS intends to develop sample notices which expand and improve on the content of these notices.

TAS is available to help both individuals and businesses who are unsuccessful at using the regular IRS channels to resolve an issue. TAS also helps taxpayers whose IRS problems cause financial difficulty. In addition, once qualified for assistance, TAS services are free. At least one TAS office is located in each state, the District of Columbia, and Puerto Rico. Taxpayers seeking assistance may call 877-777-4778 or find a local office at IRS.gov.

To learn about how Clark Nuber can help you with IRS audits and controversies visit our website.

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