NTA Annual Report to Congress, with Purple Book Recommendations for Legislation (1/8/26)

This post is a little late in coming, but the National Taxpayer Advocate issued the Annual Report to Congress-2025, here. The key portion of the report for tax procedure enthusiasts is the “Purple Book,” here, described as:

a concise summary of 71 legislative re1commendations that the National Taxpayer Advocate believes will strengthen taxpayer rights and improve tax administration. Most of the recommendations have been made in detail in prior reports, but others are presented in this book for the first time. The National Taxpayer Advocate believes that most of the recommendations presented in this volume are non-controversial, common-sense reforms that the tax-writing committees, other committees, and other members of Congress may find useful.

 There are many proposals in the Purple Book that could affect tax procedure. The discussions of current law and problems, with the proposed legislative solutions are quite good. Given that Congress has not acted on the proposals yet, I thought this would be just a “notice” blog offering the descriptions in the listing (like a table of contents): 

STRENGTHEN TAXPAYER RIGHTS
1. Elevate the Importance of the Taxpayer Bill of Rights by Redesignating It as Section 1 of the Internal Revenue Code
2. 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

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

Further Discussion of NTA Annual Report (1/17/22)

I recently posted to advise to advise of the NTA’s 2021 Report to Congress. National Taxpayer Advocate Annual Report to Congress and Related Documents (1/14/22), here. The Full Report is here.  I said I would post later on portions that might be interesting to readers of this blog. I focus in this posting on the part of particular interest to readers of this blog – the section on Most Litigated Tax Issues (pp. 183-205.  There is a lot of detail, including statistics and informative graphs in that portion. I can’t cover it all, but summarize key parts here:

1. Ten Most Litigated Issues in Tax Court (pp. 183-188). In identifying the ten most litigated positions in the Tax Court, the Report states that it is transitioning its methodology. The Report explains (p. 183) the transitioning and the methodology used in this Report. The Report then (p. 184)  puts the result in tables for the old method (relying on issued opinions) and the revised method (using issues identified in petitions).

2. Top Issues in Other Courts (pp. 188). The Report discusses lien cases and summons enforcement. The Report does not mention refund suits;  although a staple historically for contesting tax issues, refund suits are relatively rare since most tax issues are litigated in the Tax Court through deficiency jurisdiction and CDP jurisdiction.

3. NTA Recommendations to Mitigate Tax Disputes (apparently this applied to Tax Court and nonTax Court disputes (pp. 189-190).  The recommendations are for §§ 7403, 6751, and 7602.

4. Tax Litigation Overview (pp. 190-195) discussing the “variety of courts [that] share concurrent jurisdiction over federal tax litigation,” including Tax Court, District Courts, Courts of Appeals, Court of Federal Claims, Bankruptcy Courts, and Supreme Court. The Report offers Figure 3.6 (p. 191) that graphs the “Docketed Inventory in Tax Court, District Court, and Federal Court of Claims for BYs 2012-2021. The overwhelming majority (I think well over 90%) are in the Tax Court. And, as I understand it, 95% of the Tax Court cases are deficiency cases. Figure 3.7 (p. 191) shows the “Dollars in Dispute” among those courts for the same period, with the District Court and Court of Federal Claims share of the total increasing, but the majority is still in the Tax Court. Figure 3.8 shows “Portion of Total Dockets and Dollars in Dispute by Amount Category” for FY 2021. The Report says (p. 192) that there has been a decrease in tax cases in the District Court from 788 to 763 but that “0.8 percent of civil tax cases in district courts in 2020 were resolved through trial.”

National Taxpayer Advocate Annual Report to Congress and Related Documents (1/14/22)

The National Taxpayer Advocate’s 2021 Annual Report to Congress, here.  The related “Purple Book” with the NTA’s legislative recommendations is also out, here, along with an Appendix related to the recommendations, here.  I focus in this blog entry primarily on notifying readers of the documents.  I will likely offer more sibstamtovediscussion in later blog entries as I deem warranted.

I offer some of the NTA’s general comments (here) in her introductory remarks (which have more discussion later in the Report):

1. "2021 Was the Most Challenging Year Ever for Taxpayers," including backlogs leading to long refund delays, telephone service the worst ever, premature collection notices.
2. The pandemic stretched IRS resources but other reasons included the combination of underfunding and imposing more responsibilities on IRS.
3. The Discussion of the Most Serious Problems Encountered by Taxpayers is on pp. 32-182, starting here.  I won’t discuss these here but they are not unimportant.

Most Litigated Issues

The discussion of Most Litigated Issues is from pp. 183-205, starting here.  This is the section that the target audience for this blog will likely find most interesting.  I will not discuss this section now but will post on significant features later as I digest the information.

Taxpayer Advocate Report on Efficacy of Accuracy-Related Penalties (1/18/14)

In the recently issued Taxpayer Advocate FY 2014 Objectives Report to Congress and Special Report to Congress, here, the Taxpayer Advocate included a report titled Do Accuracy-Related Penalties Improve Future Reporting Compliance by Schedule C Filers?, here.  The following is the Executive Summary (one footnote omitted):

Executive Summary 

Accuracy-related penalties are supposed to promote voluntary compliance. Congress has directed the IRS to develop better information concerning the effects of penalties on voluntary compliance, and it is the IRS’s official policy to recommend changes when the Internal Revenue Code (IRC) or penalty administration does not effectively do so. The objective of this study was to estimate the effect of accuracy-related penalties on Schedule C filers (i.e., sole proprietors) whose examinations were closed in 2007. TAS compared their subsequent compliance to a group of otherwise similarly situated “matched pairs” of taxpayers who were not penalized. TAS used Discriminant Function (or “DIF”) scores — an IRS estimate of the likelihood that an audit of the taxpayer’s return would produce an adjustment — as a proxy for a taxpayer’s subsequent compliance. 

While all groups of Schedule C filers who were subject to an examination assessment improved their reporting compliance (as measured by reductions in their DIF scores), those subject to an accuracy-related penalty had no better subsequent reporting compliance than those who were not. Thus, accuracy-related penalties did not appear to improve reporting compliance among the Schedule C filers who were subject to them. Further, penalized taxpayers who were also subject to a default assessment or who appealed their assessment had smaller reductions in DIF scores, suggesting lower reporting compliance five years later as compared to similarly situated taxpayers who were not penalized. n2 Similarly, those whose penalty was abated had smaller reductions in DIF scores, suggesting lower reporting compliance five years later as compared to taxpayers whose penalty was not abated.
   n2 Except as otherwise indicated, all differences discussed in this report are statistically significant (with 95 percent confidence). We note, however, that the DIF is an approximate measure of reporting compliance, and small differences, although statistically significant, may not indicate a real difference in reporting compliance 

Prior research suggests that a taxpayer’s perception of the fairness of the tax law, the IRS and the government drive voluntary compliance decisions, and the findings of this study are consistent with that research. Taxpayers subject to default assessments may be more likely to feel the penalty assessment process was unfair, which may have caused lower levels of future compliance. Similarly, those who appeal may be more likely to feel that the actual result was unfair, which may have caused lower levels of future compliance. Finally, those subject to a penalty assessment that is later abated may also feel that the IRS initially sought to penalize them unfairly, potentially causing lower levels of future compliance.