To address the complexities and challenges within the tax administration system, the National Taxpayer Advocate (NTA) has put forth a comprehensive set of legislative recommendations in its 2024 Purple Book. These recommendations are crafted to enhance taxpayer rights and streamline tax administration processes. This initiative underscores the NTA’s commitment to fostering an equitable and efficient tax system.
Among the 66 recommendations, several stand out for their potential to significantly impact taxpayers and tax administration. These include:
1. Timely processing of refund claims: Advocates for legislative action to compel the IRS to act on refund claims within a specified timeframe, addressing the current absence of a mandated deadline that leaves many taxpayers’ claims in a state of uncertainty. This change aims to align the processing of claims with the same rigor and deadlines as tax assessments, enhancing the IRS’s accountability and respecting taxpayers’ rights to finality, accurate tax payment, and timely information on their refund status.
2. Minimum competency standards for tax return preparers: Calls for establishing minimum competency standards for all paid tax return preparers, not just those currently holding professional credentials. This recommendation highlights the significant discrepancy in error rates between credentialed and non-credentialed preparers, particularly for returns involving the EITC, where errors by non-credentialed preparers have led to substantial incorrect payments and penalties. By equating tax preparers’ regulation with other professions requiring licensing, this measure seeks to protect taxpayers and the treasury from the consequences of inaccurate returns.
3. Clarification and enhancement of math error notices: Proposes that the IRS must provide clear, detailed explanations for adjustments made due to math errors and explicitly inform taxpayers of their rights, including the right to request abatement within 60 days. This recommendation addresses the current practice where the reasons for adjustments are not always clear, potentially leaving taxpayers unaware of the specifics of the error or their rights to contest the adjustment, especially impacting those outside the United States by providing additional response time.
4. Subjecting assessable penalties to deficiency procedures: Suggests amending the current procedure to require the IRS to issue a notice of deficiency before assessing certain penalties, thereby granting taxpayers the right to judicial review without first needing to pay the penalty. This change is aimed at specific penalties, including those for international information reporting, which can be substantial and currently may be assessed without offering the taxpayer an opportunity for pre-assessment judicial review, effectively denying some taxpayers their right to be heard.
5. Reasonable cause defense for e-filed returns: Recommends extending the reasonable cause defense for the failure-to-file penalty to situations where taxpayers rely on preparers for electronic filing. This adjustment recognizes the modern shift towards e-filing and the practical difficulties in proving submission through preparers, suggesting regulatory guidance on what constitutes “ordinary business care and prudence” in these scenarios.
6. Supervisory approval for penalties: Emphasizes the need for clear legislative guidance that supervisory approval must occur before the IRS proposes a penalty, addressing ambiguities in current practice and litigation over the timing of such approval. This measure aims to ensure that penalties are fairly and consistently applied, preventing unwarranted penalties, and reinforcing procedural safeguards.
7. Expanding the Tax Court’s jurisdiction: Advocates for broadening the U.S. Tax Court’s jurisdiction to include refund cases currently heard in district courts or the Court of Federal Claims. This expansion would make tax litigation more accessible and less daunting for taxpayers, leveraging the Tax Court’s specialized expertise and less formal procedural rules and addressing the imbalance where a significant portion of tax litigation is concentrated in a court system not specialized in tax matters.
8. Promoting consistency with equitable judicial doctrines: Following the Supreme Court’s endorsement of equitable tolling in tax litigation contexts, this recommendation calls for legislative action to apply equitable tolling across all tax litigation filing deadlines uniformly. This approach aims to ensure fairness and access to justice in extraordinary circumstances where strict adherence to filing deadlines may be impossible or unjust.
9. Modifying charitable contribution receipt requirements: Proposes relaxing the timing requirements for receiving written acknowledgment from donee organizations for charitable contributions. This change addresses practical difficulties in meeting the current requirement for contemporaneous receipts, acknowledging the intent to support charitable giving while ensuring donations are substantiated.
10. Enhancing the Low-Income Taxpayer Clinic program: Recommends legislative changes to remove the financial limitations on grants for Low-Income Taxpayer Clinics (LITCs) and to lower the matching fund’s requirement, aiming to expand the reach and effectiveness of the program in assisting low-income taxpayers and those facing language barriers in navigating tax controversies. This enhancement acknowledges the evolving needs since the program’s inception and seeks to address the growing demand for LITC services.
